Economics 21604

1
Economics 2/16/04

• OBJECTIVE Continue examination of the law of
  demand.
• I. Journal 14 pt. A
• -read Profiles in Economics p.94
• -answer questions (1-2) p.94
• II Journal 14 pt. B
• -notes on demand
• III. Homework due 2/20/04
• -Read Ch4 sec2 p.95-99
• Answer questions (1, 3-5) p.99
• -Read Ch4 sec3 p.(101-107)
• Answer questions (1,3-5) p.107

2
Homework due Friday

• 1.) Read Ch4 sec2 p.95-99
• Answer questions (1, 3-5) p.99
• 2.) Read Ch4 sec3 p.(101-107)
• Answer questions (1,3-5) p.107

3
Review

• As price increases, demand decreases
• As price decreases, demand increases
• This is an inverse relationship
• When an inverse relationship is graphed, the
  slope is negative

4
Marginal Utility

• Utility the amount of usefulness or
  satisfaction that someone gets from the extra use
  of a product
• Marginal utility the extra usefulness or
  satisfaction a person gets from acquiring or
  using one more unit of a product

5
Diminishing Marginal Utility

• The more and more of a product we acquire, the
  extra satisfaction we get from using additional
  quantities of a product begins to diminish.

6
Example 1

• How much satisfaction would you get from this?

7
Example 1

• How much satisfaction would you get from this?

8
Example 1

• How much satisfaction would you get from this?

9
Example 2
10
Example 2
11
Example 2
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Economics 2/17/04

• OBJECTIVE Examine changes in demand.
• I. Journal 15 pt. A
• -read the Business Week Newsclip from my 21st
  Birthday on p.100
• -answer questions (1-2) p.100
• II. Journal 15 pt. B
• -notes on demand

13
Demand Changes

• Change in quantity demanded movement along the
  demand curve
• Change in demand shift in the demand curve

14
Change in quantity demanded

• Income effect the change in quantity demanded
  because of a change in price alters consumers
  real income.
• Substitution effect the change in quantity
  demanded because of a change in the relative
  price of a product

15
Example of the income effect

• If the price of a movie drops from 9 to 3, you
  might see more films because you have to work 2/3
  less than you did before to see one movie.
• When the price of goods and services drop and
  your income stay the same, you can buy more. It
  has a similar effect of a pay raise if prices
  remain the same.

16
Example of the substitution effect

• If Wendys raised the price of their .99 extra
  value menu to 1.99 you may choose to substitute
  Wendys food with McDonalds .99 value menu.

17
Change in Demand

• Consumer income as income goes up, the amount
  of goods and services you can buy also goes up
• Consumer tastes advertising, news reports, and
  style changes cause consumers to demand more or
  less of a product
• Substitutes products that can be used in place
  of other products i.e. butter/margarine

18

• Complements goods that increase our use of
  other goods
• Change in expectations the willingness to buy
  more or less of a product based on future
  predictions
• Number of consumers as more consumers enter the
  market demand curve will shift to the right
  vice versa.

19
Homework due 2/20/04

• 1.) Read Ch4 sec2 p.95-99
• Answer questions (1, 3-5) p.99
• 2.) Read Ch4 sec3 p.(101-107)
• Answer questions (1,3-5) p.107

20
Economics 2/18/04

• OBJECTIVE Examine demand elasticity.
• I. Understanding Demand Worksheet
• II. Journal 16 pt. A
• -notes on elasticity
• III. Journal 16 pt. B
• -Econ U.S.A.

21
Elasticity

• Elasticity a measure of responsiveness that
  tells how a dependent variable such as quantity
  responds to an independent variable such as
  price.
• 3 Types of Demand Elasticity
• -Elastic Demand
• -Inelastic Demand
• -Unit Elastic Demand

22
Elastic Demand

• A small change in price causes a big change in
  quantity demanded.
• Slope is greater than 1
• Example
• -fresh foods (green beans, tomatoes, apples)

23
Inelastic Demand

• A big change in price causes a small change in
  quantity demanded.
• Slope is less than 1
• Examples
• -table salt
• -gasoline

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Unit Elastic Demand

• Any change in price causes a proportional change
  in quantity demanded.
• Slope equals 1

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Economics 2/19/04

• OBJECTIVE Examine how change in price affects
  demand elasticity's.
• I. Journal 17 pt. A
• -read The Global Economy p.102
• -answer questions (1-2) p.102
• II. Journal 17 pt. B
• -working with elasticity

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Determining Elasticity
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Elasticity Formulas

• Formula to determine elasticity
• change in Q elasticity
• change in P
• Formula to determine change in P or Q
• (NEW P or Q) 1 decimal equivalent
• (OLD P or Q)
• Move decimal two places to the right to get
  change in P or Q

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Example 1

• The manufacturer of a pain medication reduces the
  price for medication by 30 and the percent
  change in quantity demanded is 30. What is the
  elasticity for the pain medication?
• change in Q 30
• change in P -30
• Elasticity -1

29
Example 2

• A Chinese Buffet increased prices from 4.95 all
  you can eat to 5.95 all you can eat. The number
  of big eaters went from 58 to 36. What is the
  elasticity for All You Can Eat Chinese?
• First we need to figure out the change in P
  the change in Q.

30
Chinese Buffet

• change in P
• NEW P 5.95
• OLD P 4.95
• (5.95) 1
• (4.95)
• .20
• 20

• change in Q
• NEW Q 36
• OLD Q 58
• (36) 1
• (58)
• -.37
• -37

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Chinese Buffet

• change in Q -37
• change in P 20
• -37
• 20
• Elasticity -1.85

• The elasticity for the Chinese Buffet is elastic

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If you owned the Chinese Buffet, would you keep
the price of the Buffet at 5.95?

• 5.95 x 36 214.20
• 4.95 x 58 287.10

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Economics 2/20/04

• OBJECTIVE Examine understanding of demand
  concepts.
• I. Quiz on Demand
• II. Study Guide for Ch2 4 Test
• NOTICE Chapter 2 4 Test Tuesday