Econ Unit II: Microeconomics Opening Activity 1.Draw a product possibilities curve for an economy producing pancakes and bacon. A.A point where bacon is preferable to pancakes B.Unemployment, underutilization C.Production impossibility 2.Would the following quote be Milton Friedman or John Maynard Keynes? A.Government is essential. B.Any capitalist can handle a business better than the government. Demand Demand = the desire to have a good or service combined with the ability to pay for it Law of demand = as price falls, demand increases Demand Demand schedule: Table showing how much of a good an individual will consume at each price in the market Market demand schedule: how much ALL consumers are willing to pay Price per Item (computer) Quantity Demanded $20,0001 $10,0005 $5,00010 $2,00050 $1,00075 Demand Curve App 1: Market Demand Schedule and Demand Curve The product being sold is cars 1. Create a market demand schedule and a demand curve showing how many cars a producer might be able to sell at 5 consecutive prices. 2. Which are more people likely to have demand for: a used Toyota Camry or a brand new Porsche? 3. What does the law of demand say will happen if the price of a car goes up? Changes in Demand Change in demand = major market shift in demand for a product Shift from 1 to 2 Change in quantity demanded = change in how much of a product consumers demand due to a change in price Shift from A to B Quantity Demanded Price $1 $2 $3 $ A B 1. 2. App 2: Demand v. Quantity Demanded 1.Draw a demand curve 2.Draw a shift in quantity demanded and label it A 3.Draw a shift in demand and label it B Activity What do you have demand for? Tap water Fiji Arrowhead Aquafina Poland Springs Smartwater Other. Opening Activity 1.Draw a demand schedule and demand curve for a good you or your parents purchase regularly. 2.Show a shift in quantity demanded and explain why that might have happened. Opening Activity 1.If a company raises the price on a good and demand decreases for that good, would that be a change in demand or a change in quantity demanded? 2.If incomes begin to increase and so demand for most goods increases, would that be a change in demand or a change in quantity demanded? 3.Now illustrate #1 and #2 on a demand curve. Label them. Factors Affecting Demand Marginal utility Income effect Substitute goods Complementary goods Consumer Tastes Consumer Expectations Market Size Factors Affecting Demand Law of diminishing marginal utility: Consumers receive less and less utility from each additional unit of a product Ex. Cheaper refills you may be willing to pay $2 for that first soda at a restaurant, but you wont be as willing to pay the same price for a second. Many restaurants will offer $1 refills to try to match the diminished marginal utility you get from that 2 nd glass Factors Affecting Demand Income effect: Refers to the change in the amt. of a product consumer will buy at a higher income v. lower income Normal goods: goods that consumers consume more of when their incomes rise Ex. boats Inferior goods: goods that consumers consume more of when their incomes fall Ex. Discount brands Factors Affecting Demand Substitute goods: Consumers respond to an increase in price of one good by buying a similar or substitute good Ex. : Books go up in price, people start buying more magazines Factors Affecting Demand Complementary goods: Goods that are bought together, with a change in demand for one causing a change in demand for the other Ex: Turkeys at Thanksgiving are cheap because grocery stores expect you to also buy potatoes and stuffing Factors Affecting Demand Consumer tastes: If a product is trendy, popular, demand increases Ex. Beats headphones, iPhones, leggings Factors Affecting Demand Consumer expectations: If consumers expect prices to change demand will change as a result Ex: Waiting until the end of the year to buy a car is smart because car lots are trying to get rid of last years models. Factors Affecting Demand Market size: The number of consumers available changes demand Ex: Because the beaches are popular, demand for most goods goes up in RI in the summer. App3: Which Factor(s) of Demand are at Play? 1.The TV show Glee becomes popular and demand for music lessons increases. 2.Its summer and so demand for ice cream increases. 3.The price of lobster goes down so people start buying more lobster. 4.On Black Friday, demand for most consumer goods increases. 5.The demand for bicycles increases and so does the demand for helmets. 6.The price of taxi transportation increases and so people decide to take the bus. 7.Michael Jordan is in the news for saying something dumb on TV and the demand for Air Jordans goes down. 8.In the summertime in Aspen, demand for pizza goes down. 9.Someone is giving out free lemonade so demand for lemonade goes down. 10.Everyone gets a Christmas bonus at the steel mill and so demand for restaurants in Pueblo increases. App4: Write your own scenarios Write 2 scenarios where we would see a change in demand. You will be picking your best one to read to the class, so keep it appropriate. Elasticity of Demand Elasticity- how responsive consumers are to price changes of a product Elastic = large changes in demand when price changes Non-necessities Inelastic = little change in demand when price changes Necessities App 5 Tell me if demand for the following products is elastic or inelastic and if it is perfectly so or only somewhat: 1.Toothpaste 2.Cars 3.Bottled water 4.Canned beans 5.Paper 6.Sailboats 7.Hotels 8.Starbucks coffee 9.McDonalds hamburgers 10.Christmas trees 11.Cable TV 12.Electricity 13.Concerts 14.Guitars 15.textbooks Freakonomics Why do drug dealers still live with their moms? Be able to answer the title Understand how the supply of labor figures into the difference in earnings of drug dealers and prostitutes What factor(s) of demand were at play in the rise of crack cocaine? Should have read, be ready for a reading quiz by Monday Opening Activity 1. Draw a demand schedule (table) and demand curve for gym memberships with 5 potential prices and quantities. 2. Prices go up at the gym. Draw how that would affect your graph and label it A. 3. Its the day after New Years and everyone is pledging to get fit. Draw how that would affect your graph and label it B. 4. Which factor of demand was at play in #3? Review Assignment Grab an Econ book and turn to pp Complete questions 1-5 and 9-13 Please write in complete sentences where writing is asked for. When finished you can work on your projects. Dont forget you need 5 total sources in your research analysis. Opening Activity 1.Is demand for turkeys elastic or inelastic right now? What about the day before Thanksgiving? 2.What does marginal mean? (Ex. Marginal cost, marginal benefit, marginal utility) Supply Supply: The willingness and ability of producers to offer goods and services for sale Law of supply: producers are willing to sell more of a good at a higher price than a lower price Supply Supply schedule: Table showing how much of a good/service individual producers will sell at each price Price per Avocado Quantity Supplied $ $ $ $ Supply Curve Graph showing how much producers are willing to sell at any given price Application 1 Create a supply schedule and supply curve for candy bars Stock Market What are stocks? Choose 5 companies you might be interested in investing in. Google the company name followed by the word stock. For each stock answer the following questions: 1. What is the current price per share? 2. How has this stock been doing over the last month? 3. What is the 52 week high and the 52 week low on your stock? 4. Do most analysts recommend buying, selling, or holding this stock right now? Stock Market Day 2 Stock indexes Once you have your 5 companies and the questions from yesterday answered, go to Yahoo finance and search for your first company In the lefthand sidebar find the heading Charts and then click on Interactive Switch the chart to 3 month performance of that company, then hit comparison. Compare the company to the DOW stock index and then the S&P Stock index. Tell me for each stock the following info: 1.Did your stock perform better or worse than the Dow? The S&P? Now I want you to compare your companies to one another. 2. Whose performance has been the best this last 3 months? What percent change did they see? 3. Whose has been the worst? What percent change did they see? Day 1 of Stock Market Exchange! Keep in mind: You have $100,000 spend it baby! If you are in a group, work together as a team! You can also buy on margin, which means you will borrow money to purchase more stock if you do this, keep in mind you will pay interest on that loan however, this has been a successful strategy for groups in the past Every purchase has a brokerage fee attached to it, just like it would in real life you pay someone to process your purchase of stock No one stock can make up more than 25% of your portfolio you MUST diversify You have 30 minutes to complete trading today have fun! Stock Market Game LOG BOOK REQUIREMENTS: Log your purchases as follows: Name of company/good investing in Price per share at time of purchase Number of shares purchased Total cost of purchase (factoring in brokers fee) You MUST log all future purchases! If you make a purchase from home, in another class, etc. thats fine, just record the details for later logging Opening Activity 1.Draw a demand curve for apples 2.Its winter-time and apple prices go up. What happens to our curve? Write the answer and graph it. 3.Its the Fourth of July and everyone needs to bake an apple pie and so demand goes up. Graph the change and then tell me which factor of demand that might be considered. 4.According to this scenario, does demand for apples become more or less elastic during the Fourth of July? Production Marginal product: change in production resulting from hiring one more worker Increasing returns: when each new worker adds more total output than the last Diminishing returns: when each new workers causes production to increase but at a decreasing rate Application 2 Grab an Econ book and turn to pg 139 and answer questions 1-2 under the table Costs of Production Goal of business is to maximize profit, minimize costs Fixed costs: expense a business owner incurs no matter what the level of production Factory, insurance, leadership Variable costs: expenses that shift depending on level of production Wages, Total cost: fixed + variable costs Marginal cost: cost of producing one more unit Application 3 Turn to pg. 141 and answer questions 1-2 under the table Profit Marginal revenue: price Total revenue: price times quantity Profit-maximizing output: when marginal cost and marginal revenue are equal Changes in Supply Change in quantity supplied: change in quantity supplied due to price, shift along existing curve Change in supply: change in amount supplied at every price, shift in supply curve Application 4 Graph a change in supply and a change in quantity supplied and label them Opening Activity 1.Draw a supply curve for apples 2.Price goes up. Graph the change that would occur as a result 3.The apple grower is hiring laborers. 1 laborer can pick 100 apples, 2 together can pick 210, 3 can pick 500, 4 can pick 700, and 5 can pick 800. How many workers will they hire and why? 4.What might a variable cost of owning an apple orchard be? A fixed cost? Factors of Supply Input Costs Labor productivity Technology Government Action Producer Expectations Number of Producers Factors of Supply Input Costs: Price of goods needed to make a product Ex. if feed prices increase, the supply of beef might decrease Factors of Supply Labor Productivity: Level of efficiency of the labor force Better trained, higher skill workers produce more Ex. High turnover hurts labor productivity Factors of Supply Technology: New techniques, production processes can increase productivity Ex: assembly line Factors of Supply Government Action: govt intervention can raise/lower costs, increase/decrease supply Ex. Subsidies (govt makes product cheaper) can help a product market The green energy tax credit helped Vestas wind farm come to the U.S. Factors of Supply Producer Expectations: If producers expect prices to rise or fall, they may change their supply If they expect prices to rise they will increase supply, vice versa Ex. A farmer expects lettuce prices to drop, decreases supply so prices will go back up Factors of Supply Number of producers: Competition affects supply In a new market there is less supply, competition increases supply Ex: If there are 2 bookstores in town and one goes out of business, supply decreases App 5 1. Hobby Lobby goes out of business, decreasing the supply of crafting goods in Pueblo. 2. Genetically modified organisms (GMOs) allow farmers to increase supply by minimizing waste. 3. The price of flour goes up causing Pizza Huts costs to increase, decreasing supply. 4. The government subsidy on corn increased the supply of corn-syrup- sweetened products. 5. New regulations on the Sriracha factory cause costs to increase, decreasing supply. 6. A union dispute leads to a worker lockout at a leather factory and the supply of leather jackets goes down. 7. San Franciscos high minimum wage laws cause some producers to move out of the city and decrease the supply of fast food. 8. A marijuana grower expects another state to legalize the product and so they increase supply. 9. The price of lumber increases, causing costs of paper to go up and so the supply of paper decreases. 10. At the holidays many places hire seasonal labor to temporarily increase supply. Opening Activity 1.Is a stuffed animal a normal good or an inferior good? 2.Is the demand for a stuffed animal elastic or inelastic? 3.Draw a supply curve for stuffed animals and mark a point on the line to indicate current price. 4.The price is raised by $1, draw what that would look like and label it #1. 5.Toys R Us goes out of business. Show what would happen on your graph and label it #2. Explain what factor of supply caused the shift. Elasticity of Supply Elasticity of supply: How responsive are producers to a change in price Elastic supply: producers are able to quickly increase/decrease supply when price changes Ex. Clothing, plastics Inelastic supply: producers are unable to quickly increase/decrease supply when price changes Ex. Oranges, cars App 6: Elasticity of Supply: Elastic or Inelastic supply? 1.A boot company 2.A banana plantation 3.Computer company These next 2 scenarios look at LABOR supply: 1.A firm wants to hire engineers in Pueblo and there are few trained people. Engineering is a 4-year degree. 2.McDonalds is looking to hire a bunch of minimum- wage cashier positions. 3.South High needs to hire a new Economics teacher. Opening Identify the reaction: 1.How suppliers would respond to an increase in price of a good: __________ 2.How consumers would respond to a decrease in price of a good: ______________ 3. Input costs rise for a producer: ____________. 4.Marginal product starts to go down: ___________. 5. A supplier of bread goes out of business: _______. Supply and Demand Interact Equilibrium price (EP): the price at which the quantity of a product demanded by consumers and the quantity of a product supplied by producers is equal Surplus Quantity supplied (QS) is greater than quantity demanded (QD) surplus Shortage Quantity demanded (QD) is greater than quantity supplied (QS) shortage App1 Graph the following situations: 1.When the Segway was first invented, many people thought it would explode to become the next major form of transportation and the investments came pouring in. Sadly for Segways founder, this did not come to be. Graph this situation. 2.During the 1970s, the U.S. was in a diplomatic crisis with the Middle East, a region that was supplying the country with most of its oil. People waited in long lines to get gas and gas stations were frequently running out. Graph this situation. Disequilibrium Disequilibrium occurs when there is a difference between QD and QS often caused by shift in S or shift in D Goes away once EP is found again If D increases or S decreases, EP goes up If D decreases or S increases, EP goes down App 2 Price per Movie Ticket Quantity Demanded Quantity Supplied $ $ $ $8500 $ $ Using the supply and demand schedule above, draw the 2 curves (I do want you to use amounts on your graphs.) 2. What would equilibrium price be? Mark it on your graphs with a star. 3. What would happen to equilibrium price if demand increased? Opening 1. Draw a supply and demand curve (on the same graph) for books, where equilibrium price is $10 2. The kindle is invented, increasing the supply of books. Illustrate that shift on your graph. 3. Which factor of supply is at work? 4. How does that change affect equilibrium price? Economics Paragraph You are considering starting a company and becoming a supplier of a good of your choice. Describe in a well-written paragraph what you will have to take into consideration when making that choice. You should use at least 8 of the following economic terms: Supply, quantity supplied, marginal product, increasing returns, diminishing returns, variable costs, fixed costs, total costs, marginal revenue, marginal costs, profit-maximizing output, elasticity (inelastic/elastic), input costs, Opening Activity 1.Draw a supply and demand curve for apartments in NYC where equilibrium price for rent is $2000 a month. 2.The area of NYC in question starts to attract a lot of cool, young people and quickly drives up demand for housing. Draw that change. 3.What factor of demand would we say caused this shift? 4.What happened to equilibrium price as a result? 5.How would rent control, where the government restricts how high and how quickly rents can raise change this scenario? Price System Interventions 1. Price ceiling: max price at which a good can be sold Can be set by govt (Ex.: rent control in low income housing) By producers (Ex: university football tickets) Interventions in Price Systems 2. Price floor: min price for a good Ex. Ag. Products Interventions in Price System 3. Rationing govt. restricts resources Ex. Used during wars, Depression Unintended consequence: Black market Interventions in Price System 4. Black market: illegal market Ex. Torrents App3: Is this a price intervention? If yes, which one? 1.There is high demand for chocolate and so Nestle raises prices on candy bars. 2.The U.S. has a minimum wage law. 3.Blockbuster was unable to compete with Netflix and went out of business. 4.Many musicians worry about being able to make profits when so much music is illegally shared on the internet. 5.Louis CK wanted his recording of his latest comedy performance to be affordable to a large number of fans so he released it himself on the internet for $5. 6.During Prohibition, alcohol was still widely consumed. 7.North Koreas communist system attempts to evenly distribute food amongst its population. 8.Syracuse University football tickets are sold for affordable prices so students can afford them. However, that means they sell out quickly, so you can often find people outside the stadium scalping tickets for 3 to 5 times their actual price on game day. Market Structures Market structures: economic model used to examine competition Market Structures Perfect competition: ideal model Numerous buyers and sellers Standardized product Freedom to enter/exit market Independent buyers and sellers Market Structures Monopoly least competitive market structure only one seller for a product with no substitutes can set prices large barriers to entry Ex. Water company, Microsoft Most markets = somewhere between monopoly and perfect competition App 4 -In books, turn to pg Read the article on OPEC and answer the Connecting Across the Globe questions below. Price Ceilings, Floors Graphing Review Use your notes! 1. Draw a demand curve for a normal good (choose a specific good). a. Now show how that demand curve would shift if there were an economic downturn. 2. Draw demand curves for Pepsi and Coke. The CEO of Pepsi is caught cheating on his taxes. Draw the shift in both demand curves that might occur as a result. a. WHY is Coke affected by what happens at Pepsi? (use economic terminology!) 3. Draw supply and demand curves for an inferior good. Label equilibrium price. There is an economic crisis. Draw the change in demand, remembering, this is an INFERIOR good. 4. If supply goes down what happens to equilibrium price? SMG Check-In Choose 5 companies you invested in (if you havent invested in 5, get on thatdiversify baby!). Go to Open Positions to find the following info: What was the purchase price? Price now? Draw a graph of what has happened to the stock since YOU BOUGHT IT (look at transaction history if you dont remember when you did, and click on the company symbol to view a graph of its performance) Find the following info on the Home Page What is the percent return on your portfolio so far? What is the current value of your portfolio Using Economics to Filter the News Read the article Using Economics to Filter the News 1.How are the forces of supply and demand determining the kind of news we read, see, and hear? 2.Why does the author believe that supply and demand will keep us from ever running out of scarce resources? 3.Do you think the author is correct to say that supply and demand will keep us from running out of anything? Why or why not? Extended Opening 1. Check on your stock market portfolio. Determine your top earning company and choose a good or service that company produces. 2. Is this good/service normal or inferior? 3. Is demand for this good elastic or inelastic? What about supply? 4. Draw a supply and demand schedule and supply and demand curves for the good. Mark what you believe is probably the equilibrium price. 5. Now create a scenario in which there is a shift in either supply or demand. Show that on the graph and then write two sentences describing what caused that shift and how it affected equilibrium price. 6. Now create a scenario in which there is a price intervention for your good. Describe the price intervention and how it would change the interaction of supply and demand.