Markets Chapter 3-5 What is a market? • markets are places where 1 or more buyers and 1 or more sellers come together • ex: swap meet, stock market, grocery store, E-Bay – good is a tangible item [product] that gives a person utility or satisfaction – service is an intangible item that gives a person utility or satisfaction utility = usefulness pictures of markets Markets have 2 parts • Buyers provide the Demand • Sellers provide the Supply Demand How much will you pay for my ipod? (Reference 3.1) What is demand? • Demand- is the willingness and ability to purchase a good or service. – 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. wants ≠ demand The Law of Demand • 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 • Quantity Demanded (QD) – the number of units of a good purchased at a specific price Inverse Relationship between P and QD P QD P QD Why is this true? Costs v. Benefits Analysis • Costs Rise – Price is one element of cost • Benefits stay the same Why is this true? Law of Demand • When price rises, quantity demanded falls • When price falls, quantity demanded rises Because . . . …of the Law of Diminishing Marginal Utility Law of Diminishing Marginal Utility utility = usefulness A market can be described by analyzing supply and demand Economists like to use graphs to represent changes in demand Demand Schedule a numerical chart that shows the law of demand Price Quantity Demanded $4 $3 $2 $1 1 2 3 4 as price falls, demand increases Check out what we did with the ipod… Demand Curve a graphic representation of the law of demand Quantity Demanded $4 $3 $2 $1 1 2 3 4 Demand 5 4 Price Price 3 2 1 0 1 2 3 4 Quantity Dem anded Let’s convert the ipod demand schedule to a demand curve. Conduct a poll of your classmates in order to develop a demand schedule and a demand curve • Think of a product and a reasonable price range. Ask at least 10 students at what price they would be willing and able to buy that product. Record the info in a demand schedule Price Quantity demanded Then plot the info on a graph Please read p. 68 “A Day at Disneyland…” * • “QtoA” Can you think of a good or service that is priced the way visits to Disneyland are priced? (For two units of the good or service, you pay less than double what you pay for one unit) This pricing illustrates Disneyland’s understanding of the Law of Diminishing Marginal Utility Homework: * • please read p. 68 “A Day at Disneyland…” – “QtoA” Can you think of a good or service that is priced the way visits to Disneyland are priced? (For two units of the good or service, you pay less than double what you pay for one unit) • Section Review (p. 70 ) - #5-7 This pricing illustrates Disneyland’s understanding of the Law of Diminishing Marginal Utility Shifts in Demand Curves Reference 3.2 Shifts in Demand Curves • Demand increases DC shifts Right • Demand decreases DC shifts left What causes demand curves to shift? Now the ipod not only has all its original features,but also has all the answers to your homework in a print format • How will that change the demand curve? • Can you predict other things that might cause a demand curve to shift? What causes demand curves to shift? • • • • Preferences Number of Buyers Income Price of Related Goods Buyers demand more or less of a good at all prices Preferences • Fads • Styles Change Number of Buyers • Population Changes – birth/death rate – migration Income may shift demand curve (affects ability) • If income increases and… – More of a good is demanded: NORMAL GOOD – Less of the good is demanded: INFERIOR GOOD – Neither more or less of the good is demanded: NEUTRAL GOOD Price of Related Goods • 2 types of related goods – Substitutes – Coke for Pepsi » Price increase for Coke—demand increase for Pepsi – Complements – Peanut Butter and Jelly » Price increase for pb—demand decrease for j Caution! Change of Demand (shift of demand curve) IS NOT THE SAME AS Change in Quantity Demanded (change along the line-based only on change in price) Homework: • Complete “Cheezy Doodle” H/O In your spiral, • Complete Section Review #5-7, p.70 • Complete Section Review Qs #3-6 in spiral. p. 76 • Fans often complain that athletes get paid too much money and that these higher salaries lead to higher ticket prices. Do you agree or disagree with this statement? Do you agree or disagree with this statement? – • • • Higher ticket prices lead to lower sales. Why does this happen? Why would they raise ticket prices? If the Chargers 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 Chargers sell tickets at? The attendance numbers from above still apply. What do you think might cause ticket prices to go up?