Chapter 4: Demand

1. Chapter 4: Demand Zachary Mcguire Desi Diaz Margarida Coimbra Nicole Gonzalez Andrea Guitierrez

2. Key terms • Demand- The desire to own something and the ability to pay for it. • Law of demand- Consumers buy more of a good when its price decreases. And less when it’s price increase. • Substitution effect- When consumers react to an increase in a goods price by consuming less of that good and more of the other goods • Income effect- The change in consumption resulting from a change in real income • Demand schedule- A table that lists the quantity of a good person will buy at each different price. • Market demand schedule- A table that lists the quantity of a good all consumers in a market will buy at each different price. • Demand curve- A graphic presentation of a demand schedule.

3. The Law of Demand • The law of Demand is “when a good’s price is lower consumers will buy more of it” the law of demand is like a double edge sword. This is basically as a goods price goes down the demand for that good goes up. And vise versa as a goods price goes up the quality demand goes down. For example, your neighborhood sandwich store sell sandwiches for a dollar and fifty cents ($1.50) more people will buy the sandwich increasing the number of sandwiches made. But if the owner increases its prices to three dollars and fifty cents ($3.50) less people would buy it therefore less sandwiches will be made. . The law of demand is a combination of two different patterns. Those two different patterns are called substitution effect and income effect.

4. The Substitution Effect • The substitution effect is simple the substitution effect is when consumers react to increased price change of that good by either consuming less of that good or more of another good. For instance If that neighborhood sandwich store raise it prices and becomes more expensive compared to other foods like pizza and burgers people will more likely purchase pizza and burgers as a substitute for sandwiches. Which causes less demand for sandwiches. The change in spending is also known as the substitution effect.

5. Income Effect • Income effect is the change in consuming certain goods due to the change in that person’s income. Meaning you will purchase less of those goods due to less income. Have you ever had the feeling that your getting poorer that your money doesn’t go as far as it used to it is because your budget becomes more limited and you feel like you have less money. Another example is your at school and a teacher sells bagels for $1.00 then the price raises up to $2.00 you probably will still buy bagels just not as many as you use to instead of buying two you will limit your purchase to one because you will not have enough money.

6. References • Second slide: http://www.pearsonsuccessnet.com/snpapp/iText/BrowseITEXTServlet?eventType=openIEXT&ISBN=0-13-116078-8&ISBNUrl=%2FiText%2Fproducts%2F0-13-116078-8%2Findex.html&ITEXTOID=0-13-116078-8&EnrollmentOID=9AE3B51ECA2177C0E040A00A7D3403B9&DisplayTitle=Economics%3A+Principles+in+Action&TitleInFrame=Y&classPeriodOid=dfe06e4bf6264ef380478e9cb7a34380&isbnUrlIsJavascript=false http://www.google.com/images?hl=en&sugexp=gsih&xhr=t&q=the+law+of+demand&cp=12&qe=dGhlIGxhdyBvZiBk&qesig=ex0kdtVeRrLyW5GRR54jPA&pkc=AFgZ2tlnEBbGuCpYRiH5STjQkhHic2ptNJrf92jg6INohC7bBtyljUd9-F0q70NnxnFmMBhGIIGTtnM-_qsYAlKJtI7dmHqKPw&bav=on.2,or.r_gc.r_pw.&wrapid=tljp1300847114268022&um=1&ie=UTF-8&source=og&sa=N&tab=wi&biw=1230&bih=540 • Third slide: http://www.pearsonsuccessnet.com/snpapp/iText/BrowseITEXTServlet?eventType=openIEXT&ISBN=0-13-116078-8&ISBNUrl=%2FiText%2Fproducts%2F0-13-116078-8%2Findex.html&ITEXTOID=0-13-116078-8&EnrollmentOID=9AE3B51ECA2177C0E040A00A7D3403B9&DisplayTitle=Economics%3A+Principles+in+Action&TitleInFrame=Y&classPeriodOid=dfe06e4bf6264ef380478e9cb7a34380&isbnUrlIsJavascript=false • Fourthslide :http://www.google.com/imgres?imgurl=https://static.flatworldknowledge.com/sites/all/files/imagecache/book/28239/fwk-rittenberg-fig07_005.jpg&imgrefurl=http://www.flatworldknowledge.com/node/73569&usg=__7ak8ycJntvkz_oYxC8BWiv4DMIk=&h=336&w=412&sz=14&hl=en&start=0&sig2=4aT9nzf2kQpvD6yNIhTLzQ&zoom=1&tbnid=VM1lyqOBYbjyPM:&tbnh=113&tbnw=139&ei=cmCJTaGbFIGCtgeWoJH9DQ&prev=/images%3Fq%3Dsubstitution%2Beffect%26um%3D1%26hl%3Den%26biw%3D1230%26bih%3D540%26tbs%3Disch:1&um=1&itbs=1&iact=hc&vpx=537&vpy=226&dur=4361&hovh=203&hovw=249&tx=129&ty=164&oei=cmCJTaGbFIGCtgeWoJH9DQ&page=1&ndsp=23&ved=1t:429,r:19,s:0 • Fifth slide :http://www.google.com/images?um=1&hl=en&biw=1230&bih=540&tbs=isch%3A1&sa=1&q=broke&aq=f&aqi=g10&aql=&oq= • http://www.pearsonsuccessnet.com/snpapp/iText/BrowseITEXTServlet?eventType=openIEXT&ISBN=0-13-116078-8&ISBNUrl=%2FiText%2Fproducts%2F0-13-116078-8%2Findex.html&ITEXTOID=0-13-116078-8&EnrollmentOID=9AE3B51ECA2177C0E040A00A7D3403B9&DisplayTitle=Economics%3A+Principles+in+Action&TitleInFrame=Y&classPeriodOid=dfe06e4bf6264ef380478e9cb7a34380&isbnUrlIsJavascript=false

7. Chapter 4Section: 1 Presented by: Nicole Gonzalez

8. Demand Schedule • Law of demand- The cost of a product and how it affects the quantity demanded of that item.

9. Understanding Demand • “To have demand for a good” You need to have enough money to be able to buy the good that you want or need. If you can not afford it then you can not buy it.

10. Market Demand Schedule- Shows the quantities demanded at each price by all consumers in the market. • A demand schedule shows how much a product/good cost and the quantity demanded per day. It also is separated into two groups (Individual Demand Schedule and Market Demand Schedule) • Individual demand- Shows specific quantities that a person is willing to be able to purchase at a specific price. • Market demand- Shows the quantities demanded at each price by all consumers in the market.

11. How are they different? • The difference between the two demand schedules is that the market schedule list larger quantities of demand.

12. Demand Curve • A demand curve is a graphic representation of a demand schedule. • The market demand curve can be used to show how people change their buying habits when prices go up or down. • Market Demand Curve 

13. Resources • Information: Text book • Picture 1:http://www.amosweb.com/images/MkDm31.gif • Picture 2:http://mlm.business-opportunities.biz/wp-content/uploads/2007/09/no-money-2.jpg • Picture 3:http://mises.org/rothbard/mes/images/Table%206.gif • Picture 4:http://www.bized.co.uk/sites/bized/files/images/mdemand.gif

14. Chapter 4: Section 2 Shifts of the Demand Curve Zachary Mcguire

15. Vocabulary Words • Ceteris paribus- Latin term that means "all other things held constant” • Normal good- a good that consumers demand more of when their incomes increase • Inferior goods- a good that consumers demand less of when their incomes increase • Complements- two goods that are bought and used together • Substitutes- goods used in place of one another

16. Changes in Demand • A demand curve is only accurate as long as there are no changes other than price that could affect the consumers decision • When we drop the ceteris paribus rule and allow other factors to change we no longer move along the demand curve • A shift in the demand curve means that at every price consumers buy a different quantity than before (This shift of the entire curve is what economists refer to as a change in demand) Pg. 85 online textbook

17. What Causes a Shift? Income: • A consumers income affect his or her demand for most goods • Most goods that we purchase are normal goods • There are also goods called inferior goods Pg. 86 online textbook

18. What Causes a Shift? contd. Consumer Expectations • Our expectations for the future can affect our demand for goods today • The current demand is positively related to its expected price in the future Population • Changes in size will also affect the demand for most goods Pg.87 online textbook

19. What Causes a Shift? contd. Consumer taste and Advertising • Changes in tastes cannot be explained by changes in income or population or worries about future prices • Advertising is considered a factor that shifts the demand curve because it plays an important role in many trends Prices of Related Goods • The demand curve for one good can be affected by a change in the demand of another Pg 87-88 online textbook

20. Chapter 4 – Section 3 Margarida Coimbra, P2

21. Elasticity of Demand: a measure of how consumers react to a change in a price. Inelastic: describes demand that isn’t sensitive to a change in price. ex – a good that one will keep on buying no matter the increase in price – medicine. Elastic: describes demand that is very sensitive to a change in price. ex – a good that one will stop buying due to the increase in price – magazines.

22. Calculating Elasticity Elasticity = (Percentage change in quantity of demand) / (Percentage change in price) Percentage Change = (Original Number – New Number) / (Original Number) x 100 Law of demand implies that the result will always be negative: • - A increase in the price of a good will always decrease the quantity demanded. • - A decrease in the price of a good will always increase the quantity demanded.

24. The price of elasticity of demand for a good varies at every price level. ex – would you still buy a magazine which price was raised 20cents? What if it was raised $2,00? • Values of Elasticity have precise mathematical definitions: Inelastic < 1 < Elastic Unitary Elasticity: = 1 • When unitary the percentage change in quantity demanded is exactly equal to the percentage change in price.

25. Factor Affecting Elasticity • Availability of Substitutes Ex: Life-saving medicine – no substitutes Orange juice – substitutes (other brands) • Relative Importance The higher the jump in price, the more you will have to adjust your purchase. Although some demands are always inelastic because their consumption is always low.

26. Necessities vs. Luxuries ex: milk – always inelastic cow meat – elastic • Change Over Time - When price changes consumers often need time to change their shopping habits. • Consumers don’t always react quickly to a price increase because it takes time to find substitutes. • ex: gasoline rise led consumers to buy smaller cars.

27. References • Second Slide http://www.google.com/imgres?imgurl=http://www.crawfordsworld.com/rob/ape/APEMcConnellNotes/McConnellImages/linear_demand.gif&imgrefurl=http://www.crawfordsworld.com/rob/ape/APEMcConnellNotes/M1McConnell018.html&usg=__uh_er8PntldGvKKwdu-F0y4YasI=&h=362&w=399&sz=5&hl=en&start=0&zoom=1&tbnid=dUbG1_5htDj4yM:&tbnh=123&tbnw=132&ei=1JSITYrRFsu3twfM6qjoDQ&prev=/images%3Fq%3Delasticity%2Bof%2Bdemand%26hl%3Den%26biw%3D1020%26bih%3D583%26gbv%3D2%26tbs%3Disch:1&itbs=1&iact=hc&vpx=444&vpy=237&dur=297&hovh=214&hovw=236&tx=153&ty=136&oei=1JSITYrRFsu3twfM6qjoDQ&page=1&ndsp=15&ved=1t:429,r:7,s:0 http://www.google.com/imgres?imgurl=http://www.babble.com/CS/blogs/strollerderby/2007/08/16-22/cough-medicine-babies.jpg&imgrefurl=http://www.babble.com/CS/blogs/strollerderby/archive/tags/cold%2Bmedicine/default.aspx&usg=__ZmG2lVwN6bEtUDqZ7n4bvcXR7Ks=&h=480&w=400&sz=31&hl=en&start=0&zoom=1&tbnid=d6k7pbJGmzdkfM:&tbnh=136&tbnw=108&ei=ApWITdjdLo6TtwfZ58DlDQ&prev=/images%3Fq%3Dmedicine%26hl%3Den%26biw%3D1020%26bih%3D583%26gbv%3D2%26tbs%3Disch:1&itbs=1&iact=hc&vpx=610&vpy=226&dur=16&hovh=246&hovw=205&tx=81&ty=120&oei=ApWITdjdLo6TtwfZ58DlDQ&page=1&ndsp=17&ved=1t:429,r:9,s:0 http://www.google.com/imgres?imgurl=http://keetsa.com/blog/wp-content/uploads/2008/08/magazines.jpg&imgrefurl=http://keetsa.com/blog/reduce/do-you-use-digital-versions-of-magazines/&usg=__kt81WFbxAPlAJSVoh3qlikSV9Mw=&h=300&w=460&sz=75&hl=en&start=0&zoom=1&tbnid=YLsYH3C7HEkVVM:&tbnh=106&tbnw=163&ei=F5WITdGWHYabtwek-dzcDQ&prev=/images%3Fq%3Dmagazines%26hl%3Den%26biw%3D1020%26bih%3D583%26gbv%3D2%26tbs%3Disch:1&itbs=1&iact=hc&vpx=109&vpy=113&dur=2015&hovh=181&hovw=278&tx=194&ty=97&oei=F5WITdGWHYabtwek-dzcDQ&page=1&ndsp=15&ved=1t:429,r:0,s:0 • Fourth Slide http://www.google.com/imgres?imgurl=http://www.ba.metu.edu.tr/~adil/BA-web/econ/equil.gif&imgrefurl=http://www.ba.metu.edu.tr/~adil/BA-web/econ/demand%2520supply.htm&usg=__nKewTU_mflmyUO4zDyLdhPKD5jc=&h=269&w=272&sz=7&hl=en&start=0&zoom=1&tbnid=_1OYjpDapzpRPM:&tbnh=127&tbnw=128&ei=PoiITa7jPOWG0QHYybzoDQ&prev=/images%3Fq%3Dlaw%2Bof%2Bdemand%26hl%3Den%26sa%3DG%26biw%3D1020%26bih%3D583%26gbv%3D2%26tbs%3Disch:1&itbs=1&iact=hc&vpx=479&vpy=237&dur=2454&hovh=215&hovw=217&tx=87&ty=137&oei=EoiITaXbGMndgQfIxYC9DQ&page=1&ndsp=15&ved=1t:429,r:7,s:0 http://www.google.com/imgres?imgurl=http://www.tradingnrg.com/wp-content/uploads/2010/12/spot-gold-price-and-supply-demand-of-gold-2004-2010-percenct-change.jpg&imgrefurl=http://www.tradingnrg.com/the-gold-rush-is-there-a-bubble-in-the-gold-market-a-short-analysis/&usg=__waxKpWWsVoPs37OWsmAOiH0efyo=&h=197&w=862&sz=34&hl=en&start=0&zoom=1&tbnid=HTJvIgRuAcx2sM:&tbnh=44&tbnw=193&ei=YImITemwDs610QGPmPj2DQ&prev=/images%3Fq%3Dpercentage%2Bchange%2Bdemand%26hl%3Den%26biw%3D1020%26bih%3D583%26gbv%3D2%26tbs%3Disch:10%2C268&itbs=1&iact=hc&vpx=508&vpy=163&dur=28234&hovh=107&hovw=470&tx=218&ty=73&oei=AYmITcOcEojfgQe2zNnADQ&page=1&ndsp=15&ved=1t:429,r:14,s:0&biw=1020&bih=583

28. Fifth Slide http://www.google.com/imgres?imgurl=http://lifeinbonitasprings.com/wp-content/uploads/2011/02/January2011Graph10Years_thumb.jpg&imgrefurl=http://lifeinbonitasprings.com/page/2/&usg=__IYeqlJ08tUC0hPHN6l4ib3orW4k=&h=448&w=579&sz=61&hl=en&start=132&zoom=1&tbnid=9TI7ANaHFqsPHM:&tbnh=123&tbnw=159&ei=EIuITZyqCMqM0QGU5-H2DQ&prev=/images%3Fq%3Dprice%2Brange%2Bgraphs%26um%3D1%26hl%3Den%26sa%3DN%26biw%3D1004%26bih%3D583%26tbs%3Disch:10%2C4217&um=1&itbs=1&iact=hc&vpx=119&vpy=245&dur=3781&hovh=197&hovw=255&tx=156&ty=120&oei=soqITcPoJoGCgAepp4TaDQ&page=10&ndsp=16&ved=1t:429,r:6,s:132&biw=1004&bih=583 http://www.google.com/imgres?imgurl=http://mrski-apecon-2008.wikispaces.com/file/view/unit_elastic/41643819/unit_elastic&imgrefurl=http://mrski-apecon-2008.wikispaces.com/Chapter%2BFive&usg=__fFFR0DphAjdOBNmsTjxmWAI3TfQ=&h=421&w=468&sz=8&hl=en&start=0&zoom=1&tbnid=Ii9AEsNh9kRWGM:&tbnh=136&tbnw=151&ei=F4yITY . • Sixth Slide http://www.google.com/imgres?imgurl=http://www.heart-watch-blog.com/images/blogs/11-2007/blue-pills-4328260.jpg&imgrefurl=http://www.heart-watch-blog.com/blogs/heart-news-blog.html&usg=__3zekMm0aAlyKNNkEdUGAK0eSnsw=&h=225&w=300&sz=10&hl=en&start=0&zoom=1&tbnid=cWhlw-dxHGjusM:&tbnh=140&tbnw=212&ei=lI6ITdG9BKqC0QHVoc3_DQ&prev=/images%3Fq%3Dlife%2Bsaving%2Bmedicine%26um%3D1%26hl%3Den%26biw%3D1004%26bih%3D583%26tbs%3Disch:1&um=1&itbs=1&iact=rc&dur=266&oei=ho6ITfGdCsXpgQf7-LDODQ&page=1&ndsp=13&ved=1t:429,r:5,s:0&tx=87&ty=88 http://www.google.com/imgres?imgurl=http://www.hung-truong.com/blog/wp-content/uploads/2007/11/simplyorange.jpg&imgrefurl=http://www.hung-truong.com/blog/2007/11/02/orange-juice-snobbery/&usg=__CwW9jexUd50HvzLn8xuPY4iIVw4=&h=257&w=380&sz=24&hl=en&start=17&zoom=1&tbnid=bQ1zutFYrVVjuM:&tbnh=128&tbnw=226&ei=MY-ITcD2IZG-0QG3m_DlDQ&prev=/images%3Fq%3Dorange%2Bjuice%2Bbrands%26um%3D1%26hl%3Den%26biw%3D1004%26bih%3D583%26tbs%3Disch:10%2C627&um=1&itbs=1&iact=hc&vpx=267&vpy=95&dur=406&hovh=185&hovw=273&tx=148&ty=80&oei=146ITdDdFMTUgAfmq5nIDQ&page=2&ndsp=17&ved=1t:429,r:7,s:17&biw=1004&bih=583 http://www.google.com/imgres?imgurl=http://lodestonedynamics.com/wp-content/uploads/2010/11/shoelace.jpg&imgrefurl=http://lodestonedynamics.com/2010/12/33-ways-to-tie-shoelaces/&usg=__izC0VslxLIDcE-ZCEzJLaALpVaU=&h=260&w=391&sz=13&hl=en&start=17&zoom=1&tbnid=SwnANgAGlmwcVM:&tbnh=128&tbnw=195&ei=kY-ITbjtIYnC0QG-qtSJDg&prev=/images%3Fq%3Dshoe%2Blaces%26um%3D1%26hl%3Den%26biw%3D1004%26bih%3D583%26tbs%3Disch:10%2C175&um=1&itbs=1&iact=hc&vpx=126&vpy=321&dur=2046&hovh=183&hovw=275&tx=184&ty=146&oei=ho-ITdHBIsbFgAeo9ri0DQ&page=2&ndsp=16&ved=1t:429,r:0,s:17&biw=1004&bih=583

29. Seventh Slide http://www.google.com/imgres?imgurl=http://eraven.franklinpierce.edu/exch/72/72MilkBone.jpg&imgrefurl=http://eraven.franklinpierce.edu/exch/72/index.shtml&usg=__gCFmNYh72_4m266cOV2SRLGToTY=&h=520&w=360&sz=31&hl=en&start=35&zoom=1&tbnid=jXHitrJmqKh0CM:&tbnh=134&tbnw=105&ei=5ZCITYqbDpOWtweL4In2DQ&prev=/images%3Fq%3Dmilk%26um%3D1%26hl%3Den%26biw%3D1004%26bih%3D583%26tbs%3Disch:10%2C850&um=1&itbs=1&iact=hc&vpx=251&vpy=164&dur=141&hovh=270&hovw=187&tx=122&ty=164&oei=2pCITYyGPMmTtwfB2dHuDQ&page=3&ndsp=16&ved=1t:429,r:1,s:35&biw=1004&bih=583 http://www.google.com/imgres?imgurl=http://lh6.ggpht.com/_Dmkg-B8xkk0/SjrWQFnXksI/AAAAAAAAAw8/3___cs8BJoQ/Price%2520per%2520Gallon.jpg&imgrefurl=http://www.mommybytes.com/2009_06_01_archive.html&usg=__Q8mCpPJkYsU10jG-0aYpLix-WqE=&h=411&w=539&sz=41&hl=en&start=18&zoom=1&tbnid=YXQ6MKPUE2nq-M:&tbnh=123&tbnw=161&ei=wpGITfeZHYe3twe5m8XjDQ&prev=/images%3Fq%3Dgasoline%2Bprice%2Blast%2B50%2Byears%2BUSA%2Bgraph%26um%3D1%26hl%3Den%26biw%3D1004%26bih%3D583%26tbs%3Disch:10%2C525&um=1&itbs=1&iact=hc&vpx=132&vpy=276&dur=3484&hovh=196&hovw=257&tx=168&ty=136&oei=rJGITZ_eMIWatwexkcT-DQ&page=2&ndsp=13&ved=1t:429,r:9,s:18&biw=1004&bih=583 • Information taken from Economics Workbook.

30. Chapter 4 Section 3: Elasticity and Revenue

31. Elasticity and Revenue • Important to study Economics because elasticity helps measure how consumers respond to price changes for different and various products. • Demand determines how change in prices affect a firm’s total revenue or income.

32. Total Revenue • Total Revenue: Total amount of money a firm receives by selling goods or services. • Determined by two factors: • Price of the goods. • Quantity sold.

33. Revenue Table

34. ELASTIC DEMAND • Elastic: Buy much less of a good after a small price increase. • Price of product is lowered, the total revenue rises. • Price of product is raised, the total revenue falls.

35. INELASTIC DEMAND • Inelastic: Demand for a good that you will continue to keep buying despite price increase. • Price of product is lowered, the total revenue falls. • Price of product is raised, the total revenue rises.