FHCE 3200 Lecture 3Outline of Last Lecture I. Factors that influence consumers II. The Business CycleIII. Supply & Demand Outline of Current Lecture II. Demand Current LectureTips for studying: DO THE READINGS; follow along in the text with what she covers in class, also study your assignment (which is tied to the textbook) III. Demanda. Firm = supplier, but consumers can also be suppliers…ex) we are working on becoming supply (batch of workers available to firm), so if we are supply in the relationship, then the firm is demand (they are demanding you) b. LAW OF DEMAND (GOLDSMITH): if nothing else changes, consumers will buy a greater quantity of a product at a lower price than at a higher price i. Ex) if toothpaste is on sale, we will load up on it (it is always something we will need, the demand won’t change) c. LAW OF DEMAND (MILLER): An economic rule stating that the quantity demanded and price move in opposite directionsi. We are less likely to demand a particular item if its price goes upd. Quantity demandedi. The amount of goods which would be demanded at a particular priceii. The quantity demanded depends on the price of the good or service. The quantity demanded is determined at any given point along a demand curve in a price vs. quantity plane 1. Ex) there is a demand for seats in the stadium this Saturday against Clemson, there is not a one price fits all for tickets, so there is a demand for the item and different price pointsThese notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.2. VISUALLY FIRST EXAM : graph of supply **** (slide after quantity demanded), whether it is quantity supplied, quantity demanded, etc. , she may give a point on the graph with arrows and ask what is happening/what is the relationship between price (**price goesdown so quantity goes up**) (**demand is lower for a high price**) e. Therefore from a consumer perspective i. As the price of goods or services rises, the quantity demanded of those goods and services will fall; conversely—as the price falls, the quantity demanded will rise (P increases, Q demanded decreases) (P decreases, Q demand increases) 1. Ex. Ferrari is super expensive, production will go down because not as many people will buy it f. Why Demand Curve Shift?i. Customer preference1. Prefer flip flops to high heals ii. Prices of related goods1. Complements—an increase in the price of a complement (i.e., ketchup) reduces demand, shifting the demand curve to the left2. Substitutes—an increase in the price of a substitute product (burgers) increases demand, shifting the demand curve to the right a. Ex) this weekend there will probably be demand for BEER, your preference of kind of beer will have an impactb. Ex) you buy red cups to go along with your beer, but say the cups price skyrocket, now you don’t buy beer because they go together with the cups. The price of beer didn’t change, but its compliment did c. Ex. Hot dogs and brats are very similar, but say the price of brats skyrockets….now the demand is so high for hot dogs because its substitute costs less so that is what you will choose iii. Income—an increase in income shifts the demand curve of normal goods to the right1. Ex. Ramen Noodles!! The demand for this is no longer there after college when you can afford other food itemsiv. Normal/Inferior Good1. In economics, normal goods are any goods for which demand increases when income increases and falls when incomedecreases but price remains constant. The term does not necessarily refer to the quality of the gooda. Ex. High income you will shop at Saks, low income you will shop at Good Will (or if income falls)2. Inferior good is a good that decreases in demand when consumer income risesa. If income rises, maybe you will buy Velveeta cheese instead of Kroger brand 3. Giffen Gooda. A special type of inferior good may exist known as the Giffen Good, which would disobey the “law of demand”; inthat, when the price of a Giffen Good increases, the demand for that good increases. This would have to be a good that is such a large proportion of a person or market’s consumption that the income effect (*change in consumption based on change in real income) of a price increase would produce, effectively, more demandi. Ex. Alcoholic—spends most of paycheck on natty light, and then a little on wine. Say natty light gets more expensive (although it is the least expensive of choices)  you will buy more natty light despite how much the price raised, quit buying the wine and champagne and only get natty (become unaffordable burden) ii. Ex. A rise in the price of bread makes so large a drain on the resources of the poorer laboring families so much that they are forced to curtail their consumption of the more expensive supplemental foods: and, the bread being still the cheapest food which they can get and will take, they consume more and not less of it…you will stopbuying the chicken and vegetables iii. *EXAM QUESTION ON THISv. The goal….1. Equilibrium price! A price at which the quantity of a good or service demanded is exactly equal to the quantity that is supplied…changes in the market will change the equilibrium price2. What could make a change in the market? An increase in supply (shift left) leads to a price drop, drop in price means consumers will demand a higher quantity of the lower priced good3. Why then do we go from equilibrium price to clearance sale price?WE STOP BUYING! 4. Demand for a good decreases, the equilibrium price is now TOO HIGH—consumers wont pay it. Sellers must drop the price new equilibrium price vi. On the other hand….1. Bidding wars between competing consumers for limited supplies of goods on EBay vii. Another factor…viii. Population changes1. Spanish speaking radio and TV stationsix. Population movement1. Housing markets in Florida, Arizona, Texas IV. Demographics and Consumptiona. Population changes affect consumption patternsb. BABY BOOMERS (1945-1957)—now need Geritol and rocking chairsc. SHADOW BOOMERS (1958-1963)—are having mid life crisesd. GENERATION X (1963-1978)—are consuming homes and furnishing e. GENERATION Y (1978-2000)—are living at home or in college f. *77 million boomers have a lot of buying power and producers know thatg. Tweens buying power…9-12 year old kids who have a lot of buying power although it is their parents V. Consumer