1. Ch. 7 Market Structures Ch. 4: Demand Ch. 5: Supply Ch. 6: Prices
Unit 2: How Markets Work Essential question: Who benefits from the free market economy?
Ch. 7 Market Structures
Ch. 4: Demand
Ch. 5: Supply
Ch. 6: Prices

2. Chapter 4: Demand
Essential Question: How do we decide what to buy?

3. What is demand? Demand is BOTH The desire to _________________ __
2. The willingness (and ability) ____________________ _________________
The LAW OF DEMAND says that as _________increases, _________ Demanded decreases OR, in other words, consumers will buy more of a good when its price is lower and less when its price is higher This is the single most famous law in all of economics!

5. The Demand curve
We are ONLY looking at changes in ________ here! Everything else is held constant ceteris paribis: Latin phrase for ______________________ ______________________

6. Graphing demand
Practice Time! Refer to “Market Forces of Supply & Demand (ch 4) PowerPoint) This is a separate PowerPoint found on the blog It’s the one with the ice cream example

7. The substitution and Income Effects
We know as economists that people respond to incentives in predictable ways… If something (pizza?) gets too expensive, people will buy less of it and buy more of something else , thus making a substitution. How does this affect the demand curve?
If prices rise, the law of demand tells us…. Why? Because we feel poorer! So we buy less overall.

8. Section 2: Shifts in the demand curve
To move the ENTIRE curve takes something MORE than just a change in price because the quantity demanded AT EVERY PRICE is changing! In other words, ΔQD ≠ΔD!!!!!
Remember that a change (Δ) in price (P)means a change in quantity demanded (QD) This is a movement ALONG THE CURVE, not a movement of the whole curve itself! This is a really big deal!

9. What could cause this? __________ ________________ _______________
What makes the demand curve shift to the left or right?
__________
________________
_______________
______& _________
6. A ________in the price of ____________ goods a. ___________________ b. ___________________ Remember that it’s shifting left or right (not up and down), and this indicates an increase or decrease.

10. What are related goods? Substitutes
Goods that are used in place of one another Hamburger instead of _________ ________instead of red meat Pop Tarts instead of _______ ______ and ___________

11. Related goods continued
Complements
Are goods that are bought and used together Snowboard and ________ Hot dogs and _________ Spaghetti sauce and ____ Bathing suits and _______ Smart phones and ______

13. Section 3: elasticity of demand
One of the things economists can measure and predict is how responsive consumers will be to changes in price.
This is known as the ______ of_______ Being able to measure this will tell us how _____or ____consumers will change how much they buy if the price is increased or decreased. Goods can be ______ or ____________.

14. Elasticity continued
How can you tell if a good is elastic or inelastic?
Consider the following:
Can the purchase be ________________?
Are there adequate ___________________________________?
Does the purchase use a large _______________________________?
The more “yes” answers you get, the more ELASTIC demand is for the good/service.
The more “no” answers you get, then demand for the good/service is inelastic
Let’s think through some examples:
Fresh tomatoes A House
Gasoline when your tank is on E trip to the beach
Gasoline from a particular gas station toilet paper
Going to the doctor flowers for your yard
Insulin flowers on Valentine’s Day
Going to your uncle’s funeral in California Butter
A college degree table salt

15. Elasticity continued Other factors affecting elasticity:
1. Relative _____________________
Clothing in a teenager’s budget
Clothing in a stay-at-home-mom’s budget
Shoelaces
2. Necessities vs. _______________________
Consumption of necessities doesn’t change much, even if prices change a lot
Will vary from person to person
3. Change _______________________
Some items take a while to change (cars, housing)

16. Elasticity and revenue
Does a company always make more money if they raise their prices on the good or service they sell? How do businesses use the Elasticity of Demand How much can they afford to raise or lower their prices? At what point will they actually start to lose money? See the charts on p.103 and p. 104