• Consumer
• Person who buys and uses goods and services • Producer
• Individuals or organizations that determine
• Demand
• The quantity of a good or service consumers
HOW MUCH DEMAND?
• Imagine that you owned a flower shop. Would you be happier if people really wanted to buy flowers or if they simply thought it might be a nice thing to do? Explain your answer!
• Imagine that you wanted to buy flowers. Would you be more likely to pay higher prices if you really wanted to buy them or if you simply thought it might be a nice thing to do? Explain your answer!
• When is there greater demand, when consumers really want to buy something or when they simply think it
• Demand Curve
• Shows the demand schedule plotted on a graph • Always slope downward from upper left to lower
• Law of Demand
• Consumers will tend to purchase less of a good or
service at higher prices and more at lower prices. (guides buyer behaviors)
• Factors Influencing Demand • Tastes and preferences of people • People’s income
• The number of buyers
• The price of other goods (substitutes and
• Elastic Demand
• A change in price create a change in demand • Example: demand for butter tends to be elastic
because there are lower-priced substitutes
• Inelastic Demand
• A change in price has very little effect on
demand for products
DEMAND TENDS TO BE INELASTIC IN
THESE CIRCUMSTANCES:
• No acceptable substitutes are available,
and customers need the product
• The price changes is small relative to
buyer income, so if customers want the product, they will buy it
• The product is a necessity, customers
• Formula for Elasticity of Demand
% change in quantity demanded % change in price
• Demand is elastic if greater than 1, unit
elastic if equal to 1, and inelastic if below 1
• Elastic – reducing the price by 5% will cause
sales to grow by more than 5%
• Unit Elastic - reducing the price by 5% will cause sales to grow by 5%
• Inelastic - reducing the price by 5% will cause
EXAMPLES
• Mel decided to lower the price of his fries
from $1.00 to $.75. As a result, the
quantity of fries demanded increased from 75 to 150 servings per day. Figure out the elasticity of demand for Mel’s fries. Is this elastic, unit elastic, or inelastic.
EXAMPLE'S
• Suppose that at a price of $3 a pound, the quantity of Chilean sea bass demanded is 500,000 pounds, and at a price of $18 a pound, the quantity demanded is
100,000 pounds. At these prices and quantities, is the demand elastic, unit elastic, or inelastic?
• You are operating a movie theater. On average, 500 people used to purchase a $8 ticket at their theater
every Saturday evening. Last month, they raised their price to $9 only to see the average number of tickets sold fall to 450. Calculate the elasticity of demand for these tickets and to state whether the demand is
• Supply
• Quantity of a good or service that producers are
WHAT’S A SUPPLY FOR?
• Imagine that you own a computer store.
You have 1000 computers in your supply. What would you want to do with these
computers?
• Why would you want to do this?
• In order to succeed with your objectives as
WHAT SUPPLY IS THE BEST SUPPLY?
• Imagine that you owned a car dealership. How would you
determine how many cars to supply? Explain your answer!
• Imagine that you wanted to buy a car. How many cars
would you want the dealer from whom you bought the car to supply? (Assume that the dealer only sold one type of car, the type that you wanted to buy.) Explain your
answer!
• A popular CD has recently been released. You will be
• Supply curve
• shows the supply schedule plotted on a graph. • Supply curve slope upward from lower left to
• Law of Supply
• Producers are willing to sell more of a good
or service at higher prices than at lower prices. (how sellers will act when pursuing their own self-interest)
• Factors Influencing Supply • Technology
• Supply and demand determine what will
be produced and what the price will be
• Can’t be too high – won’t buy • Can’t be too low – no profit
CHANGING YOUR PRICE
• Assume that your number one goal is to
make money from selling tickets to a popular sporting event.
• Describe a scenario in which you might lower
your set price, to sell these tickets.
• Describe a scenario in which you might raise
your price, to sell these tickets.
• In what way(s) would the demand for these
MARKETS AND EQUILIBRIUM PRICE
• What is a market? Give two examples of
formal markets, and two examples of informal markets. Explain your answers.
• In your own words, what is the definition
• Equilibrium price
• Price at which the quantity of a good or service
• Surplus
• Condition in which the amount supplied is greater than the amount demanded
• Market not working efficiently • Buyers pay to much
• Sellers can’t sell their product
• Eliminate surplus • Lower prices
• Reduce their production to better match
• Shortage
• Quantity demanded is greater than the
quantity supplied
• Can’t furnish the good in a quantity large enough to meet the demand
• Buyers – delay in getting what they want
• Sellers – lost opportunities to sell their product
• Eliminate shortage
• Increase production to meet the amount
demand
SUPPLY AND DEMAND GAME
• The object of the game is for buyers and
sellers to make transactions with each other and maximize their surplus value.
• Buyers want to make a deal for the lowest
possible price and sellers want to make a deal for the highest possible price.
• In each round a student will either be the seller or the buyer.
SUPPLY AND DEMAND GAME CONT.
• Each buyer card has a maximum price on it
with tells the buyer the highest price they could pay in a transaction.
• Surplus value is the difference between the
transaction price and the maximum bid price.
• Example: If a buyer’s card has a maximum
SUPPLY AND DEMAND GAME CONT.
• Each seller card has a minimum offer price
on it with tells the seller the lowest price they could accept in a transaction.
• Example: If a seller has a minimum offer
HULA HOOPS
• Why does a business owner lower the
price of products that are not selling quickly?
• When would a business owner have the
incentive to raise prices?
• What does a higher price than before for a
good or service communicate to
SILLY BANDZ
• What information is being communicated
to the business owner by the $5 price of Silly Bandz?
• What can the business owner do to ensure
• Complimentary Goods
• Two goods that are used together
• Substitute Goods
HOW A BUSINESS MAKES A PROFIT
• Fixed Costs
• Costs that the owner must incur whether they produce nothing, a little, or a lot
• Examples: rent, insurance, salaries
• Variable Costs
• Costs that vary as the level of production output changes
• Examples: paper supplies, additional part-time, and full-time staff
• Total Cost
MARGINAL ANALYSIS
• Marginal Cost
• Additional cost of producing one more unit
• Used to see if it is advisable to continually increase
costs in an effort to increase output and revenue
• Formula Change in total cost
Change in total production
• Marginal Revenue
• Added revenue per unit of output, or the income
generated by the sale of each additional unit
• Formula Change in total revenue
• Breakeven Point
• Output at which total revenue equals total cost • Formula Total Fixed Costs
Total Number of Hot Dogs
Sold Total Cost Marginal Cost Total Revenue
Marginal
Revenue Profit
50 100.00 75.00
100 127.50 112.50
150 152.50 150.00
200 175.00 187.50
250 195.00 225.00
300 213.00 262.50
350 229.50 300.00
400 247.00 337.50
450 267.00 375.00
500 297.00 412.50
550 334.50 450.00
• Why does marginal revenue remain the same? • What difference do you see between the
marginal cost and marginal revenue curves?
• How many hot dogs can you sell in order to
make the highest possible profit?
• Why does it cost more to sell the first 100 hot
dogs than the second 100 hot dogs?
• Suppose each hot dog was sold for $.50 (MR).
How many hot dogs would be sold for the greatest maximum profit?
