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ECONOMICS UNIT 3

ECONOMICS UNIT 3. DEMAND. Bead Game: Market Economy. Is it stressed: Highly Stressed Choice of jobs: Individual preference Motivation to Produce: High Self Gain How to produce: least cost method What to produce: Whatever is profitable For Whom: Highest Bidder

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ECONOMICS UNIT 3

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  1. ECONOMICS UNIT 3 DEMAND

  2. Bead Game: Market Economy • Is it stressed: Highly Stressed • Choice of jobs: Individual preference • Motivation to Produce: High Self Gain • How to produce: least cost method • What to produce: Whatever is profitable • For Whom: Highest Bidder • Base Values: Competition, Material rewards, self gain, Freedom

  3. Bead Game: Command • Is it stressed: To Some degree • Choice of Jobs: Government directed • Motivation to Produce: Limited self gain • How to produce: Least cost method • What to produce: Whatever govt decides • For Whom: Those declared in need • Base Values: Cooperation, moral rewards, societal gain

  4. Bead Game: Traditional • Is it stressed: Not at all • Choice of jobs: Custom directed • Motivation to produce: Traditional incentives • How to produce: Traditional ways • What to produce: Whatever was traditionally produced • For Whom: Distributed by custom • Base values: Custom, traditional ways and beliefs

  5. Skeleton Outline pgs 169-175 • Voluntary Exchange: one fact • Law of Demand: one fact • Real Income effect: one fact • Substitution effect: one fact • Diminishing Marginal utility: one fact

  6. Skeleton Outline pgs 177-182 • Graphing the demand curve: one fact • Changes in population: one fact • Changes in income: one fact • Changes in taste/preference: one fact • Substitutes: one fact • Complementary goods: one fact • Elastic demand: one fact • Inelastic demand: one fact • Determinants of elasticity: one fact

  7. FIRST THING TUESDAY • IDENTIFY AN ITEM YOU HAVE BOUGHT DURING THE PAST 2 WEEKS… • WHAT IS MOST IMPORTANT WHEN YOU THINK OF BUYING SOMETHING?

  8. FIRST THING WEDNESDAY • WHAT MIGHT HAPPEN TO SALES OF A TYPE OF CAR IF ITS PRODUCER ANNOUNCED THAT ITS NEW ENGINE EMITTED NO POLLUTION, WAS MORE POWERFUL THAN PREVIOUS ENGINES AND WOULD COST THE SAME?

  9. FIRST THING: WEDNESDAY • LIST 5 PRODUCTS YOU COULD NOT DO WITHOUT • HOW WOULD YOUR LIST CHANGE IF THE PRICE OF EACH PRODUCT DOUBLED, TRIPLED OR QUADRUPLED?

  10. OPENING ACTIVITY • THINK BACK TO THE HOUSE PROJECT…IDENTIFY 10 ITEMS YOU WOULD BUY IN A NORMAL WEEK…THESE ITEMS SHOULD INCLUDE SPECIFIC GROCERIES • MAKE A LIST OF ALL OF THE ITEMS…THESE SHOULD BE BOTH NEEDS AND WANTS • CATEGORIZE EACH AS A NECESSITY OR A LUXURY

  11. OPENING ACTIVITY • PAIR UP AND COMPARE ITEMS AND THE CATEGORIES

  12. QUESTIONS • WHAT MAKES EACH OF THESE ITEMS APPEALING TO YOU? • AT WHAT POINT WOULD YOU NOT BUY ONE OF THESE ITEMS? • IS THERE AN ITEM ON THIS LIST THAT YOU WOULD BUY NO MATTER WHAT THE CONDITIONS WERE? • IF YOU DID NOT BUY ONE OF THE ITEMS, SAY A STEAK, WHAT WOULD YOU DO FOR A MEAL? • PICK ONE PRODUCT FROM THE LIST YOU CAN’T DO WITHOUT

  13. THE PRODUCT YOU CAN’T LIVE WITHOUT • YOU WILL WRITE A SHORT ESSAY ON HOW DEMAND FOR THIS PRODUCT MIGHT CHANGE DUE TO: • INCOME FLUCTUATIONS • POPULATION TRENDS • COMSUMER EXPECTATIONS AND TASTES • ADVERTISING THE ESSAY WILL BE TITLED, “A MONTH IN THE LIFE OF….

  14. QUESTION ONE • 1. WHAT DO YOU THINK SUPPLY AND DEMAND MEANS? IDENTIFY A PRODUCT THAT IS CURRENTLY IN HIGH DEMAND?

  15. QUESTION 2 • 2. WHAT MAKES YOU WANT TO BUY A PRODUCT? WHAT ARE SOME THINGS THAT MAKE THESE PRODUCTS APPEALING?

  16. QUESTION 3 • 3. HOW ARE PRICES SET FOR PRODUCTS IN THE CURRENT MARKET? CAN YOU GIVE ANY EXAMPLES OF PRICES THAT START HIGH THEN GET CHEAPER OVER TIME? WHY DOES THIS HAPPEN?

  17. QUESTION 4 • 4. AT WHAT POINT MIGHT A CUSTOMER DECIDE HE/SHE DOES NOT WANT A PRODUCT? WHAT ARE SOME REASONS FOR THIS? CAN YOU PROVIDE ANY EXAMPLES?

  18. FIRST THING • HOW MANY SODAS WOULD YOU BUY AT 25 CENTS PER CAN? • 50 CENTS? • 1 DOLLAR? • 1.50? • WHAT CAN YOU SAY ABOUT THESE FIGURES IN RELATION TO DEMAND?

  19. WHAT IS DEMAND • THE DESIRE, ABILITY AND WILLINGNESS TO BUY A PRODUCT • WHAT DO THESE 3 TERMS MEAN?

  20. MICROECONOMICS • PART OF ECONOMICS THAT DEALS WITH BEHAVIOR AND DECISION MAKING BY SMALL UNITS • INDIVIDUALS AND FIRMS • HELPS EXPLAIN HOW PRICES ARE DETERMINED AND HOW INDIVIDUAL ECONOMIC DECISIONS ARE MADE

  21. DEMAND CURVE/DEMAND SCHEDULE • GRAPHIC ILLUSTRATION OF DEMAND • GRAPH OF QUANTITY THAT CONSUMERS WILL DEMAND AT EACH AND EVERY PRICE • INFO CAN ALSO BE PRESENTED IN FORM OF A TABLE • THIS IS CALLED A DEMAND SCHEDULE • A TABLE OF PRICES AND QUANTITY DEMANDED

  22. PRACTICE DEMAND CURVE • USE INFORMATION ON DEMAND SCHEDULE TO CREATE A DEMAND CURVE • QUANTITY DEMANDED ALWAYS GOES ON THE HORIZONTAL (BOTTOM) AXIS • PRICES ALWAYS GO ON THE VERTICAL AXIS

  23. DEMAND FOR CD PLAYERS PRICE QUANTITY 0 100 200 300 400 500 600 • $250 • $230 • $210 • $190 • $170 • $150 • $130

  24. THE LAW OF DEMAND • THE DEMAND FOR AN ECONOMIC PRODUCT VARIES INVERSELY WITH ITS PRICE • WHAT DOES THIS MEAN? • WHEN PRICES FALL, CONSUMERS GENERALLY BUY MORE

  25. DEMAND ACTIVITY #2 • YOU WILL CREATE AN INDIVIDUAL DEMAND SCHEDULE • THINK OF A GOOD OR PRODUCT…YOU NOW OWN THIS PRODUCT • CREATE A SERIES OF PRICE SCHEDULES (DEMAND SCHEDULE) FOR YOUR PRODUCT • GO TO YOUR GROUP • ASK HOW MUCH OF THE GOOD HE OR SHE WOULD BUY AT EACH PRICE • CREATE SCHEDULE • CREATE DEMAND CURVE

  26. DEMAND QUESTIONS • 1. IDENTIFY DETERMINANTS OF THE DEMAND FOR THIS PRODUCT • 2.WHAT SUBSTITUTIONS EXIST FOR THIS PRODUCT? • 3. HOW WOULD THE SUBSTITUTION EFFECT CHANGE THE DEMAND FOR YOUR PRODUCT? • 4. IS THE DEMAND FOR EACH OF YOUR PRODUCTS ELASTIC OR INELASTIC? • 5. DRAW THREE NEW GRAPHS FOR YOUR PRODUCT THAT ILLUSTRATE THE EFFECT OF: • POPULATIO N DECREASE • INCOME INCREASE • CHANGE IN TASTE/PREFERENCE…YOUR PRODUCT WAS A FAD…

  27. QUANTITY DEMANDED • CHANGE IN QUANTITY PURCHASED IN RESPONSE TO CHANGE IN PRICE • WHAT EFFECTS THE DEMAND CURVE? • 1. INCOME EFFECT: CHANGE IN QUANTITY DEMANDED B/C OF A CHANGE IN CONSUMER’S REAL INCOME • 2. SUBSTITUTION EFFECT: CHANGE IN QUANTITY DEMANDED B/C OF CHANGE IN RELATIVE PRICE OF PRODUCT

  28. Demand CAUSE EFFECT ON QUANTITY DEMANDED 1. AS REAL INCOME INCREASES… 2. AS REAL INCOME DECREASES… 3. AS THE PRICE OF BUTTER INCREASES THE PRICE OF MARGARINE… 4. AS THE PRICE OF BUTTER DECREASES THE PRICE OF MARGARINE… 5. PRODUCTS WITH GREATER UTILITY… • 1. INCREASE IN REAL INCOME: • 2. DECREASE IN REAL INCOME: • 3. PRICE OF BUTTER INCREASES: • 4. PRICE OF BUTTER DECREASES: • 5. THE UTILITY OF AN ITEM

  29. QUANTITY DEMANDED • HOW IS QUANTITY DEMANDED LIKE A SEESAW? • WHAT DOES THE SEESAW DEMONSTRATE? • HOW HAS PRICE, REAL INCOME AND THE SUBSTITUTION EFFECT CHANGED YOUR DECISION TO BUY A SERVICE?

  30. DEMAND FOR DVDS • WHAT WOULD HAPPEN TO THE DEMAND OF DVDS IN THE FOLLOWING SITUATIONS: • 1. THERE IS AN OVERALL INCREASE IN WAGES • 2. A CHAIN PUTS ALL DVD/BLUE RAY PLAYERS ON SALE OF APPLIANCE STORES • 3. THE PRICE OF HBO AND OTHER MOVIE CHANNELS INCREASE DRAMATICALLY

  31. MCDONALDS • IN THE 48 STATES THE FARTHEST YOU CAN GET FROM A MCDONALD’S IS 107 MILES • MAP IS COLORED BY THE DISTANCE TO THE NEAREST GOLDEN ARCHES • CLUSTER A POPULATION CENTERS/HIGHWAYS • MCFARTHEST SPOT: IN THE SOUTH DAKOTA VALLEYS…2 HOURS BY CAR

  32. CHANGE IN DEMAND • ENTIRE DEMAND CURVE SHIFTS • EX: SOMETIMES IF DVDS PRICES REMAIN STABLE AT $20 A PIECE DEMAND WILL INCREASE DRAMATICALLY • CHANGE IN DEMAND AT EACH AND EVERY PRICE • WHAT MAKES THE ENTIRE CURVE SHIFT?

  33. WHAT CAUSES A CHANGE IN DEMAND • ANY IDEAS???

  34. DETERMINANTS OF DEMAND • 1. CHANGE IN POPULATION • 2. CONSUMER INCOME • 3. CONSUMER TASTE/PREFERENCES • 4. SUBSTITUTES • 5. COMPLEMENTARY GOODS

  35. PRICE OF RELATED PRODUCTS • 1. SUBSTITUTES: USED IN PLACE OF OTHER PRODUCTS… • 2. COMPLEMENTS: THE USE OF ONE INCREASES THE USE OF THE OTHER • CAN YOU THINK OF ANY EXAMPLES?

  36. CHANGE IN DEMAND • A SHIFT TO THE RIGHT MEANS AN INCREASE IN DEMAND • A SHIFT TO THE LEFT MEANS A DECREASE IN DEMAND • THINK OF USING YOUR BLINKER IN YOUR CAR… • YOU CLICK UP TO GO RIGHT • YOU CLICK DOWN TO GO LEFT

  37. CHANGE IN DEMAND • COMPLETE GRAPHIC ORGANIZER FOR CHANGE IN DEMAND • FOCUS ACTIVITY: WHAT DETERMINES CHANGES IN DEMAND? • FOCUS ACTIVITY: CONSUMER TASTES AFFECT DEMAND… • “THE MEDIA DICTATES CONSUMER TASTES”

  38. DETERMINANTS ACTIVITY IN GROUPS OF 2 SELECT A TYPE OF FOOD FROM THE SCHOOL CAFETERIA LIST THE 5 DETERMINANTS OF DEMAND NEXT TO EACH DETERMINANT WRITE AN INSTANCE IN WHICH THE DEMAND WOULD INCREASE OR DECREASE

  39. MARGINAL UTILITY • THE EXTRA USEFULNESS OR SATISFACTION A PERSON GETS FROM ACQUIRING ONE MORE UNIT OF A PRODUCT • EXPLAINS CONSUMER BEHAVIOR/DECISION MAKING • CONSUMERS WILL BUY A PRODUCT UNTIL THE ADDITIONAL SATISFACTION (UTILITY) IS LESS THAN THE PRICE OF THE PRODUCT • CAN YOU GIVE AN EXAMPLE?

  40. DIMINISHING MARGINAL UTILITY • PRINCIPLE THAT THE MORE UNITS OF A CERTAIN PRODUCT A PERSON ACQUIRES, THE LESS EAGER THAT PERSON WILL BE TO BUY EVEN MORE • DESIRE TO PURCHASE MORE DECREASES, LESS WILLING TO SPEND LIMITED RESOURCES • EXPLAINS DOWNWARD SLOPE OF DEMAND CURVE • LOWER PRICES ARE NECESSARY TO ENCOURAGE SHOPPERS TO BUY MORE

  41. ELASTICITY OF DEMAND • DEMAND ELASTICITY: HOW MUCH DEMAND VARIES ACCORDING TO CHANGES IN PRICE • ELASTICITY: CUSTOMER’S RESPONSIVENESS TO AN INCREASE OR DECREASE IN PRICE OF A PRODUCT

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