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Learning Objective:

Learn about the law of demand by analyzing price changes on advertisements and how they affect consumer demand. Understand the concepts of substitution effect, income effect, and diminishing marginal utility. Explore the demand curve and demand schedule to grasp the relationship between price and quantity demanded.

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Learning Objective:

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  1. Learning Objective: • Today I will be able to explain the law of demand by interpreting price changes on advertisements. • Agenda: • Learning Objective • Lecture: Ch. 4.1 Demand Curve • Price Changes on Advertisements • Exit Slip CONTEMPORARY ECONOMICS: LESSON 4.1

  2. Once recreational use of marijuana was legalized in the state of Colorado, how did it change the demand for marijuana? • How might this marijuana shop be a monopoly within the city of Breckenridge ? • Analyze how is it Cannabis meets capitalism? CONTEMPORARY ECONOMICS: LESSON 4.1

  3. Title Notes: Ch. 4.1 Demand Curve CONTEMPORARY ECONOMICS: LESSON 4.1

  4. Demand: • Consumer willing & able to buy. • indicates how much of a product consumers are both willing and able to buy at each possible price during a given period, other things remaining constant. • Law of Demand • The relationship between price & quantity demanded. • Higher the price, the less quantity demanded, vice versa. • Quantity demanded varies inversely with price, other things constant. • .

  5. Law of Demand • Demand, wants, and needs  • Consumer demand and consumer wants are not the same thing. CONSUMER WANT vs CONSUMER DEMAND CONTEMPORARY ECONOMICS: LESSON 4.1

  6. I might be willing to buy certain things…

  7. But, am I able to buy them?

  8. Law of Demand • Substitution effect • Change in price of a good changes demand of similar goods– causes the substitution effect. CONTEMPORARY ECONOMICS: LESSON 4.1

  9. Cereal CONTEMPORARY ECONOMICS: LESSON 4.1

  10. Law of Demand • Income effect • Real income – that is, your income measured in terms of how many goods and services it can buy. CONTEMPORARY ECONOMICS: LESSON 4.1

  11. The satisfaction you get from a second pizza is your marginal utility of that pizza

  12. Marginal Utility: • Satisfaction derived from additional unit of product. • The Law of Diminishing Marginal Utility – the more goods consumed per period, the less you consume. • The smaller total utility (satisfaction) increases from consuming one more unit, other things constant. CONTEMPORARY ECONOMICS: LESSON 4.1

  13. Law of Demand • Diminishing marginal utility (Continue) • The law of diminishing marginal utility helps explain why people buy more when the price decreases. CONTEMPORARY ECONOMICS: LESSON 4.1

  14. Checkpoint Pg. 105 Explain the law of demand in your own words. CONTEMPORARY ECONOMICS: LESSON 4.1

  15. Demand Schedule and Demand Curve • When you describe demand, you must specify the units being measured & time being considered. • Units: is 1 item/product • Ex. 13 units of pizzas= 13 pizzas. CONTEMPORARY ECONOMICS: LESSON 4.1

  16. Price Quantity Demanded per Pizza per Week (millions) a $15 8 b 12 14 c 9 20 d 6 26 e 3 32 Demand Schedule • .The schedule (chart) lists possible prices, along the quantity demanded at each price. CONTEMPORARY ECONOMICS: LESSON 4.1

  17. a $15 b 12 c 9 Price per pizza d 6 e 3 D 0 8 14 20 26 32 Millions of pizzas per week Demand Curve • .The curve (line) on the graph that shows the points or relationship between the quantity demanded at each price. CONTEMPORARY ECONOMICS: LESSON 4.1

  18. a $15 b 12 c 9 Price per pizza d 6 e 3 D 0 8 14 20 26 32 Millions of pizzas per week Demand Curve for Pizza • The demand curves slopes downward, reflecting the Law of Demand : • Price and quantity demanded are inversely, or negatively, related, other things constant. CONTEMPORARY ECONOMICS: LESSON 4.1

  19. Demand Schedule and Demand Curve • Demand versus quantity demanded • An individual point on the demand curve shows the quantity demanded. • Demand, is not a specific quantity, but the entire relation between price and quantity demanded. CONTEMPORARY ECONOMICS: LESSON 4.1

  20. Demand Schedule and Demand Curve • Individual demand and market demand • The market demand curve shows the total quantity demanded per period by all consumers at various prices. CONTEMPORARY ECONOMICS: LESSON 4.1

  21. (a) Hector (b) Brianna (c) Chris $12 $12 $12 8 8 8 d d d Price C B H 4 4 4 1 2 3 1 2 Pizzas (per week) 1 Individual Demand for Pizzas CONTEMPORARY ECONOMICS: LESSON 4.1

  22. (d) Market demand for pizzas D + + = $12 8 d d d Price C B H 4 1 2 3 6 Pizzas (per week) Market Demand for Pizzas CONTEMPORARY ECONOMICS: LESSON 4.1

  23. Demand Schedule and Demand Curve • Individual demand and market demand • The market demand is simply the sum of the individual curves for all consumers in the market. CONTEMPORARY ECONOMICS: LESSON 4.1

  24. Checkpoint Pg. 107 What do a demand schedule and demand curve show?  ? CONTEMPORARY ECONOMICS: LESSON 4.1

  25. Price Changes on Advertisements CONTEMPORARY ECONOMICS: LESSON 4.1

  26. Price Changes on Advertisements • Step 1: Find an example of a business that recently raised or lowered prices. (ONLINE/GROUPON/NEWSPAPER/ADS) • ___________________________________ • Step 2: Answer questions • Did it increase or decrease? About how much did the price change? • How will the price change affect consumer demand of the product in the following areas: • Law of Demand: • Income Effect: • Substitution Effect: • Diminishing Marginal Utility:

  27. Exit Slip • Identify a good OR service you consumed in the past that has made you follow the law of demand. Explain in what ways did you follow the law of demand. CONTEMPORARY ECONOMICS: LESSON 4.1

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