Transcript Demand - Eleanor Roosevelt High School

DEMAND
ECON HSE11
MR. PARK ELEANOR ROOSEVELT HIGH SCHOOL
DO NOW
Hand in extra credit if you completed.
Extra Credit will not be accepted once the period begins
Answer the following question
1. Definition of Capital?
A. the tools, equipment used in the production of goods
B. the machinery, and factories used in the production of goods
C. the tools, and machinery used in the production of goods
D. A and B
E. B and C
SCARCITY
 People do not and cannot have
enough income and time to satisfy
their every want
 What you buy is limited to by both
the amount of money you have, as
well as the amount of time you have
 Even the wealthiest person in the
world does not have unlimited time
FACTORS OF
PRODUCTION
Resources needed to
produce goods and
services
Land, Labor, Capital,
Entrepreneurship
LAND
 Natural resources that exist
without human intervention
 Actual surface land, water,
fish, animals, trees, mineral
deposits and other “gifts of
nature”
LABOR
 The work people do
 A human resource
 Any work people do to produce goods and
services
o Goods are tangible items that people can
buy
o Services are activities done for others for a
fee
o Doctors, web designers, hair stylists, etc.
CAPITAL
 Manufactured goods used to make other goods
an produce other services
 Machines, buildings and tools used
 Newly assembled goods are not considered
capital unless they produce other goods and
services. For example, when a car is used into a
taxi to provide another service
* Capital + Land + Labor  the value of all 3
factors of production increases
(Uncut Diamond- land, Diamond cutter – labor,
diamond-cutting machine – capital, result is a
highly valuable gem)
ENTREPRENEURSHIP
 The ability of individuals to
o Start a new business
o Introduce new products and processes
o Improve management techniques
 Initiative, Willingness to take risks
 Must incur the costs of failed efforts
 Approximately 30% of new businesses fail
 Of the 70% that survive, only a handful become
very successful
ECONOMIC
DECISIONS
Economic Decisions always involve trade-offs that
have costs!
 Every time I watch a football game, or play golf,
there is a trade-off
 The 1 hr to the golf course, 4 hrs playing, 1 hr for
lunch/dinner, 1 hr to get home
 7 hours devoted to the activity + gas + greens fees
+ golf equipment + lunch/dinner
TRADE OFF &
OPPORTUNITY COSTS
Trade-off
 Exchanging one thing for another
Opportunity Cost
 The value of the next best alternative that had to be given up
to do the action that was chosen
 The value of the workday I took off in order to play golf
 Congress approves money to be spent on infrastructure
projects. They could have spent the money on medical
research. The opportunity cost is less medical research
AIM
What does quantity demanded
mean?
DEMAND
 The desire, ability, and willingness to buy a
product
 A microeconomic concept
o Theory that deals with behavior and decisions
made by individuals, such as people and firms
 Demand only requires two variables
o Price
o Quantity
DEMAND
 How many people will buy a phone if the price is $200 vs. if it
was $400
o It will be determined by price and quantity
 This is known as a demand schedule
o The various quantities demanded of a specific product at all
the prices in the market at a given time
DEMAND SCHEDULE
DEMAND CURVE
Demand Curve
$450
$400
$350
$300
$250
Cost
$200
$150
$100
$50
$0
0
50
100
150
200
250
LAW OF DEMAND
 The quantity demanded varies inversely with the price
 In other words, when the price of a given good goes up, the
quantity demanded goes down.
 Likewise, when the price goes down, buyers have an
incentive to purchase more, and so the quantity demanded
goes up
It is called a LAW, because as stated previously, Economics is a
SOCIAL SCIENCE
 It is the study of the way in which individuals behave in the
face of change
MARKET DEMAND CURVE
o Shows the quantities demanded by
everyone who is interested in purchasing
the aforementioned product
o You would add the quantities from
individual market curves and plot the prices
and quantities on a separate graph.
o The main difference being that a market
demand curve is the demand for everyone
in the market
MARGINAL UTILITY
 The extra usefulness or additional satisfaction a person gets
from acquiring or using one more unit of a product
o We as consumers purchase something because it is useful
and/or gives us satisfaction
o As we use more and more of a product, that sense of
usefulness and/or satisfaction decreases
 Diminishing Marginal Utility
 There is a decline in the extra satisfaction we get from using
additional quantities of a specific product
 If you purchase a bottle of water because you are thirsty, you
will most likely get the most use or satisfaction from the first
bottle. With each additional bottle of water, the amount of
use or satisfaction you receive diminishes
 Slice of pizza vs. 4 slices of pizza
CHANGE IN QUANTITY
DEMANDED
Income Effect
• The change in the quantity demanded because of a change in
price that has an affect on the consumers’ real income
• A price drop on the new phone means that a consumer can
spend less money on a new phone, and have more money to
spend on another good
• A price increase on the phone means the consumer will have less
money to spend on other goods
Substitution Effect
• The change in the quantity demanded because of the change in
the relative price of the product
• The price drop in the phone means the phone itself is less
expensive than other goods and services like a watch or new
handbag. Therefore, a consumer will spend on the phone
instead of the watch or handbag.
CHANGE IN QUANTITY
DEMANDED
Income Effect + Substitution Effect
• This is why there is an increase in consumption when the
price of the new phone continues to drop
Factors change while the price remains the same
• People may decide to buy different amounts of a product at
the same price