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We will be using Cornell Note Taking Format Today! Smile and Own the Day! Take one step at a time to Success in Economics class!

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Unit Two: Learning Objectives: North Clackamas School District Social Studies Priority Standards: HS.51 (A): Explain how supply and demand represents economic activity and describe the factors that cause them to shift.

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Lesson Three: Daily Learning Target I Can define and explain in writing the following key Economic concepts: Diminishing Marginal Utility Elasticity Elastic Demand Inelastic Demand Factors Affecting Elasticity of Demand

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10 Not much business so Im going to lower my price to 5 cents. 5 5 D QD 2

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Change in QD [price change, point to point movement]

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D1D1D1D1 D2D2D2D2 D3D3D3D3 D P1P1P1P1 QD 1 Change in Demand (curve) QD1 QD1 QD2 QD2QD3 P2P2P2P2

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1.M. Jackson glove 2.Power Rangers 3.Parachute pants 4.Old Jellies 5.Dalmatian puppies 6.Furbys 7.Pogs 8.Typewriters 9.RAZR cell phones 10.CDs 40 million were sold M. Jacksons popularity RAZR

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1. New iPad 2. Microsoft Surface 3. Wii 4. LCD monitors 5. Photo messages 6. Nintendo DS 7. PS4 9. XBOX 360 10. Flat Screen TVs 11. PSPs 12. Seven jeans 13. Spiked hair 15. iPhone 6 16. Samsung 5S 17. Bratz Dolls 18. Kindle Fire HDX PlayStation 3 Wii iPad XBOX 360 Hoodies Bratz Dolls

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D P1P1P1P1 P2P2P2P2 QD 1

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I would love a pair of shoes! Wow! With each additional pair, he will get less utility and therefore pay less. Not so much!

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Women buy 19,000 of the 20,000 pairs of shoes. Wal-Mart sells 20,000 pairs of shoes each hour. A merican women spend $15 billion each year on shoes. American women spend $5 billion on foot problems.

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Im stuffed. I dont want any more! [Disutility has set in!]

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. I ate one hamburger, and it tasted great. The next two tasted okay. I wish I hadnt have eaten the 5 th. I cant finish the 6 th. Disutility [or negative utility]? About this time there is toilet trauma.

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Ill pay you $1 to drink another glass. Law of DMU As an individual consumes more of a good, eventually MU will decrease.

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Its been fun, but I think Im entering the diminished marginal utility [satisfaction] phase of our relationship.

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Of course, you might get this!

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Why does attraction towards ones wife reduce as years of married life increase? Diminishing Marginal Utility!!!

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. The World Champion Hot Dog Eater: 69 Hot Dogs in 10 minutes There are exceptions to Diminishing Marginal Utility. For instance, if you are.

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Sonya Thomas 40 dogs [won pink Pepto Bismol belt]

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Joey ate the equivalent of 1 dog every 8.6 seconds. mustard-yellow champions belt and a one years supply of hotdogs from Nathans. $ 25,000 Glutton Bowl, 18 pounds of cows brains For his victory, he received the coveted mustard-yellow champions belt and a one years supply of hotdogs from Nathans. The man he defeated earned $150,000 in one year for similar contests, including $ 25,000 for a winning appearance at the Glutton Bowl, in which he consumed 18 pounds of cows brains. Symbolic of gastronomic greatness Joey ate 103 Crystal Hamburgers and won $10,000.

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Sonya Thomas [The Black Widow ] at 98 pounds sets the Female Record at 40

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Gas prices keep rising but we keep buying!

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Doesnt the law of demand state that consumers buy less at higher prices? So, why are we still buying gas?

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Elasticity of Demand Elasticity of demand is a measure of how consumers react to a change in price. Inelastic demand is demand that is not very sensitive to a change in price. Inelastic demand is demand that is not very sensitive to a change in price. Elastic demand is demand that is very sensitive to a change in price.

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Think pants. These pants have inelastic waistbands. The waistbands do not change if people gain weight.

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Our demand for gasoline is inelastic. It does not change even with a price increase.

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Think pants again! Sweat pants have elastic waistbands. The pants change depending on the size of the person.

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Our demand for apple juice is elastic. If the price increases, we will buy less. Our demand changes.

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So, why is our demand for apple juice elastic and our demand for gasoline inelastic?

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Factors Affecting Elasticity of Demand The following are factors that can affect the elasticity of demand: The following are factors that can affect the elasticity of demand: Availability of Substitutes Relative Importance Necessities Versus Luxuries Time (It takes time to find substitutes.)

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Its obvious, isnt it? We can substitute orange juice for apple juice. Therefore, we deal with a price increase by substituting one product for another product.

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However, we cannot substitute milk for gasoline.

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What is this graph telling us about elasticity of demand?

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Specific vs. General Market When we talk about Elasticity of Demand it is important to note if we are talking about the market in general or are we talking about a specific firm.

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Total Receipts Test The total receipts test is the way we figure out whether demand is elastic, unit elastic, or inelastic.

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20 30 40 50 $2 $1 Inelastic Elastic 30 x $1 = $30.00 50 x $1 = $50

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Heating oil is mostly used in NE U.S. to fuel furnaces and boilers. Most houses are heated by natural gas or electricity.

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Estimating the Elasticity of Demand 3 Key Questions: 1. S ubs? 2. N ecessity? 3. E xpensive?

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Elastic or Inelastic Demand Elastic Inelastic

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How to Determine Total Receipts (Total Revenue) Price X QuantityPrice X Quantity Elastic Demand has larger total receipts at lower pricesElastic Demand has larger total receipts at lower prices Inelastic Demand has larger total receipts at higher pricesInelastic Demand has larger total receipts at higher prices Unit Elastic Demand has the same total receipts regardless of priceUnit Elastic Demand has the same total receipts regardless of price

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Total Receipts Illustrated Elasticity for stuffed Kermit the Frog at Disney World Elasticity for stuffed Kermit the Frog at Disney World

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Elasticity and Pricing Policies Understanding Elasticity helps business determine pricing strategies. If demand is elastic you lower prices to raise revenue. If demand is inelastic you raise prices to raise revenue.

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GRAPHING SKILLS PRACTICE: Complete the DEMAND SITUATIONS worksheet BY YOURSELF. Turn directly into me. I want to personally check your level of understanding on these concepts. WHEN YOU ARE FINISHED.Skim through Unit two: Lesson One in the economics book (pages 97-104) Answer questions 1-7 (PAGE 104) on a piece of notebook paper and turn directly into me today. THIS CAN BE DONE IN PARTNERS!