Transcript What Do You Think?

Warm-Up
• What are the characteristics of the
Free Enterprise System?
• What role does the government play in
the Free Enterprise System?
Review, Discussion Last Class
• 1. Scarcity, Opportunity, Production
Possiblities Graph
2. Market Systems and the Circular
Flow Diagram
• 3. The American Free Enterprise
Today’s Objectives:
• 1. Explain the laws of supply and
demand to better understand how
markets work.
• 2. Understand concepts such as the
substitution effect and income effect
and how they influence decisions.
• 3. Create your own demand
What we have learned so far.
• We have read about economic
systems, which are different ways to
answer the big 3 questions.
• Buyers demand goods, sellers supply
those goods, and the interactions
between the two groups lead to an
agreement on the price and the
quantity traded.
Focus:
Andre is a manager of Family
Video and is Krunk. The new
movie Transformers 3 just came
out and he has already cleared 4
shelves to make room for the new
videos.
• On the first day of the new release,
Andre rented out every movie there
was for 3.99.
• Six weeks later, 1/3 of the movies
were rented so he cut the price to
3.00.
• Three years later, Andre moved one
remaining copy to the back corner to
rent for a week for 99 cents.
• What happen to the demand of this
movie over time?
• Andre’s decisions were shaped by the
needs and wants of his customers.
What’s important when you
consider buying something?
Today, we will learn about how price
affects the demand for goods and
services.
Demand
• The desire to own something and
the ability to pay for it.
Show demand video clip
Quantity Demanded
• The total amount of goods or services
that are demanded at any given point
in time.
• (Ex: There’s a demand for coffee, but
how much are you willing to pay for
the coffee is quantity demanded)
Law of Demand
Consumers buy more of a good when
its price decreases and less when its
price increases.
Ex:
• When the price is low, the quantity
demanded goes up.
• When the price is up, the quantity
demanded goes down.
Even though the law demand is a simple idea it is
the result of two different behavior patterns:
•Substitution Effect (page 80)
•Income Effect (page 80)
Substitution Effect & Income Effect
• In your notes, define
Substitution Effect &
Income Effect (p.80)
Substitution Effect
• When consumers react to an increase
in a good’s price by consuming less
of that good and more of other good.
• (Cost of pizza rises, pizza becomes
more expensive… Buy pizza one day,
alternative food the next day.)
Income Effect
• The change in consumption resulting
from a change in real income.
• Ex
• (Rising prices make us feel poorer
and therefore, we just can’t buy the
same combinations of things that we
use to)
Group Work
Setting up a demand schedule is necessary for
any business. You may never have to set one up
in your job, but someone is most certainly setting
one up based on your spending habits.
Demand Schedule (page 81)
• Table that lists the quantity of a good
a person will buy at each different
price.
Market Demand Schedule
• Table that lists the quantity of a good
all consumers in a market will buy at
each different price.
Demand Curve
• A graphic representation of a demand
schedule. (page 82)
Lets set up a real simple one. Let’s pick a topic
and draw a simple chart. You and your partner
find five or six people in the room and find out
how many those people would buy at a particular
price.
What Do You Think?
Possible Topics
•Class Rings?
•Senior Yearbooks?
•Limo for Prom?
Price of a Senior Yearbook How Many Would Buy One
$5.00
5
$25.00
4
$45.00
3
$65.00
2
$85.00
1
$105.00
0
105
•Now you and your partner set up a quick
demand graph based on the information you have
on your demand schedule. Here is an example:
Price of a Senior Yearbook
$5.00
$25.00
$45.00
$65.00
$85.00
$105.00
105
$105
$85
$65
$45
$25
$5
1
2
3
4
5
How Many Would Buy One
5
4
3
2
1
0
•When you are finished,
see if you can figure out
what you should price
your product at to make
the most money.
BR
• 1. What is the definition of demand?
• 2. What is quantity demanded?
• 3. What is the substitution effect & the
income effect?
Introduction to Supply
• Imagine you own a factory that
produces sunglasses and the price to
produce sunglasses begins to rise
rapidly.
• Do you think that you would produce
more pairs, fewer pairs, or the same
number as before?
Supply
• The amount of goods available.
Quantity Supplied
• The amount a supplier is willing and
able to supply at a certain price.
Law of Supply
Tendency of suppliers to offer more of
a good at a higher price.
Supply Schedule
• Table that lists how much of a good
a supplier will offer at different prices.
Market Supply Schedule
• Table that lists how much of a good
all suppliers will offer at different prices.
Supply Curve.
• A graph of the quantity supplied of a
good at different prices.
• This graph always rises from left to
right. As the price gets higher, so
does the production of an item.
Demand/ Supply Activity
Journal
• Explain the law of demand. Is this
always true? Why or why not?