Transcript Demand

Bell Ringer
How much would you be willing to
pay for the following items?
1.A gallon of gas
2.Big Mac
3.Samsung Galaxy S6
4.Car
Chapter 4, Section 1
Bell Ringer
How much would you be willing to
pay for the following items?
1. A gallon of gas - $1.60
2. Big Mac - $3.99
3. Samsung Galaxy S6 - $299
4. Honda Accord - $24,000
Chapter 4, Section 1
Objectives
1.
2.
Chapter 4, Section 1
Explain the law of demand.
Interpret and create a
demand curve.
The Law of Demand


Demand is the desire to own something and
the ability to pay for it.
The law of demand states that when a
good’s price is lower, consumers will buy
more of it. When the price is higher,
consumers will buy less of it.
Chapter 4, Section 1
The Law of Demand
Law of Demand
D
P
D
INVERSE
RELATIONSHIP
Chapter 4, Section 1
P
The Law of Demand

How does the law of demand affect the
quantity demanded?


Price changes always affect the quantity
demanded because people buy less of a good
when the price goes up.
By analyzing demand schedules and demand
curves, you can see how consumers react to
changes in price.
Chapter 4, Section 1
The Demand Curve

A demand curve is a graphic representation
of a demand schedule.

The vertical axis is always price.


Lowest prices at the bottom and the highest prices at
the top.
The horizontal axis is quantity demanded.

Lowest quantity at the left and the highest quantity
demanded on the right.
Chapter 4, Section 1
Chapter 4, Section 1
Price of Energy
Drink
Quantity
Demanded/Day
Price of
“Supplements”
Quantity
Demanded/Day
$1.00
35
$10.00
70
$1.50
30
$15.00
60
$2.00
25
$20.00
50
$2.50
20
$25.00
40
$3.00
15
$30.00
30
$3.50
10
$35.00
20
$4.00
5
$40.00
10
Chapter 4, Section 1
Mr. Lange’s
One Stop
Nutrition Shop
Textbook Assignment


Working by yourself or with a partner, answer
questions 2, 3, 9, and 11 on page 90.
We will be discussing
the answers together
as a class.
Chapter 4, Section 1
Bell Ringer
Why do businesses
put items on sale?
How is a sale like
predicting the future
for a business owner?
Chapter 4, Section 1
Objectives
1.
2.
Describe how prices influence quantity
demanded.
Explain how certain events shift the
demand curve, including the use of credit.
Chapter 4, Section 1
Candy Bar Auction
Suggested Price
Chapter 4, Section 1
Qd
Candy Bar Demand Curve
Chapter 4, Section 1
Questions



Did anyone choose to not bid on the candy
bar? Why not?
What goes through your mind before a bid is
made?
Why does a higher price reduce the number
of items demanded?
Chapter 4, Section 1
Candy Bar Auction
Suggested Price
Chapter 4, Section 1
Qd
Candy Bar Shift in Demand
Chapter 4, Section 1
Question

How did your buying decision change after
you had the I.O.U. option?
Chapter 4, Section 1
Closure Quiz

a.
b.
c.
d.
The law of demand states:
There is a direct relationship between price
and quantity demanded.
The graph of a demand curve is an upward
sloping line.
People usually buy less goods and services
when their prices rise.
People’s behavior in the marketplace is
unpredictable
Chapter 4, Section 1
Closure Quiz

a.
b.
c.
d.
When the price of an item changes, people
will usually:
Determine how the change influences how
can spend their money.
Disregard most small changes in price.
Assume the item will be on sale later and
buy less.
None of the above.
Chapter 4, Section 1
Closure Quiz

a.
b.
c.
d.
Which of the following will typically NOT
affect the demand of an item?
Future expectations
Number of buyers
Quantity available
Higher income
Chapter 4, Section 1
What happens to the
demand…
1.
2.
3.
4.
5.
for ice cream when the price of ice cream
drops?
for cars when people get a tax refund?
for umbrellas after the first monsoon?
for hot dogs when the price of hot dog buns
rises?
for gasoline today when people expect
prices to fall tomorrow?
Chapter 4, Section 1
Bell Ringer
Have you ever had to substitute a
good or service you normally buy
with something else?
What was the good/service?
Why did you have to buy a
substitute?
Chapter 4, Section 1
Objectives
1.
2.
3.
Define determinants of demand.
Explain how these determinants affect
demand.
Give an example of how a change in
demand for one good can affect demand for
a related good.
Chapter 4, Section 1
Introduction


A demand curve is accurate only as long as
the ceteris paribus assumption—that all
other things are held constant—is true.
When we drop the ceteris paribus rule and
allow other factors to change, we no longer
move along the demand curve. Instead, the
entire demand curve shifts.
Chapter 4, Section 1
Determinants of Demand
Preferences
 Number of consumers
 Income Effect




Normal goods
Inferior goods
Substitution Effect
Chapter 4, Section 1
Preferences
As people prefer to buy something, what
happens to the demand for that item?
 As people stop preferring to buy
something, what happens to the demand for
that item?

Chapter 4, Section 1
Number of Consumers
The number of consumers can change for a
multitude of reasons (population changes,
weather, road conditions, etc.)
 If the number of consumers increases, the
demand for the good/service increases (and
vice versa).

Chapter 4, Section 1
Number of Consumers
EXAMPLE  Samsung can sell 12 million phones at a
price of $300 per phone
 If the number of consumers increases by
two million, then the company can sell 14
million phones at a price of $300/phone
 This changes the demand curve
Chapter 4, Section 1
Consumer Expectations

The current demand for a good is directly
related to its expected future price.


If you expect the price to rise, your current
demand will rise, which means you will buy
the good sooner.
If you expect the price to drop, your
current demand will fall, and you will wait for
the lower price.
Chapter 4, Section 1
The Substitution Effect
 The
substitution effect takes
place when a consumer reacts to
a rise in the price of one good by
consuming less of that good and
more of a substitute good.
Chapter 4, Section 1
Chapter 4, Section 1
Chapter 4, Section 1
Complements and Substitutes

The demand curve for one
good can also shift in
response to a change in
demand for another good.
 Complements are two
goods that are bought
and used together.
 Substitutes are goods
that are used in place
of one another.
Chapter 4, Section 1
Chapter 4, Section 1
Normal vs. Inferior Goods


Normal goods  goods/services for
which demand increases when real
income increases
Inferior goods  goods/services for
which demand increases when real
income decreases
VS.
Chapter 4, Section 1
Chapter 4, Section 1
The Income Effect


When the price of something goes up,
you feel poorer.
When the price of something goes
down, you feel wealthier.
Chapter 4, Section 1
Pop Quiz
1. What does it mean when you have
demand for a good or service?
Chapter 4, Section 1
Pop Quiz
2. a. People will buy more of a good when
its price falls and less when its price rises,
according to the ____________________
b. This is an example of an __________
relationship
Chapter 4, Section 1
Pop Quiz
3. True or False: When the price of a
good/service changes, so does the
demand for that item.
Chapter 4, Section 1
Pop Quiz
4. a. When the price of gasoline goes up,
the demand for new automobiles goes
up/down.
b. This is because gasoline and
automobiles are ____________
of each other.
Chapter 4, Section 1
Pop Quiz
5. a. When the price of Nutella goes up, the
demand for peanut butter goes up/down.
b. This is because Nutella and peanut
butter are _____________ for each other.
Chapter 4, Section 1
Closure
5 COMPLEMENTS
5 SUBSTITUTES
Chapter 4, Section 1
Bell Ringer
How many advertisements do you think
the average American sees in a day?
Have you seen an ad so far today?
What was it for? Where did you see it?
Chapter 4, Section 1
Bell Ringer
How many advertisements do you
think the average American sees in
a day?
Answer:
5,000 – 10,000
Chapter 4, Section 1
Source
Demographics

Demographics are the characteristics of
populations, such as age, race, gender,
income, and education level.



Businesses use this data to classify potential
customers.
Demographics also have a strong influence on
packaging, pricing, and advertising.
What would be your demographic
information?
Chapter 4, Section 1
Demographics

Mr. Lange’s demographic information:
33 years old
$40,000+
White
Master’s degree
Male
Heterosexual
Divorced
Politic independent
Father
Rents home
Teacher
Religion - Unaffiliated
Chapter 4, Section 1
Advertising


Advertising is a factor that shifts the demand
curve because it plays an important role in
many trends.
Companies spend much of their overall
budget on advertising in the hope that it will
increase the demand for the goods they sell.
Chapter 4, Section 1


In 2013, Coca-Cola spent approximately
$3.3 billion on advertising worldwide.
What did this buy them?



3.1% of all beverages consumed around the
world (not including water) are Coca-Cola
products
The Coca-Cola logo is recognized by 94% of
the world's population
Coca-Cola is the second-most understood
term in the world, behind “okay.”
Chapter 4, Section 1
Source
“If Soda Commercials Were Honest”
Chapter 4, Section 1
Advertising

Why is the effect of advertising on overall
demand unpredictable?
Chapter 4, Section 1
Advertising
Top viewed commercial from Super Bowl 2016:
Mountain Dew – “Puppymonkeybaby”
https://www.youtube.com/watch?v=ql7uY36-LwA
Who is the target population/demographic?
What symbols/imagery help show this?
Chapter 4, Section 1
“Mad Men” Project
Objective:
Each design team will
work together to
create a print
advertisement that will
attract the most
customers from their
target population.
Chapter 4, Section 1
“Mad Men” Project
1. Your design team (3-4 members) will create the
packaging and advertising for a random product
and random target population.
2. First, discuss the target buyers with the other
members of your group. What is a member of this
population looking for in your product? What kinds
of images and words are going to make such a
buyer want to buy the product?
Brainstorm together and make a list of words and
images that you think would appeal to your target
population.
Chapter 4, Section 1
“Mad Men” Project
3. Create an advertisement for your original product.
Work with your team to decide on the product’s
shape, pictures, colors, and layout. Your
advertisement must include copy (a slogan or
description), a distinct packaging design for your
product, and lots of color.
4. When your product/ad is finished, you will present
it to the class.
Chapter 4, Section 1
Bell Ringer
Predict how people’s buying habits would change under the
following circumstances (ceteris paribus):
The price of gas increases from $1.60/gallon to
$4.50/gallon
 The price of a haircut increases from $15 to $40
 The price of cell phone service increases from
$50/month to $80/month
 The price of milk increases from $3/gallon to
$8/gallon

Chapter 4, Section 1
Objectives
1.
2.
3.
Describe the difference between elastic
and inelastic demand.
Identify factors that affect elasticity.
Explain how firms use elasticity and
revenue to make decisions.
Chapter 4, Section 1
Consumer Response

Elasticity of demand is the way that consumers
respond to price changes; it measures how
drastically buyers will cut back or increase their
demand for a good when the price rises or falls.


If you will keep buying a good despite a price
increase, your demand for that good is
inelastic.
If you buy much less of a good after a small
price increase, your demand for that good is
elastic.
Chapter 4, Section 1
Bell Ringer
•
•
In your notes, generate a list of
five goods/services with elastic and
inelastic demand.
Try to come up with at least one
good/service with perfectly elastic
and inelastic demand.
Elastic or Inelastic? 
Chapter 4, Section 1
Introduction

Elasticity of demand is determined by one or
more of these factors:



The availability of substitute goods
A limited budget that does not allow for price
changes
The perception of a good as a luxury item.
Chapter 4, Section 1
Factors Affecting Elasticity

Availability of
Substitutes


If there are a few
substitutes for a good,
then even when its
price rises greatly, you
might still buy it.
A lack of substitutes
can make demand
inelastic; a wide
choice of substitute
goods can make
demand elastic.
Chapter 4, Section 1
Other examples?
Other Factors

Relative Importance



A second factor in determining a good’s elasticity
of demand is how much of your budget you spend
on a good.
Think of this as the income effect on a case-bycase basis
Necessities vs. Luxuries

Whether a person considers a good to be a
necessity or a luxury has a great impact on a
person’s elasticity of demand for that good.
Chapter 4, Section 1
Total Revenue and Elastic Demand



The law of demand states that an increase in price
will decrease the quantity demanded.
When a good has elastic demand, raising the price
of each unit by a small percentage will
decrease the quantity sold by a large percentage.
The quantity sold will drop enough to reduce the
firm’s total revenue.
$8.99/
month
Chapter 4, Section 1
$4.99/gal
Total Revenue and Inelastic Demand


$399.99

Chapter 4, Section 1
If demand is inelastic, consumers’
demand is not very responsive to
price changes.
Therefore, raising the price of each
unit will not significantly decrease
the quantity sold.
This will result in higher total
revenues.
$69,900
Chapter 4, Section 1
Elastic/Inelastic Review
https://www.youtube.com/watch?v=HHcblIxiAAk
Chapter 4, Section 1
Analyzing Elasticity of Demand
Some of the goods and services people
consume have no adequate or available
substitutes; others have many.
 Some are daily expenses, while others are
things people spend money on only occasionally.
 Some are necessities—things people must
have—and others are luxuries that meet wants,
not needs.
 All these factors can have an effect on whether
the price of a good or service is elastic or inelastic
for a consumer.

Chapter 4, Section 1
Analyzing Elasticity of Demand
Good or Service
1.
Starbucks coffee
2.
Bottled water
3.
Gasoline
4.
Nutella
5.
Professional
hair cut
6.
Milk
7.
Netflix
8.
Braces
(orthodontics)
9.
Beats headphones
10.
Playstation 4
Chapter 4, Section 1
Substitutes
Necessity
or Luxury?
Elastic or
Inelastic?
 Explanation
Key Terms



elasticity of demand: a measure of how consumers
respond to price changes
inelastic: describes demand that is not sensitive to
price changes
elastic: describes demand that is very sensitive to a
change in price
Chapter 4, Section 1