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Do Now

Do Now . Please answer the following question: In your own words define the following two terms: Demand Supply. Demand . How the consumer influences how I make money. Law of Demand. Part One: As PRICE increases, DEMAND decreases Part Two: As PRICE decreases, DEMAND increases.

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Do Now

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  1. Do Now • Please answer the following question: • In your own words define the following two terms: • Demand • Supply

  2. Demand How the consumer influences how I make money

  3. Law of Demand • Part One: As PRICE increases, DEMAND decreases • Part Two: As PRICE decreases, DEMAND increases

  4. Demand Curve • A graph that illustrates the demand for a product • It shows how much consumer desire for a product changes as the price changes

  5. Elasticity of Demand • The degree to which changes in price cause changes in demand • OR • If we change the price, will demand change a lot or a little

  6. Elastic Demand • If Demand for a good is very sensitive to changes in price, the demand is ELASTIC • OR • If prices change a little bit, demand will change a lot

  7. Example of Elastic Demand • Price of pizza goes up even a little bit, demand goes down a lot. • The Demand Curve is FLAT

  8. Inelastic Demand • Demand for a good that consumers will continue to buy despite a price increase is INELASTIC • OR • Even if a price changes a lot, demand changes very little

  9. Example of Inelastic Demand • The price of soap goes up a lot, the demand stays almost the same . • The curve is very steep

  10. Factors Affecting Elasticity • Several different factors can affect the elasticity of demand for a certain good. • 1- Availability of Substitutes • If there are a few substitutes for a good, the demand will not likely decrease as price increases (inelastic), the opposite (lots of substitutes) is also usually true (elastic) • Ex. Gasoline has no substitutes- inelastic • Ex. McDonalds has many substitutes (Burger King, etc)- elastic

  11. Factors Affecting Elasticity (Cont) • 2. Relative Importance • Another factor determining elasticity of demand is how much of your budget you spend on the good • Ex. Mortgage payment must be paid (inelastic) where as entertainment (movies, etc.) are not necessary (elastic)

  12. Factors Affecting Elasticity (Cont) • 3. Necessities vs. Luxuries • Whether a person considers a good to be a necessity or luxury has great impact on the good’s elasticity of demand for that person • Ex. Food (inelastic); Jewelry (elastic)

  13. Factors Affecting Elasticity (Cont.) • 4. Changes Over Time • Demand sometimes becomes more elastic over time because people can eventually find substitutes • Ex. Blockbuster used to be the only place to rent videos (inelastic) • Netflix, Video on Demand, Pay Per View– all of these are now substitutes for Blockbuster (elastic)

  14. Classwork • Guided Reading 4-1 • Define vocabulary words on pages 91-95

  15. Change in Demand • A demand curve is only accurate as long as there are no changes other than price that could affect a consumer’s decision • When factors other than price (non-price factors) affect the demand curve, the entire curve shifts to the left or to the right

  16. Non-Price Factors that Affect Demand • These factors will cause the demand curve to shift to the left (less quantity demanded) or to the right (more quantity demanded) • Ex. Recently, Farley High School changed boy’s hockey from a varsity sport to an intramural sport. As a result, they needed to buy fewer hockey pucks. The decrease in demand is shown by a shifting demand curve.

  17. 1. Change in Income • As people earn more money, the demand for luxury goods will increase • As people earn less money, the demand for luxury goods will decrease. • Ex. If I win the lottery, I’ll buy a Jaguar. If I get laid off, I’ll take the bus.

  18. 2. Substitution Effect • If there is a substitute product, demand for an item may be influenced by the price of the substitute. • Ex. If the price of butter goes up, people will substitute with margarine.

  19. 3. Complimentary Products • The demand for an item will increase or decrease if the price of a complimentary product (something that goes with it) increases or decreases. • Ex. If the price of hot dogs goes up, the demand for hot dogs goes down. This decreases the demand for hot dog buns.

  20. 4. Changes in Attitude's • As people’s attitudes about products change, so does the demand. • Ex. Fashion, music, food

  21. How does Scarcity Affect Demand? • If there is a scarcity of an item, the demand goes up • Ex. Gasoline

  22. How Does A Boycott Affect Demand? • If an item is being boycotted, there is little to no demand for the item. • Ex. During the Montgomery bus boycott, there was little or no demand for the Montgomery bus system

  23. How Does the War In Iraq Affect Demand? • Increases demand for war-related resources. • Ex. Metal (bullets, vehicles), cloth (uniforms), gas masks • Increases demand for news • Ex. News interruptions during television shows, new news stations, internet sites.

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