Economics & Economic Decision Making

Question:

How many marshmallows can you eat?

What does it mean to demand marshmallows?

You need your notebook today.

Different Levels of Demand

1. Utility:- the satisfaction we receive from consuming one

product.

2. Marginal Utility:- The extra satisfaction we get from consuming

additional products.

3. Diminishing Marginal Utility: - at a certain point, our satisfaction hits a peak and

then we lose satisfaction with each additional unit.

OPEC vs. OBECBoth of these organizations raise their prices by 25%. The law of demand states that they will both see a decline in the quantity demanded. Which group will feel the effect more?

The Law of Demand states: as prices go up, demand will go…down.

Elasticity

• A measure of responsiveness that tells how a quantity responds to a change in price.

• Law of demand states that as price changes the quantity demand changes but HOW MUCH? Elasticity measures how much q.d. will change when price changes.

Categories of Elasticity

(1) Elastic Demand:

a given change in price causes a relatively larger change in quantity demanded.

Examples: High demand products, products we desire often; i.e., food, clothes, think Sunday Ads, any g&s with lots of Substitutes

Inelastic Demand:

a given change in price causes a relatively smaller change in quantity demanded.

Example: Luxury Items, Medical Products, & Products with no Substitutes; i.e., Jewelry, cars, insulin, salt, gasoline

Put these in order of which you would buy first if all were dropped

in price by 50%

Sabres Tickets

Dubble Bubble Gum

Sharpie Pens

Concert Tickets

iPhone

Aeropostale Jeans

Spectrum of Elasticity

Elastic Demand: change in price has a big effect

Inelastic Demand: change in price has little effect

SUMMARY BALL!!

• Fun little tool to review material. It is the opposite of mum ball. When you catch the ball you must say a fact from Chapter 4! It can be a term or a definition. Last people standing leave with a prize!!

• We have just finished chapter 4 – Demand. How well do you know your stuff?

Read each of the following price changes and decide if it will have a big change in

demand or little a to no change

1. Jaguars are on sale for $74,999.99 from $80,000.

~little to no change in demand, why? Too Expensive Already! Or if I can already afford it the price change doesn’t affect me either.

2. iPhones are decreased in prices to $100.

~big change in demand, why? New tech. people still crave it!!

Changes cont.,

3. Diamonds increase in price from $989 a carat to $1149 a carat.

~little to no change, why? Same as Jag.

4. McDonald’s puts its cheeseburgers on sale for $.25.

~big change, why? Super Cheap Food

Changes cont.,5. Gasoline decreases in price to $1.50

per gallon.

~little to no change, most Americans buy it regardless of price!! I can’t overstock on gas only what my tank can hold. This won’t change MOST people’s driving habits…but yes it would probably affect teenagers (those with limited incomes!!)

Changes cont.,

6. Fresh corn on the cob is on sale for $1.

~big change, why? Lots of substitutes for veggies and this is a great low price!!

7. The price of Insulin doubles.

~no change, why? Diabetics take what they need even if it gets too expensive!!