economics

EconomicsEconomics

Basic Concepts

& Demand

Economics is about…Economics is about…

Scarce Resources

Choices

Unlimited WantsLimited Means

Opportunuity Costs

ScarcityScarcity Resources are limited (scarce)

Our wants are Unlimited

We have limited means to satisfy our unlimited wants

•Limited Income

•Limited Time

•Limited Skills

““Means” also have a cultural Means” also have a cultural dimension.dimension.

• “Means” can also include family, & for Maori, there is the Whanau, Hapu (Sub Tribe), & Iwi (tribe) support, as well as the distribution of Maori fishing resources & other Treaty settlements.

• The ability to collect fish/seafood under customary rights can add to a person’s means. (i.e. providing access to fishing resources that are unavailable to others).

What does this mean?What does this mean?Can many of your needs & wants be satisfied byyour family?

• E.g. Love, Protection, Support and or Accommodation.

For Maori both Whanau and the Iwi or Hapu canprovide more ways to satisfy needs and the wants.

• E.g. Scholarships, Housing, Education, Culture

Cultural Means In PracticeCultural Means In Practice

1. Explain how customary fishing rights can increase a tribe’s means?

2. On a marae near the beach some of the women of the local iwi (tribe) weave baskets using flax that grows nearby. In contrast, the Riley’s tend to buy a bag or basket when they need one.

3. What does this tell us about the way various groups solve economic problems?

4. State the economic problem that requires people and groups to make choices. (NCEA)

ChoiceChoice

Every time we make a choice we miss out on the next best alternative

Opportunity Cost = “the next best alternative forgone when a decision is made”

Goods and ServicesGoods and Services Goods = Physical items you can see or touch (tangible)

Services = when you pay people to do something for you (Intangible)

Sort the following into goods and services and then add 4 more to each list:

Snowboard, haircut, tennis racquet, tennis lesson, video hire, video player, ice-cream.

Types of GoodsTypes of Goods

• Free Goods = goods that are not scarce and therefore have no price – E.g. Rain-water, sand on the beach

• Economic Goods = goods that are scarce and have a price

• Consumer Goods = used by consumers

• Capital Goods = used by

producers to make other goods & services

What is Demand?What is Demand?

Demand is what Consumers are willing andable to purchase at given prices. This isshown in a Demand Schedule and aDemand Curve.

Key Terms: • Consumers = People who buy goods &Services• Demand = Willing to purchase

DemandDemandDemand Schedule =

a table showing

combinations of price

and quantity

demanded

Demand Schedule for cans of coke demanded in a week

Price ($) Quantity Demanded (no. of cans)

0.25 10

0.50 5

1.00 3

2.00 1

Demand Curve = a graph plotting combinations of price and quantity demanded

Demand Curve for cans of Coke

0

0.5

1

1.5

2

2.5

0 5 10 15

Quantity Demanded (no. of cans)

Pri

ce

$

D

Title

Labels & Units on axes

Scale even

Plot Points joined

Labelled curve

Best Mnemonic challenge…

Draw your own Demand Curve from the Demand Schedule for Coke


0

0.5

1

1.5

2

2.5

0 5 10 15


Pri

ce

$

D

Law of DemandLaw of DemandWhen Price decreases, quantity Demanded increases (or When Price increases, quantity Demanded decreases )


0

0.5

1

1.5

2

2.5

0 5 10 15


Pri

ce

$

D

P ↑ QD ↓P ↓ QD ↑

Change in Quantity DemandedChange in Quantity DemandedChange in quantity Demanded = when pricechanges there is a movement along the demandcurve from one quantity to another.


0

0.5

1

1.5

2

2.5

0 5 10 15


Pri

ce

$

D

Memorise it!

Law of Demand = As price increases, quantity demanded _____________.

Or:

As price decreases, ________ __________ _________.

A change in ________ causes a movement along

the demand curve.

Change in DemandChange in Demand • A demand curve is drawn assuming “ceteris

paribus”.

• Ceteris Paribus = “all factors affecting demand are held constant except price.”

• If any factor apart from price changes, we must shift (move) the demand curve. This is called a change in demand.


0

0.5

1

1.5

2

2.5

0 5 10 15


Pri

ce

$

Increase in DemandIncrease in Demand

D1

D2

Quantity Demanded has increased at each and every price

A Change in Demand.A Change in Demand.

An Increase in Demand.

Price $

Quantity

P1

D

D1

5

4

3

2

1

0 1 2 3 4 5 6 7 8 9

Demand has increased from 3 to 7.5 units.

Q1 Q2

A Decrease in Demand.

Price $ 5

4

3

2

1

01 2 3 4 5 6 7 8 9

P1

D

D1

Q1Q2 Quantity

Demand has decreased from 7 to 3 units.

Determinants of Demand. (T.I.C.S)Determinants of Demand. (T.I.C.S)

• So what are the factors that will cause the entire demand curve to shift?

• Tastes and preferences change

• Income changes

• Complements price change

• Advertising

• Substitutes price change

I ate six chocolate truffles

IncomeIncome• A person’s income will

affect their ability to demand goods and services. As income increases, demand increases.

• Eg. Jono spends money on hiring DVD’s each week.

• Last year he earned $20 each week, but this year he earns $50 each week.

Jono’s Demand Schedule for DVD’s each week

Price ($)

2008 Quantity(DVD’s)

2009 Quantity (DVD’s)

2 2 5

4 1 4

6 0 3

8 0 2

Tastes and PreferencesTastes and Preferences• A person’s tastes and preferences will influence their

willingness to demand.• Many factors can influence our tastes and preferences:

– Age– Gender– Culture– Upbringing– Fashion– Peers– Advertising– Season

• Write your own example for each factor• Choose 3 factors and for each draw a sketch graph

to show how your demand has changed for a good

Price of a SubstitutePrice of a Substitute

• Substitute = a good or service that can be used instead of another good or service.

Videos DVD’s

Margarine

Coke

Chinese takeaway

Onslow College

Texts

• When the price of a substitute increases, demand for the other good increases.

• Eg. When the price of Coke increases, demand for Pepsi increases.

P1

P2

Q2 Q1

D1

D2

Demand Curve for Coke

D1

Demand Curve for Pepsi

Price of a ComplementPrice of a Complement

• Complement = a good or service that can be used with another good or service.

Playstation Playstation games

Cars

Cell Phone

MP3 Player

Digital Cameras

• When the price of a complement decreases, demand for the other good increases.

• Eg. When the price of Play stations decreases, demand for Play station games increases.

P2

P1

Q1 Q2

D1

D2

PS2 PS2 Games

D1

Aggregate Household PatternsAggregate Household Patterns

• The economy is made up of many households. Each household demands a wide range of products.

• Aggregate refers to the whole economy, and includes every households demand for all goods and services

• There is a strong relationship between aggregate household income, saving and consumption.

• Any factor that affects aggregate household income will have an impact on aggregate household spending and saving.

Types of GoodsTypes of Goods

• Inferior Goods = Goods that when income increases demand decreases eg. No frills toilet paper, baked beans.

• Normal Goods = basic necessities that when income increases demand increases. Eg. Bread, school uniform

• Luxury Goods = goods we desire. As income increases households switch to more luxuries.

Income

Spending

Necessities e.g. clothing, food, shelter

The Relationship Between Aggregate The Relationship Between Aggregate Spending and Household Income.Spending and Household Income.

As income increases, so does spending on necessities

As income increases,the % spent (proportion) decreases as households substitute necessities (& inferior goods) for luxury goods

Income

Spending


Luxuries and other services e.g. health insurance…

As income increases the % of income spent on luxuries also increases

As income increases the $ spending on luxuries increases

Income

$


Savings

At low income levels households do not save.(all income is spent)

As income increases the amount saved increases and the % of income saved increases.

Quick Maths Lesson…Quick Maths Lesson…

• Converting Numbers into a %– amount / total x 100– eg. Ji Eun Saves $40 out of $500 each week– 40 / 500 x 100 = 8%

• Simplifying a ratio – divide both sides by the same number– 12% : 33% ( divide by 3)– 4 : 11

Quick Maths Lesson…Quick Maths Lesson…

• % of an amount– % / 100 x amount– Eg. 40% of $600– 40 / 100 x $600 = $240

• Mean = average (Total / no. of items)

• Median = middle (Put in order first)

• Mode = most common

• Range = biggest - smallest

ValuesValues

• core beliefs or principles that affect what we do or think

• Values affect the economic decisions consumers make

Values PositionsValues PositionsA. The death penalty for murder should be

introduced

B. Gay marriage should be allowed

C. Year 11 is too young to be having sex

D. Abortion is a right everyone should have

E. Marjuana should be decriminalised

F. The drinking age should be raised to 20Strongly Agree Disagree Strongly

Agree Disagree

Types of ValuesTypes of Values• Thrifty

• Honesty/Integrity

• Gender Equity

• Fair Trading

• Care for the environment

• Equity/fairness

• Personal freedom/Privacy

• Work ethic

• National pride

• Youth/Beauty/fashion

• Family values

•making decisions to please the family or following family traditions.•concern for the future•selling in an honest and fair way•getting value for money•following laws/doing the 'right thing.'•linked to the idea of always working hard.•Being able to do what you like •following a popular image•love of your country.•wanting a 'fair go' for the under-privileged.• feminism – fairness for each sex

The Simpsons and their Values

Choose at least 4 of the Simpsons characters and for each one explain what

their values are.

Give an example that shows their values

affecting a decision they have made.

Influence on our ValuesInfluence on our Values

• Upbringing

• Age / experience

• Cultural beliefs

• Peer pressure

• Religious beliefs

• Gender

• Media

For each influence:

give an example of how it could affect one of your values

give an example of it affecting an economic decision.

Eg. Media: Liz is addicted to magazines and TV and now values youth/beautyfashion.

She spends lots of $ on make-up and clothes

Market DemandMarket Demand

• A market is made up of more than one A market is made up of more than one ConsumerConsumer

• Market Demand = the sum of individual Market Demand = the sum of individual demand at each and every pricedemand at each and every price

• It is calculated by horizontally adding It is calculated by horizontally adding individual demand curves at each and individual demand curves at each and every price.every price.

Price

$ per box

Meghan’s

Quantity Demanded

Evarn’s

Quantity Demanded

Rachel’s

Quantity Demanded

Market Quantity Demanded

5 9 5 5

8 6 4 3

12 3 2 1

Demand for Potatoes

Add it up and Graph it!

economics

Documents

services goods

goods servicesdemand

beacheconomic goods

consumerscapital goods

priceconsumer goods

goods serviceswhat

quantity demandedchange

price increases