Economic Systems. Mixed Economies -market-based system in which the government plays a limited role.

Transcription

1 Economic Systems Mixed Economies -market-based system in which the government plays a limited role.

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3 (product market) the ability and willingness to buya good or service. Schedule table that shows the quantities of a good/service that a person will purchase at each price. ed

4 for HW Passes HW PASS This HW pass exempts one HW assignment $20 # ed $10 $5 $1

5 curve = a graph of a demand schedule ed $20 0 $10 6 $5 11 $ 1 15

6 LAW OF DEMAND As Falls ed Rises As Rises ed Falls Inverse relationship ed

7 If the price changes from $10 to $15, what happens to quantity demanded? A change in the price of good x will result in a change in the quantity demanded (Δ QD) in good x. movement along the demand curve

8 Are there any exceptions to the law of demand? (meaning buyers demand more as prices increase) Examples? Why? Social value, quality

9 12 The law of demand is the result of three separate behavior patterns that overlap: 1.The Income effect 2.The Substitution effect 3.The Law of Diminishing Marginal Utility

10 Curve A change in the price of a good changes Overall purchasing power of the consumer (the income effect) Relative price of the good (the substitution effect) Income effect As price of a good decreases, the consumer s purchasing power increases, causing a change in quantity demanded for the good A drop (rise) in price increases (decreases) purchasing power Substitution effect As the price of a good falls, the consumer substitutes that good in place of other goods whose prices have not changed

11 Law of diminishing marginal utility: the marginal utility of a good declines as more of it is consumed over a given time period. Consumers will pay according to the utility they receive. They will pay more when the utility is high and less when the utility is low.

12 Can you see the Law of Diminishing Marginal Utility in Disneyland s pricing strategy? Change N/A $54 $33 $15 $10 $5

13 for HW Passes HW PASS This HW pass exempts one HW assignment $20 # ed $10 $5 $1

14 Change in demand( D)= A change in quantity demanded at every price the entire demand shifts and a new demand curve is created. A shift to the right means increase in demand a shift the left ( left is less ) shows a decrease in demand. Increase in demand D1 original demand curve D2 shifted demand curve Decrease in demand D1 ed

15 A decrease in demand means that consumers buy less at every price level, (or they reduce the price they re willing to pay for a given quantity.) per Unit $50 $25 The demand curve shifts to the left. Lower Willingness to Pay for the Same Less ed at the Same New Curve Old Curve

16 An increase in demand means that consumers buy more at every price level, (consumers are willing to pay more for each quantity.) per Unit $50 $25 The demand curve shifts to the right. Greater Willingness to Pay for the Same Greater ed at the Same Old Curve New Curve

17 Determinants of non-priceconditions thatinfluence a consumer s willingness and ability to demand a good (QD changes at every price level). T-taste and preferences R-related goods -complementary products & substitutes I- income of buyers B-buyers -# of E-expectations of future prices ****REMEMBER, a change in the PRICE doesn t shift the curve, it only causes a movement along the curve.

18 Taste of Buyers How we view the product. Influenced by advertising, news reports, trends, etc.

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20 Complementary products the use of one increases the use of the other Related Goods Substitutes-When the price of one item changes, consumers will switch to a similar but cheaper alternative $399 $370

21 Income Changes in income not only affect a person s ability to demand goods but also affect the types of goods that are demanded. 1. Normal Goods goods you prefer to have when you have more money. Ex: name brand goods, dine-in meals As income increases, demand increases As income falls, demand falls 2. Inferior Goods -goods you buy when you have less money. Ex: generics, used cars, drive-thru meals As income increases, demand falls As income falls, demand increases 24

22 Buyers (# of) As the populationof an economy changes, the # of buyers of a particular good also changes What will happen to the demand for snowboards in 2050? What about walking canes?

23 HW PASS What would happen to the demand for HW passes if 15 students dropped this class? This HW pass exempts one HW assignment $1 $20 $5 $10 QD # ed QD $10 $5 $20 $1

24 Expectations of Future s The expectationof a higher (lower) price for a good in the future increases (decreases) current demand for the good. Consumers will adjust their current spending in anticipation of the direction of future prices in order to obtain the lowest possible price.

25 Video: The Hudsucker Proxy What happened to the demand for hula hoops? Δ QD or Δ D?

26 Schedule of Cereal $5 ed 4 $5 10 $4 20 $3 30 What if cereal 3 makes you smarter? 2 $2 50 $ o of Cereal Q 29

27 Change in Schedule $5 10 $4 20 $3 30 ed of Cereal $ $2 50 $ o of Cereal Q 30

28 Change in Schedule $5 10 $4 20 $3 30 ed of Cereal $ $2 50 $ o of Cereal Q 31

29 Change in Schedule ed $ $ $ of Cereal $ $ $ o of Cereal Q 32

30 Change in Schedule ed $ $ $ $ $ of Cereal $ o Increase in s didn t change but people want MORE cereal of Cereal Q D 1 33

31 Change in Schedule of Cereal $5 ed 4 $5 10 $4 20 $3 30 What if cereal 3 causes baldness? 2 $2 50 $ o of Cereal Q 34

32 Change in Schedule $5 10 $4 20 $3 30 ed of Cereal $ $2 50 $ o of Cereal Q 35

33 Change in Schedule $5 10 $4 20 $3 30 ed of Cereal $ $2 50 $ o of Cereal Q 36

34 Change in Schedule ed $ $ $ of Cereal $ $ $ o of Cereal Q 37

35 Change in Schedule ed $ $ $ of Cereal $ Decrease in s didn t change but people want LESS cereal $ $ o D of Cereal Q 38

36 Change in Schedule of Cereal $5 ed 4 $5 10 $4 20 $3 30 What if the price 3 of MILK goes up? 2 $2 50 $ o of Cereal Q 39

37 A B C Δ in price movement along the demand curve change/δin QD Δ in TRIBE the entire demand curve shifts change/δin D

38 Practice Hamburgers (a normal good) 1. Population boom 2. Incomes fall due to recession 3. for Carne Asada burritos falls to $1 4. increases to $5 for hamburgers 5. New health craze- No ground beef 6. Hamburger restaurants announce that they will significantly increase prices NEXT month 7. Government heavily taxes shake and fries causes their prices to quadruple. 8. Restaurants lower price of burgers to $.50 41