1. The document discusses the concept of demand and supply and how it relates to why certain goods are more expensive at certain times. It provides examples like roses on Valentine's Day and gas prices in the summer. 2. It introduces demand curves and how they relate the inverse relationship between price and quantity demanded, showing this through supply and demand graphs. It also discusses how shifts in demand curves can occur from various determinants. 3. In a few sentences, it effectively summarizes the key topics and concepts discussed in the document relating to supply and demand.

3. . A - Rod, at $25 M was paid his last year in Texas: $288,660 per game , $75,148 per at-bat , $897,436 per home run , & $648,148 per win . Bledsoe, at $10 million year could purchase a new Ford SUV each day of the year . At $28 million , a PlayStation 2 is like like .35 to Garnett. One out of every 8,000 high school basketball players goes on to play in the NBA. Big Demand , Small Supply Signed for $103 mil. for 10 years in 2001.

4. MARKETS DEFINED MARKETS POTENTIAL SELLERS POTENTIAL BUYERS

5. DEMAND DEFINED $5 4 3 2 1 DEMAND SCHEDULE Various Amounts A Series of Possible Prices … a specified time period … other things being equal 10 20 35 55 80 P Q D

7. GRAPHING DEMAND P Q o $5 4 3 2 1 $5 4 3 2 1 10 20 35 55 80 Price of Corn Quantity of Corn CORN Plot the Points 10 20 30 40 50 60 70 80 P Q D

8. GRAPHING DEMAND 55 P Q o $5 4 3 2 1 $5 4 3 2 1 10 20 35 55 80 Price of Corn Quantity of Corn CORN Plot the Points 10 20 30 40 50 60 70 80 P Q D

9. GRAPHING DEMAND 35 P Q o $5 4 3 2 1 $5 4 3 2 1 10 20 35 55 80 Price of Corn Quantity of Corn CORN Plot the Points 10 20 30 40 50 60 70 80 P Q D

10. GRAPHING DEMAND P Q o $5 4 3 2 1 $5 4 3 2 1 10 20 35 55 80 Price of Corn Quantity of Corn CORN Plot the Points 10 20 30 40 50 60 70 80 P Q D

11. GRAPHING DEMAND P Q o $5 4 3 2 1 $5 4 3 2 1 10 20 35 55 80 Price of Corn Quantity of Corn CORN Plot the Points 10 20 30 40 50 60 70 80 P Q D

12. GRAPHING DEMAND P Q o $5 4 3 2 1 $5 4 3 2 1 10 20 35 55 80 D Price of Corn Quantity of Corn CORN Connect the Points 10 20 30 40 50 60 70 80 P Q D

13. GRAPHING DEMAND P Q o $5 4 3 2 1 $5 4 3 2 1 10 20 35 55 80 D Price of Corn Quantity of Corn CORN 10 20 30 40 50 60 70 80 What if Demand Increases? P Q D

14. GRAPHING DEMAND P Q o $5 4 3 2 1 $5 4 3 2 1 D Price of Corn Quantity of Corn CORN 10 20 30 40 50 60 70 80 D’ Increase in Demand Increase in Quantity Demanded 10 20 35 55 80 30 40 60 80 + P Q D

15. GRAPHING DEMAND P Q o $5 4 3 2 1 $5 4 3 2 1 10 20 35 55 80 D Price of Corn Quantity of Corn CORN 10 20 30 40 50 60 70 80 What if Demand Decreases? P Q D

16. GRAPHING DEMAND P Q o $5 4 3 2 1 $5 4 3 2 1 10 20 35 55 80 D Price of Corn Quantity of Corn CORN 10 20 30 40 50 60 70 80 -- 10 20 40 60 D’ Decrease in Demand Decrease in Quantity Demanded P Q D

17. To M arket D emand “ JO” $3 $3 $3 + + 35 39 26 $3 100 From “individual” demand to “market” demand [Total] “ Bo” “ Mo” D D D D = Demand - a record of how consumers buying habits change in response to price changes . [series of QDs that consumers will buy at different prices ] Individual Demand

18. . Van Gogh at 19 years of age Vincent van Gogh completed thousands of sketches and oil paintings. He sold only one, four months before his death, for 400 francs (about $100 dollars). He lived for only 37 years before he died in 1890.

19. Here is van Gogh’s “The Red Vineyard” , which sold for about $100 .

20. Vincent van Gogh’s Sunflowers $39.9 million I n 1987, how much was paid for one of his “ Sunflowers” paintings?

21. . Vincent’s first cousin , “ Kee ”, who rejected his advances. Self portrait after Vincent cut off his ear lobe with a razor blade in a state of fury. He wrapped the ear lobe in a newspaper & gave it to a female friend in a brothel.

22. Vincent van Gogh’s Self Portrait - 1889 $71.5 million “ Little Vincent” [age 13] So – during Vincent’s life, there was “big supply but no demand.” Or in other words, after his death he became “ da man. ” But – after his death, there was “big demand but small supply.”

23. “ I’ll buy at 5 cents but not at 10 cents.” .10 “ Not much business so I’m going to lower my price . . 10 .5 QD 1 D QD 2 Lower the price & increase QD “ M ovement , just a movement, not a shift.”

24. . Demand – quantities of products consumers are willing and able to buy at various prices during a given time period . D 1 D 2 D 3 D P 1 QD 1 QD1 Demand – willingness to buy QD 2 QD 2 QD 3 P 2

26. 1. MP3 Players 2. Cell Phones 3. New Jellies 4. LCD monitors 5. DVD players 6. Nintendo Wii 7. PS3 8. Digital cam. 9. XBOX 10. Plasma TVs 11. Clown fish 12. Seven jeans 13. iPhones 14. Portable DVDs 15. Karoke Machines 16. iPods 17. Bratz Dolls 18. Satelite TV iPods RAZR Name Goods That Have Greater Demand Today

27. . $5 4 3 2 1 DEMAND SCHEDULE … a specified time period … other things being equal 10 20 35 55 80 Price decreases ; QD increases Consumers “willingness to buy” $5 $4 $3 $2 $1 D 0 10 20 35 55 80 Quantity Demanded P Q D

28. Graphing the Demand Curve [price change, point to point movement] Picture of Law of Demand

29. . As price decreases … QD increases . 10 .60 . 25 . 25 . 10 . 60 I n v e r s e relationship between price & QD QD 1 QID 2 QD 3 QD 3 QID 2 QD 1 As price increases … QD decreases “ Let’s also buy Dr Pepper for just .10.” Price QD L aw of D emand for Dr. P epper

30. . “ You can have it in any color you want as long as it’s black” $850 Law of Demand statement “ Every time I reduce the charge for our car by $1, I get a thousand new buyers.” QD 1 Production went from 6,000 a year to 600,000. The “Model T” $260 QD 2

31. Where is the Mistake? Well, everyone knows that a price increase decreases the demand. OK, I demand that you fix me a glass right now. Forget it ! Why did you increase your price, Oliver? .15 Lemonade .15 per glass Lemonade .5 per glass

32. Where is the Mistake? D QD. QD – particular price; point on curve D – QD at every price; whole curve shifts; all prices Well, everyone knows that a price increase decreases the QD . .15 .5 QD 2 QD 1 OK, I demand that you fix me a glass, right now. Forget it! Why did you increase your price, Oliver? Lemonade .5 per glass .15 Lemonade .15 per glass

33. . 1. Income Effect - A t lower prices, current buyers are richer and will buy more. D 2. Substitution Effect - Buyers of higher priced substitutes will buy the lower priced substitutes Dr. Pepper is only 10 cents. I normally buy 7 - Up or Big Red. And I normally drink RC Cola, but not if I can get a 10 cent Dr P epper. Reasons For Downward Sloping “ D ” Curve

35. Law of Diminishing Marginal Utility An exception on this would be for women. They get just as much utility [if not more] out of the 50 th pair of shoes as for the 1 st pair . Wal-Mart sells 20,000 pairs of shoes each hour. Women buy 19,000 of the 20,000 pairs of shoes. Of course the new pair are a different c o l o r .

36. . 53 ¾ Hotdogs & Still Talking Trash The Japanese “ Tsunami ” Wins Again

37. How He Did It Takeru Kobayashi , at 112 lbs. before the contest (& 130 afterwards) won the “Nathan’s Famous Hot Dog” contest for the 4th year in a row with 53 3/4 hot dogs in 12 minutes, bettering his old record by ¼ hot dog. This contest has been held every year on July 4 since 1916. In 2 nd place was 410 pound Eric “Badlands” Booker, who could barely eat 30 . At 320 calories per hot dog, he put 17,120 calories into his stomach in 12 minutes , thus the 18 extra pounds .

39. Change in Taste for American Flags Increase in demand for flags after the attack on the World Trade Center D 1 D 2

40. Demand for Clown Fish increased fourfold after “Finding Nemo” even thought they cost $28.00 [The #1 movie of 2003 grossed $340 million] Demand for clown fish after Nemo $28

41. The good news is that Nemo has finally been found. The bad news is the condition in which he was found.

42. D 1 D 2 Increase in Demand [For horse racing after “Seabiscuit” ] S P 1 P 2 Q 1 Q 2 Seabiscuit , the undersized, crooked-legged racehorse became the most “beloved horse of all time.” Offspring were called “ little biscuits.” Died at age 14 of a heart attack.

43. . Seabiscui t wins by 4 lengths. [and War Admiral becomes Rear Admiral ] Let’s Take A Look At The 1938 Race. [ War Admiral v. Seabiscuit ]

44. Change in Income Normal Good – goods whose demand varies directly with income. Inferior Good – g oods whose demand varies i n v e r s e l y with income. Income Demand For Spam Demand For Steak

45. Population (direct) (# of consumers) Market size can increase/decrease. Ex: The large “ baby boom ” of 1946-64 increased the demand for baby supplies. An increase in life expectancy increased demand for for medical care, retirement communities, and nursing homes.

46. Consumer Expectations Consumer expectations about future product price , future availability , & future income . Ex: When the Korean War broke out in the summer of 1950, new car sales boomed (also washers and refrigerators ) out of the expectation of a production stoppage like during WWII. None occurred but it was the expectation that affected new car demand . car

47. Prices of Related Goods QD 1 QD 2 1. Substitute goods (“ competing goods ”) - price change of one affects the demand of the other directly . Ex: 7 Up & Coke, Honda & Toyota 2. Complementary goods (“ go together ”) - price change of one affects the demand for the other inversely . Ex: Camera & film, cereal & milk, or coffee & donuts D 1 D 2 QD 2 QD 1 D 2 D 1

48. Price Of 7 UP Demand for Dr Pepper Substitutes – Direct [ Increase in price of one; increase in “D” of the other] P P 2 P 1 QD 2 QD 1 QD QD D D

49. C o m p l e m e n t s – i n v e r s e [ Decrease in price of one; increase in the “D” for the other] Car Prices Gasoline Demand P QD QD D 1 D 2 They are so cheap that even dogs are buying cars P 1 P 2 QD 1 QD 2 D

50. Price Of iPod Nano Demand for Microsoft Zune Substitutes – Direct [ Increase in price of one; increase in “D” of the other] P P 2 P 1 QD 2 QD 1 QD QD

51. Price Of Chicken Demand for Turkey Substitutes - Direct

52. . Hot Dogs Hamburgers Pancakes Syrup “ Substitutes” Price Decreases Price Decreases P D 2 D D 1 QD 2 QD 1 QD 1 QD 2 P 1 P 2 “ C o m p l e m e n t s” Price Decreases Demand Increases P D 1 D 2 D P 1 P 2 QD 1 QD2 QD 1 QD 2 Substitute / C o m p l e m e n t Relationships

53. Elasticity of Demand

54. I would like to talk to you today about two products. Insulin and bicycles

55. Almost 20 million Americans have Diabetes Source: American Diabetes Association

56. Every morning, millions of diabetics give themselves a shot to stay alive

57. Now you say to yourselves again, what do bicycles and insulin have in common

58. 20 M Insulin Bicycles $1 $2 $3 $100 100 200 500 $100 $200 $300

59. The 3 tests to determine elasticity

60. 1. Can the purchase be delayed?

61. Insulin Bicycles Cannot be delayed Can be delayed

62. 2. Are there adequate substitutes available?

63. Insulin Bicycles Few substitutes Cannot be delayed Many Substitutes Can be delayed

64. 3. One is expensive and one is inexpensive

65. Insulin Bicycles Few substitutes Cannot be delayed Inexpensive Many Substitutes Can be delayed expensive

66. 4. The total receipts test: Price X Quantity = Revenue $3 X 20 m = $2 X 20 m = $1 X 20 m = $ 60,000,000 $ 40,000,000 $ 20,000,000 $300 X 100 = $200 X 200 = $100 X 500 = $ 30,000 $ 40,000 $ 50,000 20 M Insulin Bicycles $1 $2 $3 $100 100 200 500 $100 $200 $300 P X Q = Revenue P X Q = Revenue

67. Pop is Elastic!

68. Inelasticity of Milk

69. Elastic or Inelastic (Total Receipts Test) Total Receipts Test 20 x $2 = $40.00 Total Receipts Test 20 x $2 = $40 20 30 40 50 $2 $1 Inelastic Elastic 30 x $1 = $30.00 50 x $1 = $50

71. . Elastic Demand For Cassette Tapes -$1 D “ TR” Test $2.50x100,000=$250,000 $1.50x600,000=$900,000 +$650,000

72. E lastic D emand F or C assette T apes Total Receipts Test $2.50=$250,000 $1.50=$900,000 + $650,000 -$1 D “ TR” Test $2.50x100,000=$250,000 $1.50x600,000=$900,000 +$650,000

73. +25 % QD -$1 D “ TR” Test $2 = $30 bil. $1 = $20 bil. -$10 bil.

74. E lastic or I nelastic Demand E lastic or I nelastic Demand E lastic I nelastic

75. Estimating the Elasticity of Demand 3 Key Questions: 1. Subs? 2. Necessity? 3. Expensive?

77. Price Changes for Substitutes & C o m p l e m e n t s Substitutes - Direct Dr Pepper Complements - I n v e r s e Coke P 1 P 2 P 1 P 2 QD 1 QD 2 D D D 1 D2 D 1 D 2 Motorcycles Helmets

78. __1. Which will cause an “Increase in D” for MP3 Player phones? a. increase in income c. increase in the price of MP3 Player phones b. decrease in income d. decrease in the price of MP3 Player phones ___2. Which will cause an “Increase in QD” for MP3 Player phones ? a. decrease in income c. decrease in the price of MP3 Player phones b. increase in income d. increase in the price of MP3 Player phones ___3. Which will cause a “Decrease in D” for Projectors ? a. increase in the price of projectors c. decrease in # of consumers b. decrease in the price of projectors d. increase in projector taste ___4. Which will cause a “Decrease in QD” for Projectors ? a. increase in the price of projectors c. decrease in # of consumers b. decrease in the price of projectors d. increase in projector taste A C C A MP3 Player Phone [stereo sound, downloadable sound games and ring tones]

79. QD & D Practice Quiz [ S nickers ] 1. What would cause an “increase in QD” for Snickers? a. increase in price of Snickers b. decrease in price of Snickers c. decrease in income d. increase in number of consumers 2. What would cause an “increase in D” for Snickers? a. increase in taste b. decrease in price of Snickers c. decrease in income d. increase in the price of Snickers 3. What would cause a “decrease in QD” for Snickers? a. increase in taste b. decrease in price of Snickers c. increase in price of Snickers 4. What would cause a “decrease in D” for Snickers? a. decrease in income b. increase in taste c. decrease in price of Snickers 5. An “increase in the price of Butterfingers would cause a(n) (increase/decrease) in (QD/D) for Snickers ?

80. NS 1-10 1. (Demand/Supply) is identified as quantities consumers are willing and able to buy at various prices during a given time period . 2. The law of demand says that price & QD are (directly/inversely) related. 3. The most important variable influencing decisions to produce and purchase goods is (technique/price). (Price/income) is not held constant when moving along a stable demand curve . 4. Income effect-the increase or decrease in purchasing power brought on by a change in (taste/market size/price). 5. Substitution effect – tendency to substitute a (higher/lower) -priced product for a more expensive product. 6. Diminishing marginal utility – utility , or (determination/anger/satisfation) decreases as more of the same product [Snickers] is consumed. 7. The law of demand refers to a (movement/shift) along a demand curve. 8. Substituting chicken as the price of steak goes up is an example of the (income/substitution) effect. 9. When the price of caviar falls , the purchasing power of our money income rises & thus permits us to purchase more caviar. This is the (income/substitution) effect. 10. The demand (curve/schedule) is a numerical tabulation showing QD at each price. The demand (curve/schedule) is a graphical representation of the law of demand.

81. NS 11 - 20 11. Elasticity of demand – the way price affects (attitude/quantity/market size). 12. (Inelastic/Elastic) demand – demand that is very responsive to price. [A small price increase causes a large decrease in quantity demanded.] 13. (Inelastic/Elastic) demand-when a change in price has little impact on QD . 14. The 3-item test for elastic demand are substitutes, luxury items, and (inexpensive/expensive) items. 15. The 3-item test for inelastic demand are no substitutes, necessities, and (inexpensive/expensive) items. 16. Expensive cars have (inelastic/elastic) demand. 17. Pepsi Cola has (inelastic/elastic) demand. 18. Insulin has (inelastic/elastic) demand. 19. The elastic demand curve is more (horizontal/vertical). [much change] 20. The inelastic demand curve is more (horizontal/vertical). [not much change]

82. NS 21-26 21. With the invention of the calculator , the demand curve for the slide rule (increased/decreased). 22. When Forest Gump went to China & the U.S. followed by opening up relations with China , the demand curve for Coke (increased/decreased). 23. An increase in income would (increase/decrease) the demand for used clothing . [inferior good] 24. A decrease in income would (increase/decrease) the demand for lobster. [normal good] 25. A decrease in the price of product X [lumber] will (incr/decr) the demand for the c o m p l e m e n t a r y product Y . [nails] 26. A fter Brooke Shields [15] did her national TV ads [“Nothing comes between me and my Calvin’s”], the “D” curve moved (right/left).

83. NS 27-38 27. An increase in the price of Pepsi causes the demand curve for Coke to move to the (right/left). 28. If there is a sale on shirts , the demand curve for ties will move to the (right/left). 29. If a man’s workplace is about to close down , his demand curve for major purchases would move to the (right/left). 30. If a cure for lung cancer were found, the demand curve for cigarettes would move to the (right/left). 31. If the price of pancakes decreases , the demand for syrup , a c o m p l e m e n t , will (increase/decrease). 32. If the price of butter decreases , the demand for margarine will (incr/decr). 33. A “change in QD” is caused by (price change/TIMER) [a “movement”] 34. A “change in D” is caused by (price change/TIMER) [a “shift”] e