Reflection/Practice Quiz, CH 1 & 2 HW packets QOD #5: High Priced Athletes Law of Demand (Graph it!) Demand Curves AGENDA Thurs 8/27 Diminishing Marginal Utility HW :Looking for Supply & Demand Part 1 Read pp 47-53 (stop @ supply) Questions #2,3
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 (Q D ) of the good decreases as the price of a good decreases, the quantity demanded increases Inverse Relationship between P and Q D Quantity Demanded (Q D ) the number of units of a good purchased at a specific price
Law of Demand (where P = price and Q D = quantity demanded If P then Q D If P then Q D 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 2 nd, 3 rd, and 4 th 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 1 st Chipotle burrito? 2 nd? 3 rd? 4 th?
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
Determinants of Demand: Factors That Shift the Demand Curve Determinant Change in buyers tastes Change in the number of buyers Change in income Change in the prices of related goods Change in consumer expectations LO1 Examples Physical fitness rises in popularity, increasing the demand for jogging shoes and bicycles; cell phone popularity rises, reducing the demand for land-line phones. A decline in the birthrate reduces the demand for children s toys. 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. 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). 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. Video review