anything new? review law of demand worksheet current reading quiz demand open note homework ...

Anything New?Review Law of DemandWorksheetCurrent ReadingQuiz

DemandOpen Note

HomeworkReview Powerpoint for next class (online)Read “Current Reading Assignment” (online)

Review Law of Demand

LAW OF DEMAND

As Price Falls… …Quantity Demanded RisesAs Price Rises… …Quantity Demanded Falls

Price Quantity Demanded

“Quantity demanded” means willing AND able to buy the good or service

Law of Demand can be represented in a “Demand Schedule”

A Demand Schedule is a table that relates Price (the driver) to Quantity demanded (the responder)

P Qd

$6 8 10 12 14

This is a Demand Schedule

The Law of Demand can be represented graphically

Price

Demand Curve

Quantity Why does the demand curve go “high to low”?

Because when price is high, quantity demanded is lowAnd when price is low, quantity demanded is high.

Determinants of Demand

1. Complimentary Goods – increase demand2. Substitute Goods – decrease demand3. Buyer Preferences4. Expectations5. Income – increase demand

(except “inferior goods”)

These affect our Demand Schedule and move our Demand Curve

Price

Quantity

Increase

Decrease

Helpful hint…I = R, D = L

Current Reading

Demand

How does this effect the …

1. Potato farmer

2. Tomato farmer

3. Owner of Carls Jr.

Elasticity of Demand

I say “elasticity”, you think “sensitivity to price”.

Inelastic

P Qd

P Qd

Elastic

P Qd

P Qd

Law of Demandstill applies

ElasticityPrice

Quantity

Demand Curve, inelastic product

Few substitutesInexpensive stuffNeedsExample: Medicine

Demand Curve, elastic productMany substitutesWantsExample: Gatorade

ElasticityPrice

Quantity

Demand Curve, inelastic product

Few substitutesInexpensive StuffNeedsExample: Medicine

Demand Curve, elastic productMany substitutesWantsExample: Gatorade

PriceDecreases

Law of Demandstill applies

ElasticityPrice

Quantity

Demand Curve, inelastic product

Few substitutesNeedExample: Medicine

Demand Curve, elastic productMany substitutesWantExample: Gatorade

PriceIncreases

Law of Demandstill applies

THREE MINUTE BREAK

http://www.online-stopwatch.com/bomb-countdown/

The Revenue Test

Revenue = Price x Quantity

Measuring Elasticity

The Revenue Test

Revenue = Price x Quantity

R = P x Q

The Revenue Test

If Price increases and Revenue increases, then the product is inelastic.

If Price decreases and Revenue decreases, then the product is inelastic.

The Revenue Test

If Price increases and Revenue increases, then the product is inelastic.

If Price decreases and Revenue decreases, then the product is inelastic.

A Direct Relationship!!!

The Revenue Test

If Price increases and Revenue increases, then the product is inelastic.

If Price decreases and Revenue decreases, then the product is inelastic.

WHY?

The Revenue Test

If Price increases and Revenue increases, then the product is inelastic.

If Price decreases and Revenue decreases, then the product is inelastic.

WHY? Because buyers are insensitive to the price change and do not purchase significantly less or more.

The Revenue Test …works both ways

If Price decreases and Revenue increases, then the product is elastic.

If Price increases and Revenue decreases, then the product is elastic.

WHY? Because buyers are sensitive to the price change and purchase significantly less or more.

New Stuff

R = P x Q

If P increases but Q decreases only slightly (buyers are insensitive to the price change), then R increases.

New Stuff

R = P x Q

But if P increases and Q decreases a lot (buyers are sensitive to the price change), then R decreases.

How do businesses use this?

How do businesses use this?

Businesses want to position their goods and services as inelastic.

WHY?

How do businesses use this?

Businesses want to position their goods and services as inelastic.

WHY?

So businesses can raise prices and increase revenue.

How do businesses use this?

Businesses want to position their goods and services as inelastic.

HOW?

By creating products with …

Few substitutes

Considered a need

Examples?

Interactive

http://www.reffonomics.com/TRB/chapter5/elastictytestyourknowledgea.swf

Worksheet

Quiz Law of Demand Open note

Revenue Test

If Will buys 10 bottles of Gatorade at $1.00 but 8 bottles when the price is $2.00, what can we concluded about Will’s elasticity of demand? (is it elastic or inelastic?)

Ways to improve your grade…

Print Powerpoints before class Review Power before class Pay attention Review Powerpoints / Notes right after class Review material with me at lunch, break,

etc.

HOMEWORK