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Law of demand 2014

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  • 1. Bellringer 1. Which allocation method does your family use to distribute resources? 2. Which method do sellers ebay use? 3. 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
  • 2. 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
  • 3. 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?
  • 4. Lower price more sold
  • 5. In one week How many Subway subs would you buy at the following prices? Add up your table Price Footlongs $1.00 $2.00 $5.00 $7.00 $9.00
  • 6. Lets graph one table’s answers Title _________________
  • 7. 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
  • 8. 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
  • 9. 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
  • 10. Why do businesses 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
  • 11. On your BR 4. 3 goods or services you buy more of when they go on sale 5. An example of something you try to conserve because its expensive 6. What price should this company choose if they want to maximize revenue?
  • 12. Currently organ donation in the US is done by donation only, and first come first serve. 4. Write a paragraph comparing and contrasting this allocation method with an auction for kidneys where people on the waiting list could buy kidneys from donors. Which method do you think is best?