Monday, December 06, 2010

Honors Business Economics: 7 December 2010

Prayer
Current Events:



Cf. http://iusbvision.wordpress.com/2010/12/05/video-how-tax-cuts-work-in-our-tax-system/

The Chapter 3 Section 1 Quiz is on Thursday.

The Chapter 2 Make-Up Test is today.

Cf. http://shanawiki.wikispaces.com/Honors+Business+Economics+Chapter+2+Test+Prep+Page+Fall+2010

The Ch. 2 Sec. 3 American Free Enterprise Make-Up Quiz is today.

New feature:

The electronic edition of the Philadelphia Inquirer is available. We have the Sunday edition, available on Mondays, in addition to the Tuesday through Friday editions on the other days.

Please follow the steps below:

URL: http://nie.philly.com
Click on the words "Access e-Inquirer" located on the gray toolbar underneath the green locker on the opening page.
Login:
Username: bshsinky@shanahan.org
Password: 10888

The electronic editions will be archived at the site for 30 days only.

Prices and Markets

Chapter 4 Demand

(Supply and) Demand

In-class assignment: in your own words, summarize and explain supply and demand. Draw an individual (each student) sample Supply and Demand Curve as it is described in the video. What is the relationship between prices and quantity demanded? What does it mean in Economics to move towards equilibrium? What is the consumer surplus? What is a producer surplus?

Supply and Demand Screen shot 1


Supply and Demand Screen shot 2, Equilibrium

Supply and Demand Screen shot 3, Consumer Surplus

Supply and Demand Screen shot 4, Producer Surplus

Why It Matters

The Big Idea

Section 1 What is Demand?

ceteris paribus ([key-te-rees pah-ri-boos] other things being equal

Guide to Reading

Section Preview

Content Vocabulary

demand

microeconomics

market economy

demand schedule

demand curve

To get a better picture of demand, economists construct graphs. They try to find out how many people are willing to buy an item at various prices, and then plot that information on a graph like this.


Deriving the Demand Curve

In-class assignment: if asked to explain to a friend who knew nothing about the demand curve, how would you explain it? Where does the demand curve come from?





The Law of Demand


Demand refers to the amount of a good or service that people are willing and able to buy at a specified price.

Mott The Hoople, 1973-4



Best Selling Christmas Items
2009Nook eReader (Barnes & Noble)
2008Elmo Live (Fisher Price)
2007iTouch (Apple)
2006Playstation 3 (Sony)
2005Xbox 360 (Microsoft)
2004RoboSapiens (WowWee)
2002-3Beyblades (Hasbro)
2001Bratz Dolls (MGA Entertainment)
2000Razor Scooters (Razor USA)

market demand curve

marginal utility

diminishing marginal utility

Diminishing Marginal Utility

In-class assignment: define diminishing marginal utility based on the video and its explanation.
What makes us happy? Is Jim happy? Is there a difference if Jim is hungry, or not? Is there a difference between cookie #1 and cookie #2, and thereafter etc.? What happens as he eats cookies? What do we discover according to this experiment? What is the Law of Diminishing Marginal Utility? Is there a point Jim should have stopped eating cookies?





Equilibrium Price







Academic Vocabulary

prevail

inversely

Reading Strategy

Products in the News

Wrist Watch

An Introduction to Demand

Main Idea

Economics and You

Demand Illustrated

The Individual Demand Schedule

The Individual Demand Curve

Reading Check

Interpreting

How do you react to a change in the price of an item? How does this illustrate the concept of demand?

The Law of Demand

Main Idea

Economics and You

Why We Call It a "Law"

The Market Demand Curve

Reading Check

Explaining

How does the market demand curve reflect the Law of Demand?

Demand and Marginal Utility

Main Idea

Economics and You

Reading Check

Describing

In-class assignment: working with a partner, and using the graphic organizer, explain how a change in price changes the quantity demanded of an item.

How does the principle of diminishing marginal utility explain the price we pay for another unit of a good or service?


Preview

Guide to Reading
Ch. 4 Sec. 2 Reading Strategy Determinants Of Demand

In-class assignment:

Working with a partner, and using the graphic organizer, explain how a change in price changes the quantity demanded of an item.

Section Preview

Content Vocabulary

change in quantity demanded
Change in Demand vs Change in Quantity Demanded, 5:13
In-class assignment

What happens to demand? Is there anything that could alter the underlying demand? What does a shift to the left indicate? What happens when apartment rent increases? Is a house a substitute? What is the difference between change in demand vs change in quantity demanded?



income effect

substitution effect

Substitution goods represent another factor influencing demand. A substitution good is one that has a similar utility as another—they both satisfy a similar need. If the cost of the substitution good changes, the demand for our original good will be affected. If the price of Twinkies falls, donut eaters may flock to the vanilla crème filled sponge cake that has been “tantalizing taste buds and filling lunch boxes since 1930.” As a result, the demand curve would shift to the left.

Income and Substitution Effects, 4:05

In-class assignment:

We want to consider Jimmy. What are Income and Substitution Effects? How do they work? How do they add up to the total price effect? What is the substitution effect? What is the income effect?




But on the other hand, if the price of Ding Dongs rises, demand for donuts as the now more affordable alternative would rise. Then our demand cure would shift to the right.

Like music?  When you buy a record, do you prefer to purchase a digital download from the internet or a physical CD or vinyl from a music shop?
In economic terms, CDs and digital music files are complementary goods.  The low price for digital downloads (free if you bootleg, a buck or so per song at legit stores like iTunes) has caused demand for more expensive physical CDs to crater.

In 2000, Americans bought 942 million CDs, spending some $13.2 billion.  Five years later, as digital music boomed, CD sales had fallen to 705 million units and $10.5 billion in sales.
The future, clearly, is in the download market.  Music on shiny silver plastic discs may soon go the way of the 8-track.


change in demand

There are some goods that have relatively static demand curves. In particular, some goods remain in constant demand regardless of changes in the price. Demand for these goods is called inelastic. (If the demand for a good is sensitive to price changes, it is called elastic.) A handful of factors influence the price elasticity of demand of a particular good: its importance, the availability of substitutes, and the percentage of our income that it costs us.
If a good is essential and we cannot do without it, demand for the good will remain constant regardless of changes in price. Medicine and milk are basic necessities; we will buy them even if the price rises. We will also continue to buy products if there is no substitute or alternative for that product. We can’t substitute water for gasoline. And if a good is cheap, we will buy it even if its price rises. We would spring for a box of matches, even if the price jumped from 79 cents to $1.25.


But even many goods with inelastic demand can acquire greater elasticity over time. If a product’s price remains high for some time, some people will learn to live without it. Gasoline demand is relatively inelastic in the short term. But when high prices persist, people develop alternative transportation strategies—they car pool, buy smaller cars, move closer to their jobs, and ride public transportation.

So let’s review the essentials. The law of demand tells us what we all know—that when prices go up demand goes down and when prices go down demand goes up. Demand measures the amount of a good or service that people are willing and able to buy at a specified price. And a demand curve plots the size of demand at various prices. Several factors influence demand: diminishing marginal utility, income, substitution goods, complementary goods, and tastes or preferences. And the more that a price change influences our willingness and ability to buy a product, the more elastic is that product’s demand.

Factors that Increase Demand, Shifting Curve to the Right:
  • Increased income
  • Increase in price of substitution goods
  • Decrease in price of complementary goods
  • Changing consumer tastes
Factors that Decrease Demand, Shifting Curve to the Left:
  • Decreased income
  • Decrease in price of substitution goods
  • Increase in price of complementary goods
  • Changing consumer tastes
Why It Matters Today
How about considering entertaining complementary goods, baseball tickets and hot dogs?

Turns out that sales in baseball tickets and Dodger Dogs don't track each other perfectly.  Since the economy went into decline a couple years back, prices for baseball tickets have held steady or even increased.  But attendances haven't fallen too dramatically.  Ballpark hot dog sales, though, have fallen off sharply.
What does that mean? It means that hot dogs have greater price elasticity than baseball tickets.  People still want to go to the ballgame, even if tickets become more expensive relative to incomes.  But they're willing to forego the extra five or ten bucks they might have spent on an overpriced hot dog once they're inside.
Ballpark concession owners from coast to coast must be crying into their $12 "souvenir cup" beers.

substitutes

complements

Complementary goods also impact demand. Complementary goods are goods that go together or are related: beer and pretzels, cameras and film, polyester bell bottoms and platform shoes, Rogaine and hair gel.
When the price of one good changes, its complementary good is affected. If film prices increase, people will buy fewer cameras. If polyester bells drop in price, demand for the four-inch platforms that best highlight the timeless lines of the disco-era bad-boys will rise.  And so on.
The demand curve for a good will shift to the left if the price of its complementary good increases. And vice versa.


One awesome example of complementary goods: baseball tickets and hot dogs.  Because what goes better with America's pastime than a delicious piece of mystery meat on a bun, with ketchup and mustard?

Top 10 Hot Dog Baseball Stadiums for 2005

StadiumHot Dogs Sold
1Dodger Stadium (Los Angeles)1,674,400
2Coors Field (Colorado)1,545,000
3Wrigley Field (Chicago)1,543,500
4Yankee Stadium (New York) 1,365,000
5Minute Maid Park (Houston)1,248,000
6Edison Field (Anaheim)1,133,000
7HHH Metrodome (Minnesota)850,000
8Citizens Bank Park (Philadelphia)800,000
9Shea Stadium (New York)745,000
10U.S. Cellular Field (Chicago)495,000

Academic Vocabulary

principle

illustrated

Reading Strategy

Companies in the News

McMakeover Deluxe

Change in the Quantity Demanded

The Income Effect

The Substitution Effect

Reading Check

Describing

How is a change in the quantity demanded illustrated on the demand curve?

Figure 4.4 Change in Demand, p. 99

In-Motion Animations

Change in Demand

Cf. http://glencoe.com/sites/common_assets/socialstudies/in_motion_08/epp/EPP_p99.swf

Figure 4.4 Change In Demand

Change in Demand

Consumer Income

The Global Economy and You

Digital Demand in South Korea

Consumer Tastes

Substitutes

Complements

Expectations

Number of Consumers

Reading Check

Explaining

How do changes in consumer income and tastes affect the demand curve?

Ch. 4 Sec. 2 Section Review Determinants Of Market Demand

HW email to gmsmith@shanahan.org or hand in hard copy.

The Chapter 2 Test Test Prep page.

Cf. http://shanawiki.wikispaces.com/Honors+Business+Economics+Chapter+2+Test+Prep+Page+Fall+2010

Santa Claus Is Laying Off His Reindeer, 1:34



Danny's [economic] Christmas song, 1:39




The Chapter 3 Section 1 Quiz is on Thursday.

Tuesday HW
1. p. 95, Review, #1