Day 4

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Day 4

  1. 1. Bellringer 1. How much would you be willing to pay for this laptop computer? (what would be the most you would be willing to pay)
  2. 2. Write answers on board • Factors might change our answers?
  3. 3. 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 force First come, first serve Rationing (usually equal) Rationing by committee Based on need (poorest) Contest based Random lottery Auction – willing to pay
  4. 4. Economists like Auction too We use price because it lowers opportunity cost Brute force First come, first serve Rationing (usually equal) Rationing by committee Based on need (poorest) Contest based Random lottery Auction – willing to pay
  5. 5. 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?
  6. 6. #3 OPTIC on this graph Source: Hoovers 2011
  7. 7. Lower price more sold
  8. 8. Next topic • Topic: Law of Demand and Consumer Surplus • Why important: It’s the consumption side of our economy
  9. 9. 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
  10. 10. Create Demand Schedule for laptop Price Quantity Demanded Graph on board Show proper labels
  11. 11. Create Demand Schedule for PS4s Price Quantity Demanded Graph on board Show proper labels
  12. 12. Proper Economics Supply/Demand Graph Price $$$$ P$ Quantity # of goods/service Q TITLE: _______ ___ Market
  13. 13. Demand Schedule Cookies Price Quantity Demanded per day $0.20 7 $0.40 4 $0.60 2 $0.80 1 $1.00 1 $1.20 0
  14. 14. Demand Schedule Cookies Price 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 1.00 0.80 0.60 0.40 0.20 1 2 3 4 5 6 7
  15. 15. Why do firms care? • Demand predicts revenue • Revenue = Price X Quantity sold Cookies Price QD*Day Revenue $0.20 7 $0.40 4 $0.60 2 $0.80 1 $1.00 1 $1.20 0
  16. 16. On your BR 4. What price should this company choose if they want to maximize revenue?
  17. 17. You try one Widget Demand Schedule Price Quantity Demanded 5 10 4 17 3 26 2 38 1 53 Demand curve reason ? D
  18. 18. Law of Demand Law of Demand: As price declines, quantity demanded increases. As price increases, quantity demanded decreases Law of Demand: P Therefore Q demand P Therefore Q demand Demand curve always slopes down
  19. 19. 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
  20. 20. Law of Demand at work • Goods/Services that price changes cause changes in quantity demanded • Half price, “buy one, get one free”
  21. 21. D
  22. 22. Consumer Surplus Consumer 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.
  23. 23. 5 OPTIC Source: Investopedia. com
  24. 24. Demand Curve Experiment Same paper 1. Conduct a demand curve experiment 2. 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 points and a time period 4. Survey 5 people and find out their demand per week (write their names) 5. Graph the total demand on a correctly labeled graph 6. Write an explanation of how the experiment shows the law of demand in action AND how a company might use this information
  25. 25. Bellringer sheet 1. 3 items you will buy more of when you start making $25,000/year or more 2. 2 items you will buy less of when you start making $25,000/year or more 3. OPTIC for this graph: 4. Get out your notes
  26. 26. Changes to demand Does 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?
  27. 27. D
  28. 28. D
  29. 29. Demand changes over time
  30. 30. 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
  31. 31. Why is this important for firms?
  32. 32. What sorts of goods are these? Others? Compliments? Normal/Inferior?
  33. 33. Cultural? • Preferences change • South Korea >>>>>
  34. 34. At your tables 6. 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 tomatoes 9. List two substitutes for tomatoes
  35. 35. Determinants of Demand • Causes that will change Demand
  36. 36. Determinants of Demand • Tastes and preferences
  37. 37. Determinants of Demand • Related goods: substitutes price and availability
  38. 38. Determinants of Demand • Related goods: complements price and availability
  39. 39. Determinants of Demand • Income changes
  40. 40. Determinants of Demand • Buyers and population • Tucson during Gem Show, During summer
  41. 41. Determinants of Demand • Expectations of future price
  42. 42. A trick to remember determinants of demand T R I B E T = tastes of consumers R = Related goods (P$ change) I = Income of buyers B = # of buyers E = expectations of future price http://quizlet.com/2043838/individual-markets-flash-cards/
  43. 43. White boards Which part of TRIBE will change in the following scenarios to the Tucson movie theater market? 1. Average wage in Tucson increases 2. Price of DVDs & flat screen TVs decrease 3. Population of Tucson doubles 4. New Spiderman movie comes out 5. KOLD reports movie tickets will increase 15% in 2015 6. Xbox1 & PS4 hit the stores
  44. 44. On the back of your paper • Identify the changes to the demand for tomatoes Identify the part of TRIBE and increase or decrease or no change 1. New residents move to Arizona 2. Unemployment rises 3. The price of spaghetti noodles increases 4. Americans try to eat healthier and eat more salads 5. Americans try to eat healthier and eat less pizza 6. Price of tomatoes decreases 7. Average US income rises 8. V8 juice company goes out of business 9. The price of ground beef decreases 10. Media reports salmonella outbreak from California tomatoes 11. Consumers predict tomato prices to increase next month 12. Salsa becomes #1 US condiment 13. Price of tortilla chips triples 14. Make up your own example and explain demand change
  45. 45. Full page Bellringer 1. 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
  46. 46. Today’s topic: Elasticity Responsive to price changes
  47. 47. Graph this demand curve in your notes Price Quantity Demanded $1.25 1 $1.00 3 $0.75 9 At your tables: What do you notice about this demand? Do these consumers care about price? What product might fit this demand?
  48. 48. 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
  49. 49. 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?
  50. 50. 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
  51. 51. In Reality
  52. 52. Summary
  53. 53. Bellringer 1. Correctly draw the demand curve for this market 2. 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
  54. 54. Soda Demand D
  55. 55. 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
  56. 56. 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
  57. 57. Quantity $ Graphically speaking… Demand of movie tickets D* A RAISE!!!! A Child!!!! D after raise
  58. 58. Klein Graph increase and decrease on board
  59. 59. On a separate sheet of paper Graphically sketch the changes to the demand curve, 1 curve won’t change Identify 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. Stock market increases in value (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
  60. 60. Nerds documentary

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