Opportunity Cost

EconomicsMr. KirbyCHSUnit 2: Lesson #1: Demand!

Small Group Problem Solving ActivityRole: Small Focus Group for Target Corporation-NEED ONE PIECE OF NOTEBOOK PAPER

Task: Create a Top 10 List of Trick or Treat Candy Items Demanded by consumers last year during Halloween.

Goal: To match my list of Top 10 Trick or Treat Candy demanded (purchased) last year during Halloween.

Reward: People respond to incentives in predictable ways!: $500 prize per group!

JUST KIDDING- From Freakonomics we know that people would probably cheat then.

Prize: Trick or Treat candy for winning team and all the glory and honor bestowed to you for a Job well done!

Brainstorm a list of twenty items within your group

If you have a list greater than twenty, you must decide as a group which item (s)to eliminate from your list

Match my List: Total possible score 14 points

Top 10 Demand for Trick or Treat Candy 2013Top Ten Trick or Treat Candy Purchased by consumers at Halloween 2013!SkittlesSnickersStarburstsM&MsNerdsTootsie rollsSour Patch KidsTwizzlersSmartiesCandy Corn*

EconomicsMr. KirbyCHSUnit 2: Lesson #1: Demand!

Concentration on these slides is guarantied to improve your economics grade.

Warning5We will be using Cornell Note Taking Format Today!Smile and Own the Day!

Take one step at a time toSuccess in Economics class!Unit Two: Learning Objectives:North Clackamas School District Social Studies Priority Standards:HS.51 (A): Explain how supply and demand represents economic activity and describe the factors that cause them to shift.

Lesson One: Daily Learning TargetI Can define and explain in writing thefollowing key Economic concepts:

Law of DemandSubstitution EffectIncome Effect

DEMAND

$5

$4

$3

$2

$10 10 20 35 55 80

PChange in DQuantity DemandedQD is a value on the X axis and is a point on the demand curve represented by a movement caused by a price change.Demand is a line and not a point. It is a schedule of the amount consumers are willing and able to buy.DEMANDD

Caused by a change in TIMERChange in QDCaused by a change in priceD2

Why do roses cost more on Valentines Day?

Why do TV ads cost more during the Super Bowl ($4 million for 30 sec.) than during Nick at Nite reruns?

Why do hotel rooms in Sun Valley, Idaho cost more in the winter than in the summer?

Why do surgeons earn more than butchers?

Why do pro basketball players earn more than pro hockey players?

Why do Christmas lights go on sale December 26th?

Why can I pay $40 to see Hall and Oates at the Schnitzer in 2014When in 1984 it would have cost me $100 at Memorial Coliseum?

The answer to these and other economics questions boil down to the workings of supply and demand the subject of this chapter.

Demand and SupplyEcon, Econ

To Market DemandIndividual Demand

JO$3$3$3++353926$3100From individual demand to market demand[Total]BoMoDDDD=

And, what if the price of this product decreases from $3 to $2?

$240

$245$230$2

115

A point to point movement on the same D curve is a Change in QDAnd what if this good prevents cancer, then we have an increase in D for it.D2

1151

.Dirk Nowitski, $22.7 M in 14Maria Sharapova, worlds best paid female athleteat $18.2 millionAdrian Beltre, $16 million for 2014.One out of every 8,000 high school basketball players goes on to play in the NBA. Scouts looking for rare talents (scarcity)Big Demand, Small Supply of great athletesBecause of so much demand for tickets for game five of the NBA finals at the AAC, $35 nose-bleed tickets were going for $395; $65 seats were going for $3,000,and courtside seats were going for $9,500. This was caused by Big Demand.

Chances of playing any level of college sports after High School: Ice Hockey-11.3%;Baseball - 6.8%, Football- 6.5%; Mens soccer - 5.7%; Womens Basketball - 3.7%; and Mens Basketball 3.3%.

Vincent van Gogh as Da ManVan Gogh at 19 years of ageVincent 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 37 years before he shot himself in the chest in a wheat field and died in 1890.

Here is van Goghs The Red Vineyard, which sold for about $100.

In 1987, how much was paid for one of his Sunflowers paintings?

$39.9 million

Vincent van Goghs Sunflowers

In 1987, his Irises sold for?

$53.9 M

Vincent van Goghs Dr. Gachet & IrisesIn 1990, this painting was sold to a Japanese investor for?

$82.5 million.

Vincents first cousin, Kee, who rejected his advances.Self portrait after Vincent cutoff his ear lobe with a razorblade in a state of fury.He wrapped the ear lobe ina newspaper & gave it to afemale friend in a brothel.

$71.5 millionLittle Vincent[age 13]So during Vincents 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 demandbut small supply.RARE A Collectable

Vincent van Goghs Self Portrait - 1889DemandA relationship between price and quantity demanded in a given time period, ceteris paribus.

What is Demand?Willing and able to purchase a product at a particular priceHow many of you would like a Porsche [or like vehicle]?How many of you are able?Whats the difference between willing and able?Idea of time and place at this time, you may be willing to buy a Porsche, but are not able, therefore you do not have a DEMAND for a Porsche

MarketsIn a market economy, the price of a good is determined by the interaction of demand and supply.

Why do we purchase more when a saleoccurs?Its obvious, isnt it? Consumerslove low prices!

Look at this demand curve.What happens to quantity purchasedas prices rise?

As price goes down, demand goes up!

$54321a specified time periodother things being equalPQD1020355580Price decreases; QD increasesConsumers willingness to buy$5

$4

$3

$2

$1D0 10 20 35 55 80Quantity Demanded

DEMAND SCHEDULE

QD how much will be purchased at a specific price [& date].

Law of Demand

Picture of Law ofDemandGraphing The Demand Curve[Price Change, Point to Point Movement]

The Demand For Ice Cream ConesQuantity Demanded

QD1 6,000 .

You can have it in any color you want as long as its black$850

Production went from 6,000 a year to 600,000.

$260QD2600,000

Law of Demand statementEvery time I reduce the charge for our car by $1,I get a thousand new buyers.

The Model T

The Law of DemandThe law of demand states that consumers buy more of a good when its price decreases.Conversely, consumers buy less of a good when its price increases.Consumers love low prices.

It really depends on the price, doesnt it?

The Substitution EffectOne reason that the law of demand exists is the substitution effect.The substitution effect occurs when a consumer reacts to an increase in a goods price by buying less of that good and more of a similar yet cheaper good.When the price of orange juice rises, consumers substitute cheaper apple juice for orange juice.

PriceOf7UPDemand for Dr Pepper[Increase in price of one; increase in D of the other]

PP2

P1QD2 QD1

QD QDDD1

D2Substitutes - DIRECT

Increase in DemandMore QD at all pricesDemand Curve shifts right

Decrease in DemandLess QD at all pricesDemand Curve shifts leftPrice does not change [shift] Demand.Price can only change Quantity DemandedChanges in Demand

Lower prices allow consumers toincrease demand.Lower prices increase consumerspurchasing power.This is known as the income EffectThe Income EffectThe income effect is the change in consumption resulting from a change in income.In other words, when prices rise, your money buys less.Higher prices reduce your purchasing power.

D. As price decreases QD increases5010$1

Inverse QD1 QID2 QD3

Lets also buy coke forjust 10.PriceQD.50

If Coke, Pepsi, Dr. Pepper, 7-Up, Sprite, Root Beer, & Mountain Dew were all selling for $1, who would buy Coke?OK, Here you are, one of these guysHow many of you non-Coke drinkers would buy Coke for just 50?OK, Here you are, the added buyer coke drinkers.Now, how many of you non-Coke drinkers would buy Coke for just 10?And, here are even more added buyer coke drinkers.We have demonstrated the income effect. Lower prices increased income so more was consumed. And the substitution effect, consumers of higher priced soft drinks bought the lower priced Coke.

Wow, fiftycents! Ill have two.Wow, tencents! Ill also have 2.At 10, two for me too.Law of Demand for Coca Cola

Economists love graphs because graphsprovide easy understanding of economicconcepts.

If a picture is worth a thousand words,a graph is worth even more.

A demand schedule records the quantitydemanded at various prices.

A demand schedule can easily be converted to a demand curve.

Demand curve

Draw a Demand curve now. With a verical price line and a horizontal quantity line and a 0 at the axis.

Now plot out the numbers from this demand Schedule for Sony Blu-Ray Players at Best Buy.

Demand curve

Draw another Demand curve again. With a verical price line and a horizontal quantity line and a 0 at the axis.

Law of DemandRemember: As price falls, the quantity demanded increases. As the price rises, the quantity demanded decreasesPQDPrice For Bruno Mars Ticket at the Moda Center in Portland Quantity of tickets (in thousands) demanded at the given price$500$404$308$2012$10$01620

TICKETPRICE$50 403020100048121620Demand for tickets(thousands)Inverse (Negative) RelationshipInverse - 2 variables move in opposite directionsTICKET PRICE (P) 0 4 8 12 16 20Demand for tickets IN THOUSANDS (Q)$50

40

30

20

10abcdeabcfefd

In Economics the independent variablecan be on either axis.

Finish Freakonomics Reading:Finish Reading Article: Drug Dealers who live with their Moms!Pick up Reading Questions from me.Answer questions with a partner and turn into me please. Finished

Partner Economic Book Practice:Skim through Unit two: Lesson One in the economics book (pages 87-90)Answer questions 1-11 on a piece of notebook paper and turn directly into me today.