QOD #5: High Priced Athletes Law of Demand …...2015/08/27 · The law of diminishing marginal...
Transcript of QOD #5: High Priced Athletes Law of Demand …...2015/08/27 · The law of diminishing marginal...
•Reflection/Practice Quiz, CH 1 & 2 HW packets
•QOD #5: High Priced Athletes •Law of Demand (Graph it!) •Demand Curves •Diminishing Marginal Utility
•HW :Looking for Supply & Demand Part 1 Read pp 47-53 (stop @ supply) Questions #2,3
AGENDA Thurs 8/27
• Fans often complain that athletes get paid too much money and that these higher salaries lead to higher ticket prices. 1. Do you agree or disagree with this statement?
• Higher ticket prices lead to lower sales.
2. Why does this happen?
3. Why would they raise ticket prices?
• If the Lakers sell 20,000 tickets at $25 and only sell 12,000 at $30, which ticket price brings in more total revenue?
• If players salaries go up from $300,000 to $325,000 per game what price would you sell your tickets at? The attendance numbers from above still apply.
• What do you think might cause ticket prices to go up?
demand refers to the buying side
supply refers to the selling side
Local, national, international
Personal or remote
Product markets involves goods or services ex: swap meet, stock market, grocery store, E-Bay
good is a tangible item [product] that gives a person utility or satisfaction
Utility: something that is useful or designed for use
service is an intangible item that gives a person utility or satisfaction
Resource market involves factors of production
Demand- willingness and ability to purchase a good or service (specific time
period) willingness to purchase refers to a person’s want or desire
for a good
ability to purchase means having the money to pay for the good.
You may want something but may not have the ability to pay for it.
There is no demand unless BOTH components are there.
A demand schedule a numerical chart that illustrates the law of demand
A demand curve is graphic representation of the law of demand
is a graphic plotting of various price-quantity comparisons
Law of Demand
as the price (P) of a good increases, the quantity demanded (QD) of the good decreases
as the price of a good decreases, the quantity demanded increases
Inverse Relationship between P and QD
Quantity Demanded (QD)
the number of units of a good purchased at a specific price
Law of Demand
(where P = price and QD = quantity demanded
If P then QD
If P then QD
Reasons •Common sense
•Law of diminishing marginal utility
•Income effect and substitution effects
The law of diminishing marginal utility (satisfaction) says that as a person consumes additional units of a good that eventually the utility (satisfaction) gained from each additional unit of the good decreases.
You get more utility (satisfaction) from the first Chipotle burrito that you eat then you do from the 2nd, 3rd, and 4th burrito that you eat.
As goods consumed increased the usefulness of that good decreases.
Is your fifth Chipotle burrito as useful as your first?
or?
The more satisfaction (utility) you receive from a unit of good the higher price you are willing to pay for it.
The less satisfaction (utility) you receive from a unit of good the lower price you will pay for it.
How much will you pay for that 1st Chipotle burrito?
2nd? 3rd? 4th?
A shift to the right indicates that demand has increased.
buyers are willing and able to purchase more of a good at all price points
A shift to the left indicates that demand has decreased.
buyers are willing and able to purchase less of a good at all price points
Demand then Demand Curve shifts to the right
Demand then Demand Curve shifts to the left
LO1
Determinants of Demand: Factors That Shift the Demand Curve
Determinant Examples
Change in buyers’ tastes Physical fitness rises in popularity, increasing the
demand for jogging shoes and bicycles; cell phone
popularity rises, reducing the demand for land-line
phones.
Change in the number of buyers A decline in the birthrate reduces the demand for
children’s toys.
Change in income A rise in incomes increases the demand for normal
goods such as restaurant meals, sports tickets, and
necklaces while reducing the demand for inferior
goods such as cabbage, turnips, and inexpensive
wine.
Change in the prices of related
goods
A reduction in airfares reduces the demand for bus
transportation (substitute goods); a decline in the price
of DVD players increases the demand for DVD movies
(complementary goods).
Change in consumer expectations Inclement weather in South America creates an
expectation of higher future coffee bean prices,
thereby increasing today’s demand for coffee beans.
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Income
Tastes & Preferences (Consumer Attitudes)
Number of Buyers
Price of Related Goods
Price Expectation
Income – as their income rises, people can buy
more of any particular good
Having the ABILITY does NOT always mean having the WILLINGNESS to buy more.
• normal good – demand as income • (clothes, computer)
• inferior good – demand as income
• (discount jeans, refurbished computer)
Tastes & Preferences (Consumer
attitudes)– a change in preferences shifts the demand curve
Number of buyers – more buyers = higher
demand as more people move into an area rent prices go up
Price of Related Goods – two types of related
goods
substitutes – the demand for one good moves in the same direction as the price of the other (as P of coffee increases, the D of tea as a substitute will go up - explain)
complements – goods that are consumed together (as P of gas goes up, D of SUVs go down)
Price Expectations - if consumers expect the price
to increase, they try to buy more now before the price rises.
Quantity demanded - refers to the number of units of a good purchased at a specific price. (It is always a number.)
A change in demand refers to a shift in the demand curve.
A change in income, preferences, price of related goods, number of buyers, or price expectation can change demand.
A change in quantity demanded refers to a movement along a demand curve.
Only price of the good can directly cause a change in the quantity demanded of a good.
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