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Chapter 4. Demand. Splash Screen. Economics and You. In Chapter 4 , you will learn that demand is more than a desire to buy something: it is the ability and willingness to actually buy it. Click the Speaker button to listen to Economics and You. Chapter Introduction 1. Chapter Objectives.

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  1. Chapter 4 Demand Splash Screen

  2. Economics and You In Chapter 4, you will learn that demand is more than a desire to buy something: it is the ability and willingness to actually buy it. Click the Speaker button to listen to Economics and You. Chapter Introduction 1

  3. Chapter Objectives Section 1: What Is Demand? • Describe and illustrate the concept of demand.  • Explain how demand and utility are related. Chapter Introduction 2

  4. Chapter Objectives Section 2: Factors Affecting Demand • Explain what causes a change in quantity demanded.  • Describe the factors that could cause a change in demand. Click the mouse button or press the Space Bar to display the information. Chapter Introduction 3

  5. Chapter Objectives Section 3: Elasticity of Demand • Explain why elasticity is a measure of responsiveness.  • Analyze the elasticity of demand for a product.  • Understand the factors that determine demand. Click the mouse button or press the Space Bar to display the information. Chapter Introduction 4

  6. Click the mouse button to return to the Contents slide. End of Chapter Introduction

  7. Study Guide Main Idea Demand is a willingness to buy a product at a particular price.  Click the mouse button or press the Space Bar to display the information. Section 1 begins on page 89 of your textbook. Section 1-1

  8. Introduction • People sometimes think of demand as the desire to have or to own a certain product.  • In this sense, anyone who would like to own a swimming pool could be said to “demand” one.  • In order for demand to be counted in the marketplace, however, desire is not enough; it must coincide with the ability and willingness to pay for it. Click the mouse button or press the Space Bar to display the information. Section 1-4

  9. Introduction (cont.) • Only those people with demand—the desire, ability, and willingness to buy a product-can compete with others who have similar demands.  • Demand, like many other topics in Unit 2 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. Section 1-5

  10. Introduction (cont.) • Collectively, these concepts of microeconomics help explain how prices are determined and how individual economic decisions are made. Section 1-5

  11. Did You Know? • In the summer 1999, the American Automobile Association announced that gasoline prices in Illinois had reached a 20-month high. A spokesperson for the gasoline industry explained that this rise in prices had several causes, including unexpected problems at refinery plants and decisions from oil-producing countries to cut back on production. Regardless of the reasons, it was expected that people living in Illinois would respond to the higher prices by limiting the time they spent driving, thus reducing their demand for gas. Section 1-5

  12. An Introduction to Demand • Demand is the desire, ability, and willingness to buy a product.  • An individual demand curve illustrates now the quantity that a person will demand varies depending on the price of a good or service.  • Economists analyze demand by listing prices and desired quantities in a demand schedule (chart). When the demand data is graphed, it forms a demand curve with a downward slope. Click the mouse button or press the Space Bar to display the information. Section 1-6

  13. An Introduction to Demand (cont.) Section 1-9

  14. An Introduction to Demand (cont.) Figure 4.1b

  15. Discussion Question Think about something you have been wanting to buy. What is its price? At what price would you be willing to buy the item? Answers will vary, but students should demonstrate an understanding of the concept of demand. Click the mouse button or press the Space Bar to display the answer. Section 1-Assessment 1

  16. The Law of Demand • TheLaw of Demandstates that the quantity demanded of a good or service varies inversely with its price.When price goes up, the quantity demanded goes down; when price goes down, the quantity demanded goes up.  • A market demand curve illustrates how the quantity that all interested persons (the market) will demand varies depending on the price of a good or service. Click the mouse button or press the Space Bar to display the information. Section 1-11

  17. Discussion Question Why is price a consumer’s obstacle to buying? Answers will vary, but may include that a consumer’s money is limited, and the price of a product forces the consumer to determine how much his or her demand is for the product. Click the mouse button or press the Space Bar to display the answer. Section 1-Assessment 1

  18. The Law of Demand (cont.) Figure 4.2

  19. Demand and Marginal Utility • Marginal utility is the extra usefulness or satisfaction a person receives from getting or using one more unit of a product.  • The principle of diminishing marginal utility states that the satisfaction we gain from buying a product lessens as we buy more of the same product. Click the mouse button or press the Space Bar to display the information. Section 1-15

  20. Click the mouse button to return to the Contents slide. End of Section 1

  21. Study Guide (cont.) Objectives After studying this section, you will be able to:  • Explain what causes a change in quantity demanded.  • Describethe factors that could cause a change in demand.  Click the Speaker button to listen to the Cover Story. Click the mouse button or press the Space Bar to display the information. Section 2 begins on page 95 of your textbook. Section 2-3

  22. Introduction • The demand curve is a graphical representation of the quantities that people are willing to purchase at all possible prices that might prevail in the market.  • Occasionally something happens to change people’s willingness and ability to buy.  • These changes are usually of two types: a change in the quantity demanded, and a change in demand. Click the mouse button or press the Space Bar to display the information. Section 2-4

  23. Did You Know? • In 1983, the first audio compact discs were introduce to U.S. consumers. Within five years, record companies had begun to phase out the vinyl albums on which music was traditionally played because sales figures had shown that consumers preferred CD technology. Click the mouse button or press the Space Bar to display the information. Section 2-4

  24. Change in Quantity Demanded • The change in quantity demanded shows a change in the amount of the product purchased when there is a change in price.  • The income effect means that as prices drop, consumers are left with extra real income.  • The substitution effect means that price can cause consumers to substitute one product with another similar but cheaper item. Click the mouse button or press the Space Bar to display the information. Section 2-5

  25. Change in Quantity Demanded (cont.) Figure 4.3

  26. Change in Demand • A change in demand is when people buy different amounts of the product at the same prices.  • A change in demand can be caused by a change in income, tastes, a price change in a related product (either because it is a substitute or complement), consumer expectations, and the number of buyers. Click the mouse button or press the Space Bar to display the information. Section 2-9

  27. Change in Demand (cont.) Section 2-10

  28. Click the mouse button to return to the Contents slide. End of Section 2

  29. Study Guide (cont.) Objectives After studying this section, you will be able to:  • Explainwhy elasticity is a measure of responsiveness.  • Analyzethe elasticity of demand for a product.  • Understandthe factors that determine demand elasticity. Click the mouse button or press the Space Bar to display the information. Section 3 begins on page 101 of your textbook. Section 3-2

  30. Study Guide (cont.) Applying Economic Concepts Elasticity of Demand What are you willing to pay to see a popular movie? Read to find out about the elasticity of demand for a product and what factors influence your willingness and ability to pay for a product. Click the Speaker button to listen to the Cover Story. Section 3 begins on page 101 of your textbook. Section 3-3

  31. Introduction • Cause-and-effect relationships are important in the study of economics.  • For example, we often ask, “if one thing happens, how will it affect something else?”  • An important cause-and-effect relationship in economics is elasticity, a measure of responsiveness that tells us how a dependent variable such as quantity responds to a change in an independent variable such as price. Click the mouse button or press the Space Bar to display the information. Section 3-4

  32. Introduction (cont.) • Elasticity is also a very general concept that can be applied to income, the quantity of a product supplied by a firm, or to demand. Click the mouse button or press the Space Bar to display the information. Section 3-4

  33. Did You Know? • The drugs needed to get or stay well can take a large portion of a consumer’s income, especially if that income is fixed. However, the use of generic drugs had offered consumers a cheaper alternative to drugs with brand names. After the founding drug company’s patent on a brand-name drug has expired, another drug company can create a generic drug. Click the mouse button or press the Space Bar to display the information. Section 3-4

  34. Demand Elasticity • Elasticity measures how sensitive consumers are to price changes.  • Demand is elastic when a change in price causes a large change in demand.  • Demand is inelastic when a change in price causes a small change in demand.  • Demand is unit elastic when a change in price causes a proportional change in demand. Click the mouse button or press the Space Bar to display the information. Section 3-5

  35. Discussion Question What are examples of items for which an increase in price would cause you or your family to reconsider buying them? Answers will vary but should illustrate an understanding of price elastic demand. Click the mouse button or press the Space Bar to display the answer. Section 3-Assessment 1

  36. The Total Expenditures Test • Price times quantity demanded equals total expenditures.  • Changes in expenditures depend on the elasticity of a demand curve—if the change in price and expenditures move in opposite directions on the curve, the demand is elastic, if they move in the same direction, the demand is inelastic; if there is no change in expenditures, demand is unit elastic.  • Understanding the relationship between elasticity and profits can help producers effectively price their products. Click the mouse button or press the Space Bar to display the information. Section 3-9

  37. The Total Expenditures Test (cont.) Section 3-9

  38. Discussion Question What are examples of items for which a drop in price would not encourage you to buy more of an item? Click the mouse button or press the Space Bar to display the answer. Section 3-Assessment 1

  39. 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.  • Are adequate substitutes available? Price changes can cause consumers to substitute on product for a similar product. • 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. Click the mouse button or press the Space Bar to display the information. Section 3-14

  40. Determinants of Demand Elasticity (cont.) Section 3-15

  41. Click the mouse button to return to the Contents slide. End of Section 3

  42. Section 1: What Is Demand? • Microeconomics is the area of economic study that deals with individual units in an economy, such as households, business firms, labor unions, and workers.  • You express demand for a product when you are both willing and able to purchase it.  • Demand can be summarized in a demand schedule, which shows the various quantities that would be purchased at all possible prices that might prevail in the market.  • Demand can also be shown graphically as a downward sloping demand curve. Click the mouse button or press the Space Bar to display the information. Chapter Summary 1

  43. Section 1: What Is Demand? (cont.) • The Law of Demand refers to the inverse relationship between price and quantity demanded.  • Individual demand curves for a particular product can be added up to get the market demand curve.  • Marginal utility is the amount of satisfaction an individual receives from consuming one additional unit of a particular good or service.  • Diminishing marginal utility means that with each succeeding unit, satisfaction decreases. Click the mouse button or press the Space Bar to display the information. Chapter Summary 2

  44. Section 2: Factors Affecting Demand • Demand can change in two ways–a change in quantity demanded or a change in demand.  • A change in quantity demanded means people buy a different quantity of a product if that product’s price changes, appearing as a movement along the demand curve.  • A change in demand means that people have changed their minds about the amount they would buy at each and every price. It is represented as a shift of the demand curve to the right or left.  • A change in consumer incomes, tastes and expectations, and the price of related goods causes a change in demand. Click the mouse button or press the Space Bar to display the information. Chapter Summary 3

  45. Section 2: Factors Affecting Demand (cont.) • Related goods include substitutes and complements. A substitute is a product that is interchangeable in use with another product. A complement is a product that is used in conjunction with another product.  • The market demand curve changes whenever consumers enter or leave the market, or whenever an individual’s demand curve changes. Click the mouse button or press the Space Bar to display the information. Chapter Summary 4

  46. Section 3: Elasticity of Demand • Elasticity is a general measure of responsiveness that relates changes of a dependent variable such as quantity to changes in an independent variable such as price.  • Demand elasticity relates changes in the quantity demanded to changes in price.  • If a change in price causes a relatively larger change in the quantity demanded, demand is elastic.  • If a change in price causes a relatively smaller change in the quantity demanded, demand is inelastic. Click the mouse button or press the Space Bar to display the information. Chapter Summary 5

  47. Section 3: Elasticity of Demand (cont.) • When demand is elastic, it stretches as price changes. Inelastic demand means that price changes have little impact on quantity demanded.  • Demand is unit elastic if a change in price causes a proportional change in quantity demanded.  • The total expenditures test can be used to estimate demand elasticity.  • Demand elasticity is influenced by the ability to postpone a purchase, by the substitutes available, and by the proportion of income required for the purchase. Click the mouse button or press the Space Bar to display the information. Chapter Summary 6

  48. Click the mouse button to return to the Contents slide. End of Chapter Summary

  49. Identifying Key Terms Match the letter of the term best described by each statement. ___ the desire, ability, and willingness to buy a product ___a movement along the demand curve showing that a different quantity is purchased in response to a change in price ___a statement that more will be demanded at lower prices and less at higher prices B F G A. demand schedule E. demand curve B. demand F. change in quantity demanded C. microeconomics G. Law of Demand D. change in demand H. elastic demand Click the mouse button or press the Space Bar to display the answer. The Chapter Assessment is on pages 110–111. Chapter Assessment 1

  50. Identifying Key Terms (cont.) Match the letter of the term best described by each statement. ___a listing in a table that shows the quantity demanded at all possible prices in the market at a given time ___ a principle illustrating that consumers demand different amounts at every price, causing the demand curve to shift to the left or the right ___the field of economics that deals with behavior and decision making by individuals and firms A D C A. demand schedule E. demand curve B. demand F. change in quantity demanded C. microeconomics G. Law of Demand D. change in demand H. elastic demand Click the mouse button or press the Space Bar to display the answer. Chapter Assessment 2

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