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Chapter Menu Chapter Introduction Section 1:Section 1:What is Demand? Section 2:Section 2:Factors Affecting Demand Section 3:Section 3:Elasticity of Demand Visual Summary

Chapter Intro 1 Think about the items you bought during the past two months. What influenced your purchases? Did you need the items, or did you buy them because you wanted them? Make a list of the items, and next to each one write why you bought it. Then add for each item whether you would have bought more if the price had been lower, or fewer had the price been higher. Read Chapter 4 to learn how economists interpret your actions.

Chapter Intro 2 Markets exist when buyers and sellers interact, and market prices are set by the interaction of demand and supply.

Chapter Intro-End

Section 1-Preview Section Preview In this section, you will learn that you express demand for a product when you are willing and able to purchase it.

Section 1-Key Terms Content Vocabulary demand microeconomics market economy demand schedule demand curve Law of Demand market demand curve Academic Vocabulary marginal utility diminishing marginal utility

A.A B.B C.C Section 1 Do you know how the price of an item is established? A.Definitely B.Possibly C.Definitely not

Section 1 What is Demand? Demand for a product is more than having the desire to own an item. Demand includes the ability and willingness to pay for it.Demand Microeconomics is the part of economic theory that deals with behavior and decision making by individuals and firms.Microeconomics

Section 1 An Introduction to Demand Demand is a concept specifying the different quantities of an item that will be bought at different prices.

Section 1 An Introduction to Demand (cont.) Demand is central to a market economy.market economy Demand involves two variables: The Demand for Compact Digital Discs –Price –Quantity of a specific product at a given point in time

Section 1 An Introduction to Demand (cont.) A demand schedule shows the various quantities demanded of a good at all prices that might prevail in the market at a given time.demand schedule A demand schedule shown graphically is a demand curve.demand curve The Demand for Compact Digital Discs

A.A B.B C.C D.D Section 1 Which does the demand schedule show? A.Age demographic of buyers B.Various quantities demanded C.Prevailing market prices D.Cost of producing product

Section 1 The Law of Demand There is an inverse relationship between the price of an item and the quantity demanded.

Section 1 Higher prices are associated with smaller amounts demanded on most goods or services we buy. This is the Law of Demand.Law of Demand –Quantity demanded varies inversely with its price. The Law of Demand (cont.) The market demand curve shows quantities demanded by everyone in the market who is interested in the product/service. Individual and Market Demand Curves

A.A B.B C.C D.D Section 1 What would be the highest price you would pay for your favorite movie on DVD? A.$20 B.$25 C.$30 D.None of the above

Section 1 Demand and Marginal Utility As we buy more of an item, we get less satisfaction from each additional purchase.

Section 1 Utility is the amount of product satisfaction or usefulness one receives from its use. Marginal utility explains much about demand.Marginal utility As we use more of a product, we encounter diminishing marginal utility.diminishing marginal utility Demand and Marginal Utility (cont.)

A.A B.B C.C Section 1 Can you name any products/services that do not have diminishing marginal utility? A.Many B.Some C.Not at all

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Section 2-Preview Section Preview In this section, you will learn about the factors that cause changes in demand.

Section 2-Key Terms Content Vocabulary change in quantity demandedchange in quantity demanded income effect substitution effect change in demand substitutes complements Academic Vocabulary principle illustrated

A.A B.B C.C Section 2 Do you think that changes in season affect demand? A.Definitely B.Possibly C.Not at all

Section 2 Change in the Quantity Demanded Only a change in price can cause a change in quantity demanded.

Section 2 Change in the Quantity Demanded (cont.) When only the price changes and all else remains constant, there is a change in the quantity demanded.change in the quantity demanded –Income effectIncome effect –Substitution effectSubstitution effect A change in quantity demanded is a movement along the original demand curve. Change in the Quantity Demanded

A.A B.B C.C Section 2 Is the buyer’s “real income” really changing when a price changes? A.Absolutely B.Sometimes C.Not at all

Section 2 Change in Demand Several factors can cause the demand curve to shift.

Section 2 Factors other than price can cause a change in demand. A change in demand results in an entirely new demand curve. Change in Demand (cont.) Change in Demand

Section 2 Factors for demand changes –Consumer income –Consumer tastes –Price of related goods Change in Demand (cont.) Substitutes Complements Change in Demand

Section 2 –Expectations –Number of consumers Change in Demand (cont.) Change in Demand

A.A B.B C.C D.D Section 2 When consumers are willing to buy more due to an expected future shortage, what happens to the demand curve? A.Demand increases, movement along demand curve slopes downward B.Demand increases, curve shifts right C.Demand increases, movement along demand curve slopes upward D.Demand increases, curve shifts left

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Section 3-Preview Section Preview In this section you will learn about the factors that influence the size of a change in quantity demanded.

Section 3-Key Terms Content Vocabulary elasticity demand elasticity elastic inelastic unit elastic Academic Vocabulary technical adequate

A.A B.B C.C Section 3 What happens to a farmer’s revenue if he or she raises the price of his or her watermelons? A.Revenue will increase B.Revenue will decrease C.Revenue will stay the same

Section 3 Elasticity of Demand An important cause-and-effect relationship in economics is elasticity.elasticity Profiles in Economics: Oprah Winfrey

Section 3 Demand Elasticity When the price of an item changes, the change in quantity demanded can vary a little or a lot.

Section 3 Demand Elasticity (cont.) Consumers react to changes in price by changing the quantity demanded. The size of the reaction is demand elasticity.demand elasticity Demand can be –Elastic—fresh produceElastic –Inelastic—table saltInelastic –Unit elasticUnit elastic Demand Elasticity and the Total Expenditures Test

A.A B.B C.C Section 3 If a given change in price causes a proportional change in quantity demanded, the demand is what? A.Inelastic B.Unit elastic C.Elastic

Section 3 The Total Expenditures Test The total expenditures test is used to estimate the demand elasticity of a product.

Section 3 Total expenditures—the price of a product multiplied by the quantity demanded for any point along the demand curve. Can test for elasticity by observing the change in total expenditures when the price changes. Three results occur: The Total Expenditures Test (cont.) –Elastic demand—an “inverse” relationship between price and expenditures

Section 3 The Total Expenditures Test (cont.) –Inelastic demand—movement occurs in the same direction Elasticity and revenues –Raising the price of an inelastic product may help increase revenue. –Raising the price of an elastic product will likely decrease revenue. –Unit elastic—no change in expenditure

A.A B.B C.C Section 3 Is the demand for automobiles— A.Elastic? B.Inelastic? C.Unit elastic?

Section 3 Determinants of Demand Elasticity The answers to three questions help determine a product’s demand elasticity.

Section 3 Must answer three questions to determine if a demand for a good is elastic or inelastic. –Can the purchase be delayed? –Are adequate substitutes available? –Does the purchase use a large portion of income? Determinants of Demand Elasticity (cont.) Determinants of Demand Elasticity

A.A B.B C.C Section 3 Is the purchase of a prom dress or tuxedo— A.Elastic? B.Inelastic? C.Unit elastic?

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Law of Demand The Law of Demand states that when the price goes up, quantity demanded goes down. When the price goes down, quantity demanded goes up. VS 1

VS 2 Change in Demand When a change in demand occurs, people want to buy different amounts of a product at the same price. A change in demand can happen for several reasons.

VS 3 Demand and Elasticity Changes in price and total expenditures help determine the demand elasticity of a product.

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Profile Oprah Winfrey (1954– ) first woman in history to produce and own her own talk show first African American woman—and third woman in history— ​ to own a major television and film studio

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Vocab1 demand combination of desire, ability, and willingness to buy a product

Vocab2 microeconomics part of economics that studies small units, such as individuals and firms

Vocab3 market economy economic system in which people and firms make all economic decisions

Vocab4 demand schedule a table that lists how much of a product consumers will buy at all possible prices

Vocab5 demand curve a curve that shows the quantities demanded at all possible prices

Vocab6 Law of Demand rule stating that consumers will buy more of a product at lower prices and less at higher prices

Vocab7 market demand curve a curve that shows how much of a product all consumers will buy at all possible prices

Vocab8 marginal utility additional satisfaction or usefulness a consumer gets from having one more unit of the same product

Vocab9 diminishing marginal utility decrease in satisfaction or usefulness from having one more unit of the same product

Vocab10 prevail to predominate

Vocab11 inversely in the opposite way

Vocab12 change in quantity demanded movement along the demand curve showing that the amount someone is willing to purchase changes when the price changes

Vocab13 income effect that part of a change in quantity demanded due to a change in the buyer’s real income when a price changes

Vocab14 substitution effect that part of a change in quantity demanded due to a price change that makes other products more or less costly

Vocab15 change in demand shift of the demand curve when people by different amounts at every price

Vocab16 substitutes competing products that can be used in place of one another

Vocab17 complements products that increase the use of other products

Vocab18 principle a fundamental law or idea

Vocab19 illustrated shown with an image

Vocab20 elasticity a measure of responsiveness that shows how one variable responds to a change in another variable

Vocab21 demand elasticity a measure that shows how a change in quantity demanded responds to a change in price

Vocab22 elastic type of elasticity where a change in price causes a relatively larger change in quantity demanded

Vocab23 inelastic type of elasticity where a change in price causes a relatively smaller change in quantity demanded

Vocab24 unit elastic type of elasticity where a change in price causes a proportional change in quantity demanded

Vocab25 technical related to a particular subject such as art, science, or trade

Vocab26 adequate just enough to satisfy a requirement

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