Economics Mr. Kirby CHS Unit 2: Lesson #1: Demand!

1. Economics Mr. Kirby CHS Unit 2: Lesson #1: Demand!

2. Small Group Problem Solving Activity

3. Top 10 Demand for Trick or Treat Candy 2013 Top Ten Trick or Treat Candy Purchased by consumers at Halloween 2013! • Skittles • Snickers • Starbursts • M&Ms • Nerds • Tootsie rolls • Sour Patch Kids • Twizzlers • Smarties • Candy Corn*

4. Economics Mr. Kirby CHS Unit 2: Lesson #1: Demand!

5. Warning Concentration on these slides is guarantied to improve your economics grade.

6. We will be using Cornell Note Taking Format Today! Smile and “Own the Day! Take one step at a time to Success in Economics class!

7. Unit Two: Learning Objectives: North Clackamas School District Social Studies Priority Standards: • HS.51 (A):Explain how supply and demand represents economic activity and describe the factors that cause them to shift.

8. Lesson One: Daily Learning Target I Can define and explain in writing the following key Economic concepts: Law of Demand Substitution Effect Income Effect

9. DEMAND

10. Demandis a “line” and not a point. It is a “schedule” of the amount consumers are “willing and able” to buy. QD is a value on the X axis and is a point on the demand curve represented by a “movement” caused by a “price change”. D D2 Change in“D” P $5 $4 $3 $2 $1 Change in “QD” Caused by a change in “TIMER” Caused by a “change in price” 0 10 20 35 55 80 Quantity Demanded DEMAND

11. Demand and Supply Why do roses cost more on Valentine’s Day? Why do TV ads cost more during the Super Bowl ($4 millionfor 30 sec.)than during Nick at Nite reruns? Why do hotel rooms in Sun Valley, Idaho cost more in the winter than in the summer? Why do surgeons earn more than butchers? Why do pro basketball players earn more than pro hockey players? Why do Christmas lights go on sale December 26th? Why can I pay $40 to see Hall and Oates at the Schnitzer in 2014 When in 1984 it would have cost me $100 at Memorial Coliseum? The answer to these and other economics questions boil down to the workings of supply and demand – the subject of this chapter. “Econ, Econ”

12. Individual Demand To Market Demand “JO” “Mo” “Bo” D D D2 D D 1 [Total] = $3 $3 + + $3 $3 $2 $2 $2 $2 26 40 35 30 39 45 115 115 100 From “individual” demand to “market”demand And, what if the price of this product decreases from $3 to $2? A point to point movement on the same “D” curve is a “Change in QD” And – what if this good prevents cancer, then we have an increase in “D”for it.

13. . Big Demand, Small Supply of great athletes Dirk Nowitski, $22.7 M in ‘14 Adrian Beltre, $16 million for 2014. Maria Sharapova, world’s best paid female athlete at $18.2 million Because of so much demand for tickets for game five of the NBA finals at the AAC, $35 nose-bleed tickets were going for $395; $65 seats were going for $3,000, and courtside seats were going for $9,500. This was caused by “Big Demand.” Chances of playing any level of college sports after High School: Ice Hockey-11.3%; Baseball - 6.8%, Football- 6.5%; Men’s soccer - 5.7%; Women’s Basketball - 3.7%; and Men’s Basketball – 3.3%. One out of every 8,000 high school basketball players goes on to play in the NBA. Scouts looking for “rare talents” (scarcity)

14. Vincent van Gogh as “Da Man”

15. Vincent van Goghcompleted thousands of sketches and oil paintings. He sold only one, four months before his death, for 400 francs (about $100 dollars). He lived for 37 years before he shot himself in the chest in a wheat field and died in 1890. Van Gogh at 19 years of age

16. Here is van Gogh’s“The Red Vineyard”, which sold for about $100.

17. Vincent van Gogh’s Sunflowers In 1987, how much was paid for one of his “Sunflowers” paintings? $39.9 million

18. Vincent van Gogh’s Dr. Gachet & Irises In 1990, this painting was sold to a Japanese investor for? $82.5 million In 1987, his Irises sold for? $53.9 M

19. . He wrapped the ear lobe in a newspaper & gave it to a female friend in a brothel. Self portrait after Vincent cut off his ear lobe with a razor blade in a state of fury. Vincent’s first cousin, “Kee”, who rejected his advances.

20. Vincent van Gogh’s Self Portrait - 1889 So – during Vincent’s life, there was “big supply but no demand.” But – after his death, there was “big demand but small supply.” “RARE” A “Collectable” “Little Vincent” [age 13] Or in other words, after his death he became “Da man.” $71.5 million

21. Demand A relationship between price and quantity demanded in a given time period, ceteris paribus.

22. What is Demand? • Willing and able to purchase a product at a particular price • How many of you would like a Porsche [or like vehicle]? • How many of you are able? • What’s the difference between willing and able? • Idea of time and place – at this time, you may be willing to buy a Porsche, but are not able, therefore you do not have a “DEMAND” for a Porsche

23. Markets In a market economy, the price of a good is determined by the interaction of demand and supply.

24. Why do we purchase more when a sale occurs?

25. It’s obvious, isn’t it? Consumers love low prices!

26. Look at this demand curve. What happens to quantity purchased as prices rise?

27. As price goes down, demand goes up!

28. P QD DEMAND SCHEDULE Consumers“willingness to buy” Price decreases; QD increases D $5 $4 $3 $2 $1 $5 4 3 2 1 “Law of Demand” 10 20 35 55 80 0 10 20 35 55 80 Quantity Demanded …a specifiedtime period …other things being equal QD – how much will be purchased at a specific price [& date].

29. Graphing The Demand Curve [Price Change, Point to Point Movement] The Demand For Ice Cream Cones Picture of Law of Demand Quantity Demanded

30. The“ModelT” . $850 $260 QD2 600,000 QD1 6,000 Law of Demand statement “Every time I reduce the charge for our car by $1, I get a thousand new buyers.” “You can have it in any color you want as long as it’s black” Production went from 6,000 a year to 600,000.

31. The Law of Demand • The law of demand states that consumers buy more of a good when its price decreases. • Conversely, consumers buy less of a good when its price increases. • Consumers love low prices.

32. It really depends on the price, doesn’t it?

33. The Substitution Effect • One reason that the law of demand exists is the substitution effect. • The substitution effect occurs when a consumer reacts to an increase in a good’s price by buying less of that good and more of a similar yet cheaper good. • When the price of orange juice rises, consumers substitute cheaper apple juice for orange juice.

34. [Increase in price of one;increasein “D” of the other] Substitutes - DIRECT Demand for Dr Pepper Price Of 7UP D2 D1 D P P2 P1 QD QD QD2QD1

35. Changes in Demand • Increase in Demand • More QD at all prices • Demand Curve shifts right • Decrease in Demand • Less QD at all prices • Demand Curve shifts left • “Price does not change [shift] Demand”. • “Price can only change Quantity Demanded”

36. Lower prices allow consumers to • increase demand. • Lower prices increase consumers’ • purchasing power. • This is known as the “income Effect”

37. The Income Effect • The income effect is the change in consumption resulting from a change in income. • In other words, when prices rise, your money buys less. • Higher prices reduce your purchasing power.

38. “Let’s also buy coke for just 10¢.” Law of Demand for Coca Cola . As pricedecreases …QDincreases “Wow,fifty cents! I’ll have two. “Wow,ten cents! I’ll also have2. D $1 50¢ 10¢ “At 10¢, two for me too.” QD1 QID2QD3 .50 Inverse Price QD If Coke, Pepsi, Dr. Pepper, 7-Up, Sprite, Root Beer, & Mountain Dew were all selling for $1, who would buy Coke? OK, Here you are, one of these guys How many of you non-Coke drinkers would buy Coke for just 50¢? OK, Here you are, the “added buyer” coke drinkers. Now, how many of you non-Coke drinkers would buy Coke for just 10¢? And,here are even more“added buyer” coke drinkers. We have demonstrated the “income effect”. Lower prices increased income so more was consumed. And – the “substitution effect”, consumers of higher priced soft drinks bought the lower priced Coke.

39. Economists love graphs because graphs provide easy understanding of economic concepts.

40. If a picture is worth a thousand words, a graph is worth even more.

41. A demand schedule records the quantity demanded at various prices.

42. A demand schedule can easily be converted to a demand curve.

43. Demand curve

44. Now plot out the numbers from this demand Schedule for Sony Blu-Ray Players at Best Buy.

45. Demand curve

46. Law of Demand • Remember: As price falls, the quantity demanded increases. As the price rises, the quantity demanded decreases • P QD

47. Inverse(Negative) Relationship Demand for tickets (thousands) In Economics the independent variable can be on either axis. TICKET PRICE (P) Inverse- 2 variables move inoppositedirections TICKET PRICE a $50 40 30 20 10 0 4 8 12 16 20 $50 40 30 20 10 0 a b b c c d d e e f f 0 4 8 12 16 20 Demand for tickets IN THOUSANDS (Q)

48. Finish “Freakonomics” Reading: • Finish Reading Article: Drug Dealers who live with their Moms! • Pick up Reading Questions from me. • Answer questions with a partner and turn into me please. Finished…

49. Partner Economic Book Practice: • Skim through Unit two: Lesson One in the economics book (pages 87-90) • Answer questions 1-11 on a piece of notebook paper and turn directly into me today.