2015 day 4
TRANSCRIPT
Quick review on slates1. Which points
are possible?2. How would E
become possible?
3. What type of firm operates
at point F?4. What type of
firm operates at point G?
F
G
A
E
C
B
D
On slates1. What is missing
from this poster?2. Why is that so
important?
On slates1. How much would you be willing to pay for this laptop computer? (what would be the most you
would be willing to pay)
Write answers on board
2. Factors might change our answers?
2. Which allocation method does your family use to distribute resources?
3. Which method do sellers ebay use?4. Which method is used on Wall Street?
Brute forceFirst come, first serve
Rationing (usually equal)Rationing by committeeBased on need (poorest)
Contest basedRandom lottery
Auction – willing to pay
Economists like Auction tooWe use price because it lowers opportunity
costBrute force
First come, first serveRationing (usually equal)Rationing by committeeBased on need (poorest)
Contest basedRandom lottery
Auction – willing to pay
10.0 11.1 12.5 14.3 16.7 20.0 25.0 33.3 50.0 100.00
20
40
60
80
100
120
AT & T Stock$$$$
shares
Where do prices come from?• XBOX1 OR PS4• Demand• The combination of how much people will buy
at a certain prices, at a certain time period (week, month, year etc)
• Why important for entrepreneurs or managers?
Conclude from this graph
Source: Hoovers 2011
Lower pricemore sold
Next topic• Topic: Law of Demand and Consumer Surplus
• Why important: It’s the consumption side of our economy
What is “demand”?• The amount of a good or service that a
consumer is willing and able to buy at various prices during a given time period
Create Demand Schedule for laptop
Price Quantity Demanded
Graph on boardShow proper labels
Proper Economics Supply/Demand Graph
Price$$$$P$
Quantity# of goods/serviceQ
TITLE: _______ ___ Market
Create Demand Schedule for PS4s
Price Quantity Demanded
Graph on boardShow proper labels
Proper Economics Supply/Demand Graph
Price$$$$P$
Quantity# of goods/serviceQ
TITLE: _______ ___ Market
Demand ScheduleCookiesPrice Quantity Demanded per day
$0.20 7$0.40 4$0.60 2$0.80 1$1.00 1$1.20 0
Demand Schedule CookiesPrice QD*Day
$0.20 7$0.40 4$0.60 2$0.80 1$1.00 1$1.20 0
P $
Quantity
Demand Curve
1.20
1.000.80
0.60
0.40
0.20
1 2 3 4 5 6 7
Why do firms care?• Demand predicts revenue
• Revenue = Price X Quantity sold
CookiesPrice QD*Day Revenue
$0.20 7$0.40 4$0.60 2$0.80 1$1.00 1$1.20 0
ON SlatesWhat price should this company choose if they
want to maximize revenue?
Revenue Maximization?
Widget Demand Schedule
PriceQuantityDemanded
5 10
4 17
3 26
2 38
1 53Demand curve reason ?
D
Law of DemandLaw of Demand: As price declines, quantity demanded
increases. As price increases, quantity demanded decreases
Law of Demand: P Therefore Q demanded P Therefore Q demanded
Demand curve always slopes down
A linguistic problem• Does P$ change
the actual demand of a good?
• NO, P$ change only changes quantity demanded
• “thinking on the margin”
• Chicken example
D
Sonic Commerical
Law of Demand at work• Goods/Services that price changes cause changes in
quantity demanded• Half price, “buy one, get one free”
D
Consumer SurplusConsumer surplus is the difference between
the amounts people would willingly pay for various amounts of specific goods and the amounts they do pay at market prices.
Source: Investopedia.com
Demand Curve ExperimentSame paper
1. Conduct a demand curve experiment2. Choose 1 good (snickers bars, monster drinks, movie tickets,
takis bags, AZ ice tea, “5” packs of gum or Hershey bars)3. Make up 5 price points4. Survey 5 people and find out their demand per week (write
their names)5. Graph the total demand on a correctly labeled graph6. Label consumer surplus on graph7. What price should this firm choose if they want to maximize
revenue?8. Write an explanation of how the experiment shows the law of
demand in action9. How might this firm use this information
On slates1. 3 items you will buy more of when you start making
$30,000/year or more2. 2 items you will buy less of when you start making $30,000/year
or more3. Conclusion from this graph
Changes to demandDoes Demand change
when the price of a good changes?
Only the Quantity demanded changes with price
Review:What is the Q*D at
Price = $1.50?When Q*D is at 50,
what is the price?
Revenue max?
D
D
Demand changes over time
Demand Vocab• Normal goods – goods you buy more of when your
income increases• Inferior goods – goods you buy less of when your
income increases• Income Effect – changes to a person’s income changes
their demand
• “complements” – a good that is purchased with another
• “substitutes” – a good which can be substituted for another
• Substitution effect - Changes to prices of similar goods changes people’s demand
Why is this important for firms?
What sorts of goods are these?
Others?Compliments?Normal/Inferior?
Cultural?
• Preferences change• South Korea >>>>>
On slates6. When would be a good time to sell normal goods? (when the economy is….?)7. When would be a good time to sell inferior goods? (when the economy is…..?)8. List two complements for tomatoes9. List two substitutes for tomatoes
Determinants of Demand
• Causes that will change Demand
Determinants of Demand• Related goods: substitutes price and availability
Determinants of Demand• Related goods: complements price and
availability
Determinants of Demand• Income changes
Determinants of Demand• Buyers and population• Tucson during Gem Show, During summer
Determinants of Demand• Expectations of future price
A trick to remember determinants of demand
T R I B ET = tastes of consumersR = Related goods (P$ change) I = Income of buyersB = # of buyersE = expectations of future price
http://quizlet.com/2043838/individual-markets-flash-cards/
White boardsWhich part of TRIBE will change in the following scenarios to the Tucson movie theater market?
1. Average wage in Tucson increases2. Price of DVDs & flat screen TVs decrease3. Population of Tucson doubles4. New Spiderman movie comes out5. KOLD reports movie tickets will increase 15%
in 20156. Xbox1 & PS4 hit the stores
½ sheet of paper• Identify the changes to the demand for tomatoes
Identify the part of TRIBE and increase or decrease or no change1. New residents move to Arizona2. Unemployment rises3. The price of spaghetti noodles increases4. Americans try to eat healthier and eat more salads5. Americans try to eat healthier and eat less pizza6. Price of tomatoes decreases7. Average US income rises8. V8 juice company goes out of business9. The price of ground beef decreases10. Media reports salmonella outbreak from California tomatoes11. Consumers predict tomato prices to increase next month12. Salsa becomes #1 US condiment13. Price of tortilla chips triples14. Make up your own example and explain demand change
On slates1. Would you buy each of these goods if the price
quadrupled AND WHY?Toothpaste ($2)
New XBOX & PS3 Video Games ($49)Notebook paper ($0.10)Sonoran Hot dog ($2.50)
Art Supplies ($8)New Washing Machine ($400)
2. Get out your notes
Today’s topic: ElasticityResponsive to price changes
Graph this demand curve in your notes
Price Quantity Demanded
$1.25 1$1.00 3$0.75 9
With your partnerWhat do you notice about this
demand?Do these consumers care about price?What product might fit this demand?
If I really care about price….• Elastic Demand– Very responsive to
price change– Many substitutes– Big part of budget– Don’t buy very often– Why important to
think about as a firm?
Price/month
Quantity
D-nice apartments
1000
500
100
1000 5000 10,000
Graph this demand curve in your notes
Price Quantity Demanded$1.50 3$1.00 4$0.50 5
At your tables:What do you notice about this demand?Do these consumers care about price?What product might fit this demand?
If I will still buy it• Inelastic Demand– Not responsive to price
change– Few substitutes– Small part of budget– Why does government
often control prices of inelastic goods?
– Illegal drugs?
Price/dose
Quantity
D-dialysis100
1 2 3
200
300
400
500
600
700
In Reality
Summary
Vincent Price
• Slates• Product:• Elastic/Inelastic Demand• Short reason
On slates1. Correctly draw the demand curve
for this market2. What price should you choose to
maximize revenue?3. What would happen to demand
if the average wage increased?4. What would happen to demand
if soda was found to cause diabetes?
5. What would happen to demand if the price of juice tripled?
Klein – graph on board
Soda Demand
D
In the market for XboxOnes
A. Demand for XboxOnes will increase
B. Demand for XboxOnes will decrease
C. Quantity demanded for XboxOnes will increase
D. Demand for PS4s will increase
In the market for PS4s
A. Demand for PS4s will increase
B. Demand for PS4s will decrease
C. Quantity demanded for PS4s will increase
D. Quantity demanded for PS4s will decrease
Quantity
$
Graphically speaking… Demand of movie tickets
D*
A RAISE!!!!
A Child!!!!
D after raise
Klein Graph increase and decrease on board
On a separate sheet of paperGraphically sketch the changes to the demand curve, 1 curve won’t
changeIdentify the part of TRIBE Label your graphs
1. Unemployment rises (steak)2. New residents move to Arizona (houses)3. The price of buns increases (hot dogs)4. The internet gets more expensive (itunes mp3’s)5. Unemployment rises (Canned Ham (SPAM))6. You go to college (text books)7. Average wage rises 10% (Hawaiian vacations)8. Record bull market on Wall Street (used clothing)9. The price of meat increases (A1 steak sauce)10. Eegees releases a brand new flavor (slushies)11. Gas prices increase to $6.50/gallon (bicycles)12. Xbox360 games get cheaper (Xbox360 games)13. Dept of Labor reports college grads earn more $$ (college degrees)14. You read an article that gas prices will triple next month (gas)15. Make up your own example and show demand shift
$
Q