Transcript Chapter Four: Demand

CHAPTER FOUR: DEMAND
12th Grade Economics
Chapter Four: Demand
1.
2.
3.
What is Demand?
Factors Affecting
Demand
Elasticity of Demand
Familiarize yourself with
all the key terms from
this chapter.
Chapter Four: Demand
ACOS:
 3. Analyze graphs to
determine changes in
supply and demand
and their effect on
equilibrium price and
quality.
4.1 What is Demand?
After reading the section, create a six-tab Foldable.
Cut the first tab off and write “4.1 What is Demand?”
Write demand, demand schedule, demand curve, the Law of
Demand, and market demand curve on the remaining tabs (one
term per tab).
Define each term AND provide an example/illustration for each.
4.1 What is Demand?
Daily Objectives:
 Describe and illustrate the
concept of demand.
 Explain how demand and
utility are related.
4.1 What is Demand?
Basics of Demand
 Demand and Marginal
Utility

Guided Practice
Create a five tab
book for the
vocabulary words
from 4.1.
 Provide the definition
of each word and an
example.

Basics of Demand



Demand is “the desire, ability,
and willingness to buy a
product.”-89.
Demand is a microeconomic
concept.
Microeconomics is “the area
of economics that deals with
behavior and decision making
by small units such as
individuals and firms.”
Basics of Demand
A demand schedule shows
the various quantities of a
product demanded at
different prices at a given
time.
 When the information from
a demand schedule is
plotted on a graph, it is
called a demand curve.

Guided Practice


Notice the shape and
direction of the
demand curve.
How does the price
effect the quantity
demanded?
Basics of Demand

The Law of Demand states
that “the quantity
demanded at each and
every price varies inversely
with its price.”
 The
more something costs, the
people demand less.
 The less something costs, the
people demand more.
 Be sure to note the quantity
demanded (not demand itself)
is affected.
Basics of Demand

A market demand
curve combines the
various individual
demand curves into
one.
Demand and Marginal Utility
Remember utility is the amount of
usefulness or satisfaction person gets
from the use of a product.
 Marginal utility is “the extra
usefulness or satisfaction a person
gets from acquiring or using one
more of a product.” -93.

 Example:
A second hamburger may also
help satisfy your hunger.
Demand and Marginal Utility

The principle of diminishing
marginal utility states that the
utility of a product decreases
with each additional unit of a
product.
 Example:
A tenth copy of the
same newspaper offers little utility
over the first.
Guided Practice

Name other
examples where
the principle of
diminishing
marginal utility
applies.
Guided Practice
For what does the P
stand?
 For what does the Q
stand?
 Which curve is the
demand curve?

Guided Practice

Create a market
demand curve using
the demand
schedule on the left.
4.2 Factors Affecting Demand
After reading the section, create a horizontal, three-tab
Foldable with a small space at the bottom.
Write income, tastes & expectations, and price of related
goods on the three tabs (one per tab).
Explain how each factor changes demand inside each
tab.
Chapter Four: Demand
ACOS:
 3. Analyze graphs to
determine changes in
supply and demand
and their effect on
equilibrium price and
quality.
4.2 Factors Affecting Demand
Daily Objectives:
 Explain what causes a
change in quantity
demanded.
 Describe the factors that
could cause a change in
demand.
4.2 Factors Affecting Demand


Changes in Quantity
Demanded
Changes in Demand
Changes in Quantity Demanded
A change in the quantity
demanded is usually a
result of the income effect
or the substitution effect.
 A change in the quantity
demanded is represented
by movement along the
demand curve in response
to a change in price.

Figure 4.3
A Change in Quantity Demanded
Changes in Quantity Demanded

The income effect is the “change
in quantity demanded because
of a change in price that alters
consumers’ real income.”
 When
prices fall, consumers have
greater purchasing power.
 When prices rise, consumers have
less purchasing power.
 The quantity demanded reflects the
extra real income.
Changes in Quantity Demanded

The substitution effect allows consumers to replace
costly items with cheaper items that are similar.
(ex: DVD vs. VHS)
Changes in Demand
Changes in demand cause the
demand curve itself to move.

The
curve shifts to the right to
show an increase in demand.
It shifts to the left to show a
decrease.
Changes in Demand
Change in Quantity Demanded
Figure 4.4
Figure 4.3
A Change in Demand
A Change in Quantity Demanded
Change in Demand
Changes in Demand
Figure 4.4
A Change in Demand
Changes in Demand

Demand is influenced by six
factors:
 Consumer
income
(ex: eating from the dollar
menu vs. Texas Roadhouse)
 Consumer Tastes (ex: fuel
efficient cars vs. bigger cars; 8
tracks vs. C.D.’s.)
Changes in Demand
Substitutes
(ex: butter
vs. margarine)
Complements (ex:
peanut butter and jelly;
laptops and software)
Changes in Demand
Change
in
Expectations (ex:
PS2 vs. PS3)
Number of
Consumers (ex:
baby boomers)
Changes in Demand

The prices of the substitutes or complements influence
demand of the related products.
Figure 4.4
A Change in Demand
4.3 Elasticity of Demand
Read this section.
4.3 Elasticity of Demand
Daily Objectives:
 Explain why elasticity is a
measure of responsiveness.
 Analyze the elasticity of
demand for a product.
 Understand the factors that
determine demand.
4.3 Elasticity of Demand
Elasticity
 Total Expenditures Test
 Determinants of
Demand Elasticity

Elasticity


Elasticity measures how
sensitive consumers are
to price changes.
Demand is elastic when
a change in price causes
a LARGE change in
demand.
Figure 4.5
The Total Expenditures Test for D
e 4.5Elasticity
Total Expenditures Test for Demand Elasticity

Demand is inelastic
when a change in price
causes a SMALL
change in demand.
Elasticity

Demand is unit elastic
when a change in price
causes a PROPORTIONAL
change in demand.
Guided Practice
What are examples of items
for which an increase in
price would cause you or
your family to reconsider
buying them?
Total Expenditures Test



Price times quantity demanded equals expenditures.
Changes in expenditures depend on the elasticity of the
demand curve.
 If the change in price and expenditures move in the
opposite directions on the curve, demand is elastic.
 If they move in the same direction, demand is
inelastic.
 If there is no change in expenditures, demand is unit
elastic.
Understanding elasticity helps producers effectively
price their products.
Guided Practice

Create a three-tabbed Foldable about demand
elasticity.
 Elastic
Demand
 Unit Elastic Demand
 Inelastic Demand
Guided Practice
What are examples of
items for which a drop in
price would NOT
encourage you to buy
more of an item?
Determinants of Demand Elasticity

Demand is elastic if the answer to the following
questions are “yes.”
 Can
the purchase be delayed? Some purchases cannot
be delayed, regardless of price changes. (ex: medicine)
 Are adequate substitutions available? Price changes can
cause consumers to substitute one product for a similar
product. (beef vs. chicken)
 Does the purchase use a large portion of income?
Demand elasticity can increase when a product
commands a large portion of a consumer’s income.

All three answers do not necessarily have to be “yes”
or “no.”
Guided Practice
What are some
things you buy for
which price is not
an issue?
Independent Practice

Use your textbook to
copy AND answer
questions 1-6 under the
“Reviewing the Facts”
section on page 110.
Reviewing the Facts


1. Describe a demand schedule and a
demand curve. How are they alike?
A demand schedule is a list that shows the
quantities demanded for a product at all
prices that prevail in the market. A demand
curve shows the same data in graphic form.
Reviewing the Facts


2. Explain how the principle of diminishing marginal
utility is related to the downward-sloping demand
curve.
Diminishing marginal utility states that as we use more
of a product, we are not willing to pay as much for it.
People will not pay as much for the second and third
product as they did for the first, therefore the
demand is downward sloping.
Reviewing the Facts


3. Describe the difference between the
income effect and the substitution effect.
The income effect is the change in quantity
demanded due to a change in price that
alters consumers’ real income. The substitution
effect is the change in quantity demanded
due to the change in the relative price of the
product.
Reviewing the Facts


4. Identify the five factors that can cause a
change in market demand.
The five factors that can cause a change in
market demand are:
 consumer
income
 consumer tastes
 substitutes and complements
 change in expectations
 number of consumers
Reviewing the Facts


5. Describe the difference between elastic
demand and inelastic demand.
When demand is elastic, there is a relatively
large change in quantity demanded when the
price changes, giving the demand curve a flat
slope. The change in quantity demanded is much
smaller for inelastic demand, making the slope
of the demand curve steeper.
Reviewing the Facts


6. Explain how the total expenditures test can be
used to determine demand elasticity.
By observing the change in total expenditures when
the price changes, you can determine demand
elasticity. If expenditures and price move in opposite
directions, demand is elastic, If they move in the same
direction, demand is inelastic. If expenditures do not
change, demand is unit elastic.