•Reflection/Practice Quiz, CH 1 & 2 HW packets

•QOD #5: High Priced Athletes •Law of Demand (Graph it!) •Demand Curves •Diminishing Marginal Utility

•HW :Looking for Supply & Demand Part 1 Read pp 47-53 (stop @ supply) Questions #2,3

AGENDA Thurs 8/27

• Fans often complain that athletes get paid too much money and that these higher salaries lead to higher ticket prices. 1. Do you agree or disagree with this statement?

• Higher ticket prices lead to lower sales.

2. Why does this happen?

3. Why would they raise ticket prices?

• If the Lakers sell 20,000 tickets at $25 and only sell 12,000 at $30, which ticket price brings in more total revenue?

• If players salaries go up from $300,000 to $325,000 per game what price would you sell your tickets at? The attendance numbers from above still apply.

• What do you think might cause ticket prices to go up?

demand refers to the buying side

supply refers to the selling side

Local, national, international

Personal or remote

Product markets involves goods or services ex: swap meet, stock market, grocery store, E-Bay

good is a tangible item [product] that gives a person utility or satisfaction

Utility: something that is useful or designed for use

service is an intangible item that gives a person utility or satisfaction

Resource market involves factors of production

Demand- willingness and ability to purchase a good or service (specific time

period) willingness to purchase refers to a person’s want or desire

for a good

ability to purchase means having the money to pay for the good.

You may want something but may not have the ability to pay for it.

There is no demand unless BOTH components are there.

A demand schedule a numerical chart that illustrates the law of demand

A demand curve is graphic representation of the law of demand

is a graphic plotting of various price-quantity comparisons

Law of Demand

as the price (P) of a good increases, the quantity demanded (QD) of the good decreases

as the price of a good decreases, the quantity demanded increases

Inverse Relationship between P and QD

Quantity Demanded (QD)

the number of units of a good purchased at a specific price

Law of Demand

(where P = price and QD = quantity demanded

If P then QD

If P then QD

Reasons •Common sense

•Law of diminishing marginal utility

•Income effect and substitution effects

The law of diminishing marginal utility (satisfaction) says that as a person consumes additional units of a good that eventually the utility (satisfaction) gained from each additional unit of the good decreases.

You get more utility (satisfaction) from the first Chipotle burrito that you eat then you do from the 2nd, 3rd, and 4th burrito that you eat.

As goods consumed increased the usefulness of that good decreases.

Is your fifth Chipotle burrito as useful as your first?

or?

The more satisfaction (utility) you receive from a unit of good the higher price you are willing to pay for it.

The less satisfaction (utility) you receive from a unit of good the lower price you will pay for it.

How much will you pay for that 1st Chipotle burrito?

2nd? 3rd? 4th?

A shift to the right indicates that demand has increased.

buyers are willing and able to purchase more of a good at all price points

A shift to the left indicates that demand has decreased.

buyers are willing and able to purchase less of a good at all price points

Demand then Demand Curve shifts to the right

Demand then Demand Curve shifts to the left

LO1

Determinants of Demand: Factors That Shift the Demand Curve

Determinant Examples

Change in buyers’ tastes Physical fitness rises in popularity, increasing the

demand for jogging shoes and bicycles; cell phone

popularity rises, reducing the demand for land-line

phones.

Change in the number of buyers A decline in the birthrate reduces the demand for

children’s toys.

Change in income A rise in incomes increases the demand for normal

goods such as restaurant meals, sports tickets, and

necklaces while reducing the demand for inferior

goods such as cabbage, turnips, and inexpensive

wine.

Change in the prices of related

goods

A reduction in airfares reduces the demand for bus

transportation (substitute goods); a decline in the price

of DVD players increases the demand for DVD movies

(complementary goods).

Change in consumer expectations Inclement weather in South America creates an

expectation of higher future coffee bean prices,

thereby increasing today’s demand for coffee beans.

3-18

Income

Tastes & Preferences (Consumer Attitudes)

Number of Buyers

Price of Related Goods

Price Expectation

Income – as their income rises, people can buy

more of any particular good

Having the ABILITY does NOT always mean having the WILLINGNESS to buy more.

• normal good – demand as income • (clothes, computer)

• inferior good – demand as income

• (discount jeans, refurbished computer)

Tastes & Preferences (Consumer

attitudes)– a change in preferences shifts the demand curve

Number of buyers – more buyers = higher

demand as more people move into an area rent prices go up

Price of Related Goods – two types of related

goods

substitutes – the demand for one good moves in the same direction as the price of the other (as P of coffee increases, the D of tea as a substitute will go up - explain)

complements – goods that are consumed together (as P of gas goes up, D of SUVs go down)

Price Expectations - if consumers expect the price

to increase, they try to buy more now before the price rises.

Quantity demanded - refers to the number of units of a good purchased at a specific price. (It is always a number.)

A change in demand refers to a shift in the demand curve.

A change in income, preferences, price of related goods, number of buyers, or price expectation can change demand.

A change in quantity demanded refers to a movement along a demand curve.

Only price of the good can directly cause a change in the quantity demanded of a good.

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