Unit 2: Ch. 4 DemandIn order to have demand.. Producers must be willing to _________ the product at a particular price People must have an ____________ to buy a product, People must have a ________________________ to buy a productLaw of Demand As price goes up, Quantity Demanded goes ______________ As price goes down, Quantity Demanded goes ______ They are ___________________ proportional! They move in opposite directions!Marginal Utility the extra ______________________ or ________________________ a person gets from acquiring or using __________ more unit of a product Remember from unit 1!! _______________________: the extra benefit associated with the addition of one or more units _______________________: the extra cost associated with the addition of one of more units________________________________________: the decrease in satisfaction or usefulness received from each additional unit of a product When will somebody stop consuming? When MC > MB? Or When MC < MB?Demand SchedulePriceSlices

$1.006

$2.504

$4.002

A _________________ that lists the quantity of a good people would buy at different prices.

Demand The quantity that will be purchased* at all possible prices.

Quantity Demanded ________________ on the demand line that shows how much of a good or service will be purchased at that certain _____________.

Quantity Demand & PriceQuantity demanded and price move in the ____________________ directions... They are not proportional- This relationship is known as ____________________________________

Movement on a Demand Curve A change in ____________________________ is always the result of a change of ___________! Movement is _______the curve. (dot changes and moves up or down)

Price going upPrice going downDeterminants of Demand (factors that shift the demand curve left or right) Factors affecting how much people will buy of any product at a particular price._____________________________________________________________________________________________________________________________________________________Mnemonic to help you remember

Expectations Expectations about future prices can shift demand (future expectations change how you buy today) Only determinant that can be used for demand or supply.Demand Curve Shifts A change in Demand can be the result of one of the determinants of demand changing This Movement is a shift ______the curve. (Not on movement on the curve)

Demand decreasing Demand Increasing

Population (or # of consumers) A increase in population will ________________ demand for most normal goods. A decrease in population will ________________ demand for most normal goodsIncome A consumers income affects his or her demand for most goods. Normal Goods - As your income increases you buy __________ of these Inferior Goods - As your income increases you buy ________ of these Example: Ramen Noodles, HotdogsTaste and Preference Social trends, __________, ___________________________ and mass media may change demand. (anything that causes you to change your view on a product)

ComplimentsGoods that are bought and used ________________________. A price change of one complementary good can affect the demand for the other. Peanut Butter and ___________SubstitutesGoods that are used in place of one another:A price change of a substitute can affect the demand for the other. Butter or ______________. Coke or P________. Hotdogs or ________________________Your problem solving process1. What is the demand for? (what product or service are we talking about?)2. Is there a price change for _____________________?- If so the movement is on the curve, up or down (change in Qd)3. If there is no price change.. Figure out what determinant will cause the curve to shift and shift the curve right or left.Example 1Twinkies sales are down due to the health craze so they drop the price by 25 cents per pkg.Demand for: ______________________Quantity Demanded (price) Increases DecreasesCurve Shift Left RightReason: ________________

Example 2You run a video rental store and UGA Students have just left for the summer.Demand for: ______________________Quantity Demand Increases DecreasesCurve Shift Left RightReason: ________________Example 3A hurricane is about to hit Texas and wipe out oil refineries in the Gulf of Mexico. The market is gasoline?Demand for? ________________Quantity Demand (price change) Increases DecreasesCurve Shift Left RightReason:_________________

Example 4:Draw a demand curve for music downloads. What happens to it in each of the following scenarios? Why?A.The price of iPods fallsB.The price of music downloads fallsC.The price of CDs falls

A. B.C.

Elasticity ___________________: The measure of sensitivity of one variable to another. _____________________________________ measures the sensitivity of quantity demanded to price changes. __________________ - If people respond to a price increase by buying less the good can be considered elastic. (responsive to a change in price) ___________________- If people do not respond to a price increase (do not buy considerably less) the good can be considered inelastic (not responsive to a change in price).Inelastic GoodsVery few ________________________Necessity or ________________________Strong brand loyaltyUsually not too expensive (rare purchases)Elastic Goods Many ______________________ available An item that is not a necessity Change over Time - Demand sometimes becomes more elastic over time because people can eventually find substitutes.Other things that effect ElasticityRelative importance The more you spend on an item.. The more elastic The less you spend on an item The more inelasticUnit Elastic A change in price causes a _______________________________ change in the quantity demanded**Remember N.I.L.E.** Needs are ______________________ Luxury Goods are _______________________Unit Elastic (draw what curve looks like)

Elastic (draw what curve looks like)Perfectly Elastic

Inelastic (draw curve)Perfectly Inelastic (draw curve)

Examples: Elastic (flat curve) Types of food Types of clothing Inelastic (steep curve) gasoline medical products insulin

Unit 2 Ch. 5 SupplySupply - The willingness and ability to provide goods and services at different pricesLaw of Supply Generally:as price rises; the quantity supplied ______________.as price falls; the quantity supplied _______________.SupplyThe amount of goods available in a market. *Based on what products people are willing & able to produce*Draw Curve below

Quantity SuppliedThe amount a supplier is willing and able to supply at that certain price. (a specific quantity)Draw Curve

Change in quantity supplied is always due to a change in ___________________!

Show a change in quantity supplied as price changes from $1.00 to $2.00.

Individual Supply Schedule A _________________ that lists the quantity of a good supplied at a certain price.PriceSlices

$1.002

$2.755

$4.007

Market Supply Schedule A __________________ that lists the quantity of a good all producers in a market will supply at a certain price.PriceSlices

$1.00192

$2.75435

$4.00680

Supply Curve Always rises from left to right. Like climbing a hill. Individual Supply CurveMarket Supply Curve

Supply Curve Shifting Shifting of the supply curve is caused by the determinants of supply

Factors that shift the Supply Curve ( increase or decrease of a good at all possible prices)__________________________________________________________________________________________________________________________________________________________________________________________________________________________# of Firms selling (also called Number of sellers) Firms entering or exiting the marketplace will affect the supply for most products.An increase in firms will __________________ supply.A decrease in firms will ___________________ supply.Example: Market is Pizza. Two new pizza places open in Cumming. (Two firms enter the market). What happens to the supply of pizza?Draw curve with shift. P S

Input Costs Q Any ____________ that goes into making a goodTwo types of costs_____________Costs ( rent ect.)___________________ Costs ( cost of resources used ect.) As costs go up for your business (input costs), supply will decrease (shift left) As cost go down for your business (input costs), supply will increase (shift right)Market is Pizza. Flour prices increase and it now costs more to produce pizza. What happens to the supply of pizza?Draw graph with movement.

Technology Advances in technology always cause an ________________________ in supply. New improved pizza oven will ____________________ production of pizza..New improved machines produce goods faster than previously..Market is Pizza. A new crust maker allows 1 employee to make twice as many pizzas as before in the same amount of time.Draw supply curve movement..

Subsidies Government __________________ to producer Often subsidies are offered to enable firms to offer goods at a certain price. Example - ____________________________________, offset the losses for farmers when they sell their farming products at a very cheap priceExamples: Milk, Corn The government pays dairy farmers $.25 for every gallon of milk they produce.Draw curve movement

Taxes Taxes usually make things more expensive for a business. Examples: Taxes on resources used to make a product, taxes placed on start up costs ect

The market is Ford Vehicles. The government adds a new tax on all foreign steel, including that used by Ford for their vehicles. What happens to the supply of Ford Vehicles?Draw Curve Shift.

Regulations Regulations affect how goods are produced or what they are made out of. Often result in an ______________________ in costs and a ____________________________ in supply. Examples:-_________ (Environmental Protection Agency)-Gas Mileage on cars-Regulations on pollution.The market is U.S. made cars. A new law states by 2017 all cars and trucks must have a minimum gas mileage of 25mpg. What happens to the supply of U.S. cars?Draw Curve ShiftExpectations (Future Price Expectations) What business owners expect to happen in the future will affect supply today. (Future Expectations) For consumers (demand) & Suppliers (supply)

Market is homes for sale. You and many other home owners are thinking of selling. Economists predict that home values will increase dramatically after the next 6 months. What happens to homes on the market 7 months from now?Draw graph with curve shift.

Supply Curve Movement Explained http://www.youtube.com/watch?v=JiGhGzCL7Js

Elasticity of Supply __________________________________________ How sellers react to a change in their products prices_____________________ Sellers react to a price change by selling way more or way less__________________________ Sellers do not react to a change in their products price Changes in Supply Long Run In the long term companies_____________ the ability to react to changes in price by increasing or decreasing their outputShort RunIn the short run companies dont have the ability to react to price changes or their product.

Elasticity of Supply Supply is _______________________in the short run. In the short term little change is possible.Draw short run supply curve

Supply is _______________________in the long run. In the long run change will occur.Draw long run curve

Products that can be made very easily generally are more _____________Example: paper clipsProducts that are difficult or time consuming to make, generally are more _____________Example: airplanes Supply PracticeThe market is electricity. The price of electricity rises. (Draw graph)

The market is pizza. The price of electricity rises. You own a pizza shop. (Draw graph)

Market is cell phones. Reports link cell phone use to cancer the US government requires all cell phone companies to do extensive testing on all their cell phones. (Draw curve)

The market is polio vaccines. The company who makes the Polio Vaccine gets a subsidy from the US government to keep making it. (Draw curve)