individual demand remember- demand goes down 6 5 4 3 2 1 0 10 20 30 40 50 60 70 80 quantity demanded...

Individual DemandRemember- Demand goes Down

6

5

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2

1

0

10 20 30 40 50 60 70 80 Quantity Demanded (bushels per week)

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IndividualDemand

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Law of Diminishing Marginal Utility

• Each buyer of a product will get less utility from each extra unit consumed

• Consumers will only buy more units if the prices become progressively cheaper

• Ex- the 4th Big Mac will give less satisfaction than the 3rd, 2nd, 1st

Income Effect

• A lower price increases the purchasing power of a buyer’s income• A higher price has the opposite

effect• Ex:

An Increase in Demand

A shift of the demand curve is a change in the quantity demanded at any given price, represented by the change of the original demand curve to a new position, denoted by a new demand curve.

Increase in population more coffee

drinkers

Price of coffee

beans (per gallon)

70 9 11 1513 17

$2.00

1.75

1.50

1.25

1.00

0.75

0.50 D1 D2

Demand curve in 2006

Demand curve in 2002

Quantity of coffee beans (billions of

pounds)

Movement Along the Demand Curve

7 8.1 9.70 10 1513 17

$2.00

1.75

1.50

1.25

1.00

0.75

0.50 D1

D2

A C

B

A shift of the demand curve…

… is not the same thing as a movement along the demand curve

Price of coffee beans (per

gallon)

Quantity of coffee beans (billions of

pounds)

A movement along the demand curve is a change in the quantity demanded of a good that is the result of a change in that good’s price.

Shifts of the Demand CurveA “decrease in demand”, means a leftward shift of the demand curve: at any given price, consumers demand a smaller quantity than before. (D1D3)

Price

Quantity

D3

D1

D2

Increase in demand

Decrease in demand

An “increase in demand” means a rightward shift of the demand curve: at any given price, consumers demand a larger quantity than before. (D1D2)

Why Are Their Demand Shifts?• Demand for a good or service changes/shifts when

there is a change in:– Consumer’s preferences or incomes– The prices of related goods or services– The number of consumers in the market

THEN

Determinants of Demand

• Changes In: TRIBE• T- Tastes• R- Price of Related Goods• I- Income of Buyers• B- # of Buyers• E- Expectations of the Future

Substitution Effect

• At a lower price, buyers will substitute a good in exchange for the higher priced alternative and vice versa

• Ex- If the price of chicken lowers, the buyer will buy less beef, pork etc.

Substitute Goods

• one that can be used in place of another good• An increase in the price of one good

will increase the demand of its substitutes and vice versa

Complementary Goods

• One good that is used together with another good• If the price of one goes up, the demand for the

complement will decline and vice versa• Ex- Peanut butter and Jelly, tuition and textbooks

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Supply Shifts

• Supply of a good or service changes/shifts when there are changes in:– The prices of productive resources used to make the

good or service– Number of sellers in a market– The opportunities for profit available to producers of

other goods or services – The technology used to make the good or service

Determinants of Supply

• R- Resource Prices- Inputs that go into making a good(s)

• O- Other Goods’ Prices - Substitutes (milk/cheese) in production and joint products (mulch/lumber)

• T- Taxes and Subsidies• T – Technology Change- increased/decreased

efficiency• E- Expectations of Suppliers- expect. of future prices• N- Number of Sellers- more suppliers = higher

Supply

Supply Shifts

The cost of ammunition to private consumers in the United States skyrocketed following the September 11th attacks, as the United States prepared for military action in the Middle East. Why? What happened to cause this?

Market Price• AKA Equilibrium Price• Reached when demand & supply curves

intersect– price when the supply of goods in a particular market

matches demand – for a manufacturer, the price that maximizes a

product's profitability.

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You Try It! With your partner, come up with an example that explains what is

happening.

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You Try It! With your partner, come up with an example that explains what is

happening.

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You Try It! With your partner, come up with an example that explains what is

happening.

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You Try It! With your partner, come up with an example that explains what is

happening.

Student Assignment

• Brainstorm three products that have had a price increase or decrease in your lifetime.– Identify what factors have caused the price shift– Graph it and provide a 1-2 sentence explanation of your

analysis.