warm up: create an index card for the circular flow of the
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Warm up: Create an index card for the circular flow of the economy.Learning target: I can explain the law of demand and the law of supply; I can explain the difference between demand and quantity demanded; I can graph a demand curve and a supply curve.
Modern Monday, Sept. 23 Birthday Tuesday, Sept. 24
2
2012 Exam
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Circular Flow Model Review1. Do individuals supply or demand?
2. Do business supply or demand?
3. Who demands in the product market?
4. Who supplies in the product market?
3
Both, they demand products and supply resources
Both, they supply products and demand resources
Individuals and the government
BusinessesCopyright ACDC Leadership 2018
Tuesday Tutoring--Let’s go over the Unit 1a test together!
2014 Top Ten Fortune 500 Companies’ CEOs’ Undergraduate Alma Maters
1. Wal-Mart -- University of Arkansas (MBA from U. of Tulsa)2. Exxon Mobil -- University of Texas3. Chevron -- University of California, Davis4. Berkshire Hathaway -- University of Nebraska5. Apple -- Auburn University6. Phillips 66 -- Texas A&M7. General Motors -- the General Motors Institute (now called Kettering Univ)8. Ford Motor -- University of Kansas9. General Electric -- Dartmouth College
10. Valero Energy -- U. of Missouri-St. Louis (MBA Our Lady of the Lake U.)Source: Bruni, Frank. Where You Go Is Not Who You’ll Be: An Antidote to the College Admissions Mania. New York, Hachette Book Group, 2016.
Current Events: What in the world
is going on?6Copyright
ACDC Leadership 2018
Demand
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DEMAND DEFINEDWhat is Demand?
Demand is the different quantities of goods or services that consumers are willing and able to buy at different prices.
What is the Law of Demand? There is an INVERSE relationship between price and
quantity demanded. When price goes down, quantity demanded increases.
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Raise your hand if …● You have DEMAND for the following goods:
Example of DemandI am willing to sell several A’s in AP Economics. How much will you pay?
Price Quantity Demanded
Demand Schedule
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Why does the Law of Demand occur?The law of demand is the result of three
separate behavior patterns that overlap: 1. The Substitution effect 2. The Income effect3. The Law of Diminishing Marginal
Utility We will define and explain each…
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• If the price goes up for a product, consumers buy less of that product and more of another substitute product (and vice versa).
1. The Substitution Effect
• If the price goes down for a product, the purchasing power increases for consumers -allowing them to purchase more.
2. The Income Effect
Why does the Law of Demand occur?
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• Utility = Satisfaction• We buy goods because we get utility from them• The law of diminishing marginal utility states that as you
consume more of something, the additional satisfaction that you receive will eventually start to decrease.
• In other words, the more you buy of ANY GOOD the less satisfaction you get from each new unit consumed.
Discussion Questions:1. What does this have to do with the Law of Demand?2. How does this affect the pricing of businesses?
3. Law of Diminishing Marginal UtilityWhy does the Law of Demand occur?
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ChangeN/A$54$33
$15
$10
$5
Graphing Demand
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The Demand Curve• A demand curve is a graphical representation of a demand
schedule.• The demand curve is downward sloping showing the
inverse relationship between price (on the y-axis) and quantity demanded (on the x-axis).
• When reading a demand curve, assume all outside factors, such as income, are held constant. (This is called ceteris paribus)
Let’s draw a demand curve for milk…
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GRAPHING DEMAND
Q
$5
4
3
2
1
Price of Milk
Quantity of Milk
Demand Schedule
10 20 30 40 50 60 70 80
Draw this large in your notes
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PriceQuantity
Demanded
$5 10
$4 20
$3 30
$2 50
$1 80
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GRAPHING DEMAND
Q
$5
4
3
2
1
Price of Milk
Quantity of Milk
Demand Schedule
10 20 30 40 50 60 70 8019
PriceQuantity
Demanded
$5 10
$4 20
$3 30
$2 50
$1 80Demand
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Where do you get the Market Demand?
Q
Billy Price Q Demd
$5 1$4 2$3 3$2 5$1 7
Jean Other Individuals Price Q Demd
$5 0$4 1$3 2$2 3$1 5
Price Q Demd
$5 9$4 17$3 25$2 42$1 68
Price Q Demd
$5 10$4 20$3 30$2 50$1 80
Market
3
P
Q2
P
Q25
P
Q30
P
$3 $3 $3 $3D DDD
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Supply DefinedWhat is supply?Supply is the different quantities of a good that sellers are willing and able to sell (produce) at different prices.
What is the Law of Supply?There is a DIRECT (or positive) relationship between price and quantity supplied.
•As price increases, the quantity producers make increases.•As price falls, the quantity producers make falls.
Why? Because, at higher prices profit seeking firms have an incentive to produce more.
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The Law of Supply
GRAPHING SUPPLY
Q
$5
4
3
2
1
Price of Milk
Quantity of Milk
Supply Schedule
10 20 30 40 50 60 70 8023
PriceQuantitySupplied
$5 50
$4 40
$3 30
$2 20
$1 10
Supply
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Work Period:Demand or Supply
Class Surveys24Copyright
ACDC Leadership 2018
Work Period1. Your job is to decide on a product you could
legally sell to your classmates. 2. Come up with a pricing plan—a range of five
prices that you would be willing to sell the item for and that you think your classmates might be willing to pay.
3. Create a chart to help you keep track of your classmates’ answers.
Work Period, continued4. Conduct a survey of classmates to see how many of your
item they would buy at each price.
5. After you have surveyed seven people, create a demand schedule (table) and a demand graph in your notes.
Demand Survey Example● I am selling one 2”x2” homemade triple-chunk brownie.
● My price range for one brownie is:● $2.00
● $1.50
● $1.00
● $0.75
● $0.50
Producer/Supplier Survey1. Survey five students in class about how many hours they
would be able and willing to work at a particular job at a range of hourly wages.
2. Hourly wage range is $5, 10, 15, 20, 303. Jobs you may choose from are: babysitting 3-month-old
twins, digging ditches, roofing in July, cleaning out horse stables, math tutoring, teaching economics, picking onions in the summer, scraping gum off the bottom of desks at DHHS, taste-testing new Brussel-sprout recipes.
Warm up: Create two index cards: one for supply and one for demand (include definition, law and graph).Learning target: I can explain the law of demand and the law of supply; I can explain the difference between demand and quantity demanded; I can graph a demand curve and a supply curve.
Western Wednesday, Sept. 25 Thrilled Thursday, Sept. 26
“My wife really wanted to go to the University of Virginia and didn’t get in. I really wanted to go to Georgetown and didn’t get in. So we both ended up at [the University of] Delaware. It was a place
where all of us felt that if we worked hard, we could do well. I never felt like the school wasn’t going to
give me the tools to be successful.” -Chris Christie, Governor of New Jersey and 2016
presidential candidate
Source: Bruni, Frank. Where You Go Is Not Who You’ll Be: An Antidote to the College Admissions Mania. New York, Hachette Book Group, 2016.
We can create a table and graph that will show the range of quantities that people will buy or supply at different prices.
QUANTITY DEMANDED● QUANTITY DEMANDED IS HOW MUCH IS BOUGHT AT A
PARTICULAR PRICE and it is shown by a single point on a demand curve.
● Example: ● If I buy 1 pair of flip-flops when the price is $20, then my
quantity demanded is 1 at $20 (Qd = 1) ● If I buy 4 pairs of flip-flops when the price is $2, then my
quantity demanded is 4 at $2 (Qd = 4)
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0D
Price of Ice-Cream Cones
Quantity of Ice-Cream Cones
A
B
8
1.00
$2.00
4
Changes in Quantity Demanded
We show a change in quantity demanded by moving to a new point along the original curve!!
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What happens when we change the price of our good or service?
What happens when we change the price of our good or service?The QUANTITY
DEMANDED changes!!
Let’s Review Graphing Practice
Homework . . .
Shifts in Demand• When we change something other than the price of our
product, movement no longer occurs along the demand curve. Rather, the entire demand curve shifts.
• A shift means that at the same prices, more (or fewer) people are willing and able to purchase that good.This is a change in demand, not a change in quantity
demanded!PRICE DOESN’T SHIFT THE CURVE
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Change in Demand
Q
$5
4
3
2
1
Price Demand Schedule
10 20 30 40 50 60 70 8042
PriceQuantity
Demanded
$5 10
$4 20
$3 30
$2 50
$1 80
D
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What if milk makes you smarter?
PriceQuantity
Demanded
$5 10 30
$4 20 40
$3 30 50
$2 50 70
$1 80 100
Change in Demand
Q
$5
4
3
2
1
Price Demand Schedule
10 20 30 40 50 60 70 8043
DD1
Increase in DemandPrices didn’t change but people want MORE Milk
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Change in Demand
Q
$5
4
3
2
1
PriceDemand Schedule
10 20 30 40 50 60 70 8044
PriceQuantity
Demanded
$5 10
$4 20
$3 30
$2 50
$1 80
D
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What if milk causes baldness?
Change in Demand
Q
$5
4
3
2
1
PriceDemand Schedule
10 20 30 40 50 60 70 8045
PriceQuantity
Demanded
$5 10
$4 20
$3 30
$2 50
$1 80
D
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What if milk causes baldness?
PriceQuantity
Demanded
$5 10 0
$4 20 5
$3 30 20
$2 50 30
$1 80 60
Change in Demand
Q
$5
4
3
2
1
Price Demand Schedule
10 20 30 40 50 60 70 8046
DD2
Decrease in DemandPrices didn’t change but people want LESS Milk
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P
Q Milk
$3
$2
D1
Price of Milk
Quantity of Milk10 20
Change in Qd vs. Change in Demand
A C
B
There are two ways to increase quantity from 10 to 20
D2
1. A to B is a change in quantity demanded (due to a change in price)
2. A to C is a change in demand (shift in the curve)
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Change in Demand
Q
$5
4
3
2
1
PriceDemand Schedule
10 20 30 40 50 60 70 8048
PriceQuantity
Demanded
$5 10
$4 20
$3 30
$2 50
$1 80
D
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What happens to the demand for milk if
the price of milk goes up?
NOTHING!The demand
stays the same
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●1.2.3.4.5.6.
••
Income
2. Inferior Goods – Ex: Top Ramen, used cars, used clothes – As income increases, demand falls– As income falls, demand increases
1. Normal Goods – Ex: Luxury cars, seafood, jewelry, homes– As income increases, demand increases– As income falls, demand falls
The incomes of consumer change the demand, but how depends on the type of good.
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Inferior Goods
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••
• Substitutes are goods used in place of one another. – Ex: If price of Pepsi falls, demand for Coke
will decrease. Ex. Glasses & contact lenses.– If the price of one , the demand for the other
will (or vice versa).– If the availability of one , the demand for the
other will (or vice versa).
Substitutes
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Substitutes
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Substitutes
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Substitutes
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Substitutes
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Substitutes
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Substitutes or Complements?
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What happens in the market for ice cream when the price of frozen yogurt decreases?
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Substitutes or Complements?
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What happens in the market for electric cars when the price of gas-powered cars increases?
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Substitutes or Complements?
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What happens in the market for CFA sandwiches when the availability of Popeyes sandwiches decreases?
•
•
Complements are two goods that are bought and used together. – Ex: If price of hot dogs falls, demand for hot dog
buns will increase. Ex. PS4 and PS4 games.– If the price of one , the demand for the other
will (or vice versa).– If the availability of one , the demand for the
other will (or vice versa).
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Substitutes or Complements?
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Substitutes or Complements?
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What happens in the market for SUVs when the price of gas increases?
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Substitutes or Complements?
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What happens in the market for maple syrup when the price of waffles decreases?
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Substitutes or Complements?
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What happens in the market for cell phone chargers when the price of cell phones decreases?
Complements?
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•…
–––
Consumer Tastes and Preferences
1. Which of the following will cause the demand for milk to decrease?
A. Increase in the price of a substitute B. A decrease in income assuming that milk is a
normal goodC. A decrease in the price of milkD. An increase in the price of milkE. A decrease in the price of a complementary good
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Practice Questions
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2. Which of the following will cause the quantity demanded of milk to decrease?
A. Increase in the price of a substitute B. A decrease in income assuming that milk is a
normal goodC. A decrease in the price of milkD. An increase in the price of milkE. A decrease in the price of a complementary good
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Practice Questions
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In the News: Law of Demand
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What caused “insane” lines in malls?Was this good or bad for Build-A-Bear?