1. Explorations in Economics
Alan B. Krueger & David A. Anderson

2. Chapter 4: The Demand for Goods and Services
Module 10: Determining Demand
Module 11: Shifts of the Demand Curve
Module 12: Elasticity of Demand

3. MODULE 10: Determining Demand
KEY IDEA:
When the price of a good or service increases, consumers buy less of it for two reasons: (1) they substitute the good with other goods whose prices haven’t increased, and (2) their income will buy less of the good at the higher price.
OBJECTIVES:
To describe the law of demand and the role of the substitution effect and the income effect.
To explain what economists mean by “all else equal.”
To show the relationship between a demand schedule and a demand curve.
Buyers ( or households) will be making choices on what to buy and how much. They will be the demand side of the product market where goods and services are offered for sale by the firms.Buyers will need to have income to make the money payments to pruchase the goods and services.

4. THE LAW OF DEMAND
Explain and discuss with students WHY prices change. Include an analysis of supply changing and demand changing.
This is a great place to do a supply and demand activity. There are many online. There are also simulations for a computer of tablet.

5. THE LAW OF DEMAND
The quantity demanded is the amount of a good that consumers are willing and able to purchase at a particular price over a given period of time. There are two distinct reasons why a consumer buys less of a good after its price increases: the substitution effect and the income effect.
KEY POINT: The demand curve is downward sloping because of the income and substitution effect.
Consumers benefits when substitutes are available by having more choices and it creates competition amongst firms as well.
The substitution effect arises when an increase in the price of a good causes a consumer to switch away from that good and toward other goods that do not experience a price increase.
Likewise, a decrease in the price of a good causes consumers to switch toward that good.

6. THE LAW OF DEMAND
The quantity demanded is the amount of a good that consumers are willing and able to purchase at a particular price over a given period of time.
There are two distinct reasons why a consumer buys less of a good after its price increases: the substitution effect and the income effect.
Give an example of the price of groceries decreasing makes consumers feel richer and they can buy more clothing or fancy coffeee.
The income effect is the change in consumption that occurs when a price increase causes consumers to feel poorer or when a price decrease causes them to feel richer.

7. THE LAW OF DEMAND This is one of the most confusing ideas to students:
Drill student that a change in quantity demanded is CAUSED by a change in PRICE.
This is a movement ALONG the same curve—not a shift of the demand curve.
There will be reasons that the demand curve shifts but PRICE of the product is not one of them.

8. THE LAW OF DEMAND AND THE “ALL ELSE EQUAL” ASSUMPTION
Economists use the Latin term ceteris paribus, meaning “all else equal,” to indicate that they are looking only at a specified relationship, such as the one between price and quantity demanded.
Models like a demand curve isolate price and quantity demanded as the relationship to be explained.
In science experiments, in your science classes, you must control the variables. You change the amount of heat applied to a liquid and you might get boiling, or melting, or steam. But you do no add an acid or maybe ice at the same time to change the character of the liquid. You hold other factors constant.
Economists must limit the factors of demand and explore the effects one at a time.

9. THE DEMAND SCHEDULE & THE DEMAND CURVE
A demand schedule is a table that relates the quantity demanded of a particular good to its price.
Spend some time explaining how the curve related to the data of the schedule. Then take the time to write a new table on the board and call students to the board to plot the points. Many students will not know the difference between a table (or schedule) and a graph.

10. INDIVIDUAL DEMAND SCHEDULE & THE DEMAND CURVE
A demand curve is a graphical representation of the demand schedule for a good, showing the quantity demanded at each price.
Spend some time explaining how the curve related to the data of the schedule. Then take the time to write a new table on the board and call students to the board to plot the points. Many students will not know the difference between a table (or schedule) and a graph.

11. THE DEMAND SCHEDULE & THE DEMAND CURVE
The market demand curve for a good is a graphical representation of how the quantity demanded by ALL consumers in the market varies with the price.
Ask students how their behavior changes when they see a product labeled as 50% off or Buy one get one free.

12. THE DEMAND SCHEDULE & THE DEMAND CURVE
The market demand curve for a good is a graphical representation of how the quantity demanded by ALL consumers in the market varies with the price.
Remind the students that market is the SUM of all of the individuals demand and the price on the market curve is an average price PER UNIT.

13. THE DEMAND SCHEDULE & THE DEMAND CURVE
The market demand curve for a good is a graphical representation of how the quantity demanded by all consumers in the market varies with the price.
Be sure to explain that all consumers that DEMAND a product make up the market demand for the product.
Explain that the market price is an AVERAGE price PER UNIT as well.

14. Module 10 Review What is… A. Substitution effect? B. Income effect?
C. Law of demand?
D. Market demand curve?
E. Demand schedule?
F. Demand curve?
G. Quantity demanded?
H. Ceteris paribus?
Add these terms to their vocabulary notebooks. Make sure they write examples as well.

15. MODULE 11: Shifts of the Demand Curve
KEY IDEA:
The demand curve for a good can shift due to changes in tastes income, the prices of related goods, expectations about the future, and the number of buyers in a market.
OBJECTIVES:
To identify what shifts the demand curve to the left and what shifts it to the right.
To distinguish between the terms quantity demanded and demand.
To explain how goods are categorized as normal goods, inferior goods, substitutes, and complements.
Remind the students that a SHIFT of the demand curve is different than a MOVEMENT ALONG the demand curve.

16. MOVEMENTS ALONG A DEMAND CURVE
A movement along a demand curve caused by a price change is called a change in the quantity demanded, not to be confused with a change in demand.
Emphasize here that the DEMAND did not change but the price changed and that is a change in the QUANTITY demanded.

17. SHIFTS OF THE DEMAND CURVE
A shift of the demand curve represents a change in the amount people are willing and able to buy at every price.
Explain to students how a price of $1 will now mean an increase in quantity by 50 oranges.
What changed in the minds of consumers? Challenge students to think of shifters.

18. SHIFTS OF THE DEMAND CURVE
Point out how the SHIFT (b) leads consumers to DEMAND more at every price. The $1.00 amount is highlighted. The quantity changed from 100 to 150 at $1.00

19. SHIFTS OF THE DEMAND CURVE
Point out that a leftward shift is a DECREASE in DEMAND at EVERY price.
What would a rightward shift mean?
Contrast the change in demand with the change in quantity demanded when price changes.

20. WHAT CAUSES THE DEMAND CURVE TO SHIFT?
All of the following shift the demand curve:
Tastes and preferences
More popular demand shifts right
Income (if income increases)
- normal good (the demand shifts right)
- inferior good (the demand shifts left)
If more people demand a good, the price will increase.
Discuss and how the students graphs that a more popular good will increase the quantity demanded at EVERY price which is a shift of the curve.
If a good is normal or superior good we will DEMAND more at every price when our incomes rise.
If a good is an inferior good we will DEMAND less at every price when our incomes decreae.

21. WHAT CAUSES THE DEMAND CURVE TO SHIFT?
All of the following shift the demand curve:
Tastes and preferences
Income
- normal good
- inferior good
The Prices of Related Goods (if the price increases)
- substitute goods (demand will increase)
- complementary goods (demand will decrease)
Substitute goods like Coke and Pepsi—If the price of Pepsi increases the DEMAND for COKE will increase.
Complementary goods like peanut butter and jelly—If the price of jelly increases the DEMAND for peanut butter will decrease.

22. WHAT CAUSES THE DEMAND CURVE TO SHIFT?
All of the following shift the demand curve:
Tastes and preferences
Income
- normal good
- inferior good
The Prices of Related Goods
- substitute goods
- complementary goods
Expectations (a predicted shortage will increase demand)
If people expect there to be a shortage of Twinkies they may stock up now—increasing the demand for Twinkies causing the price to increase.

23. WHAT CAUSES THE DEMAND CURVE TO SHIFT?
All of the following shift the demand curve:
Tastes and preferences (more popular demand shifts right)
Income (if income increases)
- normal good (the demand shifts right)
- inferior good (the demand shifts left)
The Prices of Related Goods (if the price increases)
- substitute goods (demand will increase)
- complementary goods (demand will decrease)
Expectations (a predicted shortage will increase demand)
The Number of Buyers (more buyers increases demand)
Here is the entire list. This will take a lot of practice.

24. Module 11 Review What is… A. Change in the quantity demanded?
B. Change in demand?
C. Normal goods?
D. Expectations?
E. Substitutes?
F. Complements?
G. Conspicuous consumption?
H. Taste?
I. Inferior goods?
J. Income?
Have students add the notes to their vocabulary notebook.

25. MODULE 12: Elasticity of Demand
KEY IDEA:
An important aspect of demand is how sensitive quantity demanded is to price changes.
OBJECTIVES:
To explain how economists measure the sensitivity of quantity demanded to price changes.
To identify what makes the demand for a good more or less sensitive to changes in its price.
To show the connection between price sensitivity and the total revenue of firms in a market.
How many students would say they are chocolate addicts? or Cola addicts? What does that mean in economic terms?

26. WHAT IS ELASTICITY?
Elasticity of demand is a measure of how strongly consumers respond to a change in the price of a good, calculated as the percentage change in the quantity demanded divided by the percentage change in price.
Demand is elastic if consumers respond to a change in PRICE with a relatively large change in the quantity demanded
Demand is inelastic if consumers respond to a change in PRICE with a relatively small change in the quantity demanded.
Demand is unit-elastic if consumers respond to a change in price by changing the quantity demanded by the same percentage.
Point out that elasticity is a measure of responsiveness. Examples: when gas prices go up we still buy gas but we may carpool or use mass transit—inelastic demand.
Think about other goods or service that response in different way to changes in price.

27. WHAT MAKES DEMAND MORE OR LESS ELASTIC?
Necessities versus luxuries: If you need it, your demand is relatively inelastic.
The availability of close substitutes: No substitutes means your demand is inelastic.
The share of income spent on the good: If It is a large expense, your demand is elastic.
Time: If you can wait, your demand is elastic.
Drill students with these questions:
If you have more income, does your elasticity increase or decrease for luxuries?
If you need a medication to live, is the elasticity of the medication for you elastic or inelastic? What about someone who does not need the medication at all.?
If the price of tickets at Yankee Stadium increases by $5 per ticket, will everybody stop going to cheer the team? Are there substitutes available for the tickets to the Yankee game?
Think about GDP during recessions. Consumer spending decreases quickly for durable goods because they are more expensive and you can usually put off the purchase. They represent a large portion of your income and budget.

28. Perfectly Elastic Demand
When demand is perfectly elastic, the demand curve is horizontal.
At the price listed here consumers will buy an infinite amount.

29. Perfectly Inelastic Demand
When demand is perfectly inelastic, the demand curve is vertical.
At the quantity shown here a consumer will buy the product no matter what the price…Insulin, a medication for diabetics, is an example.

30. PREDICTING ELASTICITY
Ask students to explain the examples and the elasticity characteristic.
Ask the students to provide more examples and explain.

31. COMPARING ELASTICITIES
By calculating the value of elasticity, economists can categorize the demand for goods according to how sensitive consumers are to price changes.
We can specify whether demand is elastic, inelastic, or unit elastic, depending on the value of elasticity.
Depending on the course you are teaching you may need to spend some time teaching HOW to calculate elasticity. Remember that the elasticity of demand is equal to the percentage change in the quantity demanded divided by the percent-age change in the price. Refer to Show Me The Numbers p in the text.
The total revenue test is easier for students to comprehend and apply.
The larger the elasticity, the greater the percentage change in quantity demanded relative to the percentage change in price and the stronger the response to a price change.

32. COMPARING ELASTICITIES

33. SPENDING, REVENUE, AND ELASTICITY
Point out how large the price change in (a) has a LARGER response in terms of quantity than in (b). In (c) the change is the same percentage so it is called unit elastic.

34. ELASTICITY, TOTAL SPENDING, & TOTAL REVENUE
Total revenue is all the money consumers spend on a good, and firms receive for a good, during a particular period of time: it is the price of the good multiplied by the quantity of the good sold. Changes in Total Revenue with Elastic Demand Price increases = total revenue decreases Price decreases = total revenue increases
Depending on the curriculum you may have to spend a class period or two on this. Use a demand schedule and multiply P x Q.
Point out elastic demand means price and total revenue move in the OPPOSITE direction.

35. ELASTICITY, TOTAL SPENDING, & TOTAL REVENUE
Total revenue is all the money consumers spend on a good, and firms receive for a good, during a particular period of time: it is the price of the good multiplied by the quantity of the good sold. Changes in Total Revenue with Inelastic Demand Price increases = total revenue increases Price decreases = total revenue decreases
Point out inelastic demand means price and total revenue more in the SAME direction.

36. ELASTICITY, TOTAL SPENDING, & TOTAL REVENUE
Total revenue is all the money consumers spend on a good, and firms receive for a good, during a particular period of time: it is the price of the good multiplied by the quantity of the good sold. Constant Total Revenue with Unit-Elastic Demand Price increases or decreases = total revenue unchanged.
Unit elasticity means that price changes and total revenue does not change.

37. ELASTICITY, TOTAL SPENDING, & TOTAL REVENUE
Changes in Total Revenue with Elastic Demand Changes in Total Revenue with Inelastic Demand Constant Total Revenue with Unit- Elastic Demand
Quiz students using Table 12.3.
What happens to total revenue when demand is elastic What happens to total revenue when demand is elastic and the price decreased?
What happens to total revenue when demand is inelastic and the price increased? What happens to total revenue when demand is inelastic and the price decreased?
What happens to total revenue when demand is unit elastic and the price increased? What happens to total revenue when demand is unit elastic and the price decreased?

38. Module 12 Review What is… A. Elasticity of demand? B. Elastic demand?
C. Inelastic demand?
D. Necessity?
E. Unit- elastic demand?
F. Total revenue?
G. Luxury?
H. Close substitute?
Have students add the notes to their vocabulary notebook.