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