Chapter Essential Questions 4 Demand SECTIONjb-hdnp.org/Sarver/Econ_Honors/Student_Edition/... · Essential Questions ... have demand for a good or service, both of these conditions

NGSSS

84 Unit2

Chapter

Essential QuestionsUNIT 2:

Whobenefitsfromthefreemarketeconomy?

CHAPTER 4:

Howdowedecidewhattobuy?

Introduce the ChapterACTIVATE PRIOR KNOWLEDGE

Inthischapter,studentswilllearnaboutfactorsthataffectdemandforgoodsandservices.TellstudentstocompletethewarmupactivityintheEssential Questions Journal.

DIffERENTIATED INSTRUCTION KEy

L1 SpecialNeeds

L2 Basic

ELL EnglishLanguageLearners

LPR LessProficientReaders

L3 AllStudentsL4 AdvancedStudents

online Visitwww.PearsonSchool.com/PHeconforaninteractivetextbookwithbuilt-inactivitiesoneconomicprinciples.

The Wall Street JournalClassroom Edition Videopresentsacurrenttopicrelatedtodemand.

Yearly Update Worksheetprovidesanannualupdate,includinganewworksheetandlessononthistopic.

On the Goresourcescanbedownloadedsostudentsandteacherscanconnectwitheconomicsanytime,anywhere.

Block SchedulingBLOCk 1 TeachSections1and2lessons,omittingThe Wall Street JournalcasestudyinSection2.

BLOCk 2 TeachSection3lesson,omittingtheDemonstratingElasticityactivityandtheExtendactivity.

Pressed for TimeGroup Work Organizetheclassintothreegroups,assigningeachgroupasectionfromthechapter.Haveeachgroupcreateapresentationdetailingthemainpointsoftheassignedsection.Asgroupsgivetheirpresentations,createastudyguideontheboardoutliningeachsectionsmainpoints.

Chap

ter

Essential Question, Chapter 4

How do we decide what to buy?

Demand4

84 DemanD

To study anywhere, anytime, download these online resources at PearsonSchool.com/PHecon

on the goSection 1: Understanding DemandLA.1112.1.6, LA.1112.1.6.2, MA.912.D.4.1, SS.912.E.1.4

Section 2: Shifts in the Demand CurveLA.1112.1.6, LA.1112.6.3, MA.912.A.2.2, SS.912.E.1.4, SS.912.E.2.3

Section 3: Elasticity in DemandLA.1112.1.6, LA.1112.6.2, MA.912.A.2.2, SS.912.E.1.4, SS.912.E.1.7

Next Generation Sunshine State Standards

ECON13_SE_FL_CH04_CO.indd 84 3/1/11 2:59:59 PM

Demand

As the price of a good goes down...

As the price of a good goes up...

Law of Demand

Substitution Effect

Income Effect

Chapter 4 SeCtION 1 85

Economics and You Anyone who has ever shopped knows the difference between wanting to have something and being able to pay for it. Sometimes you can buy what you want, and other times, the price is just too high. Principles in Action Price changes always affect the quantity demanded because people buy less of a good when its price goes up. By analyzing how the cost of pizza affects how much people are willing to buy, you will see how consumers react to a change in price. In the Economics & You feature, you will see how changes in price are an incentive.

DemandDemand is the desire to own something and the ability to pay for it. To have demand for a good or service, both of these conditions must be present. We will look at the demand side of markets in this chapter. In the next chapter, we will look at the actions of sellers, which economists call the supply side. In Chapter 6, we will look at supply and demand together and study how they interact to establish the prices that we pay for most goods.

The Law of DemandAnyone who has ever spent money will easily understand the law of demand. The law of demand says that when a goods price is lower, consumers will buy more of it. When the price is higher, consumers will buy less of it. All of us act out this law of demand in our everyday purchasing decisions. Whether your income is $10 or $10 million, the price of a good will strongly influence your decision to buy.

demand the desire to own something and the ability to pay for it

law of demand consumers will buy more of a good when its price is lower and less when its price is higher

Guiding QuestionHow does the law of demand affect the quantity demanded?

Copy this table and fill it in as you read.

economic dictionary

As you read the section, look for the definitions of these Key Terms:

demand law of demand substitution effect income effect demand schedule market demand schedule demand curve

SECTION 1 Understanding Demand

Go to the Visual Glossary Online for an interactive review of the law of demand.

Go to Action Graph Online for animated versions of key charts and graphs.

Go to How the Economy Works Online for an interactive lesson on elasticity of demand.

online onlineonline

LA.1112.1.6 Use multiple strategies to develop vocabulary.

LA.1112.1.6.2 Listen to, read, and discuss familiar and challenging texts.

MA.912.D.4.1 Solve maximal profit/minimal cost problems.

SS.912.E.1.4 Define supply, demand, quantity supplied, and quantity demanded.

NGSSS

ECON13_SE_FL_CH04_S01.indd 85 3/1/11 8:07:55 AM

Section 1: LA.1112.1.6, LA.1112.1.6.2, MA.912.D.4.1, SS.912.E.1.4 Section 2: LA.1112.1.6, LA.1112.6.3, MA.912.A.2.2, SS.912.E.1.4, SS.912.E.2.3 Section 3: LA.1112.1.6, LA.1112.6.2, MA.912.A.2.2, SS.912.E.1.4, SS.912.E.1.7


ECON13_TE_FL_CH04_S01.indd 84 3/9/11 12:41:41 AM

NGSSS

Chapter 85

Chapter Section 1

Guiding Question

How does the law of demand affect the quantity demanded?

Get Started

LESSON GOALS

Students will:

Know the Key Terms.

Analyze their buying decisions to explain the law of demand.

Explain how the substitution effect and income effect influence decisions by analyzing a cartoon.

Create a market demand schedule and demand curve to understand how price affects demand.

BEFORE CLASS

Students should read the section for homework before coming to class.

Have students complete the graphic organizer in the Section Opener as they read the text. As an alternate activity, have students complete the Guided Reading and Review worksheet (Unit 2 All-in-One, p. 13).

L1 L2 ELL LPR Differentiate Have students complete the Guided Reading and Review worksheet (Unit 2 All-in-One, p. 1).

Focus on the BasicsStudents need to come away with the following understandings:

FACTS: Demand is the desire to have a good and the ability to purchase it. As a goods price rises, people demand less of that good; as a goods price falls, people demand more of that good. If the price of a good increases, consumers will increase their demand for substitute goods; if the price of a good decreases, consumers will decrease their demand for substitute goods. Demand schedules show demand for a good across a range of prices. Demand curves are graphic representations of demand schedules.

GENERALIZATION: If the price of a good increases, the quantity demanded for that good will decrease; if the goods price decreases, quantity demanded for that good by consumers will increase. Demand for a good across a range of prices can be shown in a demand schedule, and graphically represented by a demand curve.

Demand

Law of Demand

Substitution Effect

Income Effect

As the price of a goodgoes down, . . .

demand goes up.

demand goes up.

consumers substitute thatgood for other goods.

As the price of a goodgoes up, . . .

demand goes down.

demand goes down.

consumers substitute othergoods for that good.

Chap

ter

Essential Question, Chapter 4

How do we decide what to buy?

Demand4

84 DemanD

To study anywhere, anytime, download these online resources at PearsonSchool.com/PHecon

on the goSection 1: Understanding DemandLA.1112.1.6, LA.1112.1.6.2, MA.912.D.4.1, SS.912.E.1.4

Section 2: Shifts in the Demand CurveLA.1112.1.6, LA.1112.6.3, MA.912.A.2.2, SS.912.E.1.4, SS.912.E.2.3

Section 3: Elasticity in DemandLA.1112.1.6, LA.1112.6.2, MA.912.A.2.2, SS.912.E.1.4, SS.912.E.1.7


ECON13_SE_FL_CH04_CO.indd 84 3/1/11 2:59:59 PM

Demand

As the price of a good goes down...

As the price of a good goes up...

Law of Demand

Substitution Effect

Income Effect


Economics and You Anyone who has ever shopped knows the difference between wanting to have something and being able to pay for it. Sometimes you can buy what you want, and other times, the price is just too high. Principles in Action Price changes always affect the quantity demanded because people buy less of a good when its price goes up. By analyzing how the cost of pizza affects how much people are willing to buy, you will see how consumers react to a change in price. In the Economics & You feature, you will see how changes in price are an incentive.

DemandDemand is the desire to own something and the ability to pay for it. To have demand for a good or service, both of these conditions must be present. We will look at the demand side of markets in this chapter. In the next chapter, we will look at the actions of sellers, which economists call the supply side. In Chapter 6, we will look at supply and demand together and study how they interact to establish the prices that we pay for most goods.

The Law of DemandAnyone who has ever spent money will easily understand the law of demand. The law of demand says that when a goods price is lower, consumers will buy more of it. When the price is higher, consumers will buy less of it. All of us act out this law of demand in our everyday purchasing decisions. Whether your income is $10 or $10 million, the price of a good will strongly influence your decision to buy.


law of demand consumers will buy more of a good when its price is lower and less when its price is higher

Guiding QuestionHow does the law of demand affect the quantity demanded?

Copy this table and fill it in as you read.

economic dictionary


demand law of demand substitution effect income effect demand schedule market demand schedule demand curve

SECTION 1 Understanding Demand

Go to the Visual Glossary Online for an interactive review of the law of demand.

Go to Action Graph Online for animated versions of key charts and graphs.

Go to How the Economy Works Online for an interactive lesson on elasticity of demand.

online onlineonline


LA.1112.1.6.2 Listen to, read, and discuss familiar and challenging texts.

MA.912.D.4.1 Solve maximal profit/minimal cost problems.


NGSSS


LA.1112.1.6 Use multiple strategies to develop vocabulary.LA.1112.1.6.2 Listen to, read, and discuss familiar and challenging texts.MA.912.D.4.1 Solve maximal profit/minimal cost problems.SS.912.E.1.4 Define supply, demand, quantity supplied, and quantity demanded.

NGSSS


86 Unit2

Chapter Section 1

Teach Visual GlossaryREVIEW KEY TERMS

Pairstudentsandhavethemquizeachotheronthedefinitionsofthekeyterms.

free market economy an economic system in which decisions on the three key economic questions are based on voluntary exchange in markets

consumer sovereignty the power of consumers to decide what gets produced


substitution effect when consumers react to an increase in a goods price by consuming less of that good and more of a substitute good

income effect the change in consumption that results when a price increase causes real income to decline.

CLASS ACTIVITY

Readthedefinitionofthelaw of demand.AskAccording to the law of demand, why has the quantity of goods demanded in the picture on the top increased?(Prices have gone down.)According to the law of demand, why has the quantity of goods demanded in the picture on the bottom decreased?(Prices have gone up.)

L1 L2 Differentiate Bringabalancescaletoclass.Slowlyplaceaweightononesideofthebalancescale.AskWhat happened to the sides of the scale?(When one side went down, the other side went up.)AskHowdoes the scale represent the relationship between price and demand?(When price goes up, demand goes down. When price goes down, demand goes up.)

All print resources are available on the Teachers Resource

Library CD-ROM and online at www.PearsonSchool.com/PHecon.

AnswerCaption Theimagesshowcrowdsbuyinggoodswhenthepricegoesdown,therebyincreasingquantitydemanded,andacustomerbuyingasmallamountwhenpricesgoup,decreasingquantitydemanded.

online

86

Reviewing Key Terms

To understand the law of demand review these terms:

free market economy, p. 30consumer sovereignty, p. 34demand, p. 85substitution effect, p. 87income effect, p. 87

law of demand consumers will buy more of a good when its price is lower and less when its price is higher.

What is the

Law of Demand?

People will react to changes in price. How do these two images reflect the law of demand in action?

To expand your understanding of this and other key economic terms, visit PearsonSchool.com/PHecon



David Henderson, an economics pro-fessor who served as a senior economist with the Presidents Council of Economic Advisers, describes the importance of the law of demand:

The most famous law in economics, and the one that economists are most sure of, is the law of demand. On this law is built almost the whole edifice of economics.David Henderson, Demand,

The Concise Encyclopedia of Economics

Now ask yourself a question: Would you buy a slice of pizza for lunch if it cost $2? Many of us would, and some of us might even buy more than one slice. But would you buy the same slice of pizza if it cost $4? Fewer of us would buy it at that price. Even real pizza lovers might reduce their consumption from 3 or 4 slices to just 1 or 2. How many of us would buy a slice for $10? Probably very few would pay that amount. As the price of pizza gets higher and higher, fewer of us are willing to buy it. That is the law of demand in action.

The law of demand is the result of not one pattern of behavior, but two separate patterns that overlap. These two behavior patterns are the substitution effect and the income effect. The substitution effect and the income effect describe two different ways that a consumer can change his or her spending patterns. Together, they explain why an increase in price decreases the amount purchased. As shown in Figure 4.1, the substitution effect and the income effect can change a consumers buying habits.

The Substitution EffectWhen the price of pizza rises, pizza becomes more expensive compared with other foods, such as tacos and salads. So, as the price of a slice of pizza rises, consumers have an incentive to buy one of those alternatives as a substitute for pizza. This causes a drop in the amount of pizza demanded. For example, instead of eating pizza for lunch on Mondays and Fridays, a student could eat pizza on Mondays and a bagel on Fridays. This change in consump-tion is known as the substitution effect. The substitution effect takes place when a consumer reacts to a rise in the price of

one good by consuming less of that good and more of a substitute good.

The substitution effect can also apply to a drop in prices. If the price of pizza drops, pizza becomes cheaper compared to other alternatives. Consumers will now substitute pizza for tacos, salads, and other lunch choices, causing the quantity of pizza demanded to rise.

The Income EffectRising prices have another effect that we have all felt. They make us feel poorer. When the price of movie tickets, shoes, or pizza increases, your limited budget just wont buy as much as it did in the past. It feels as if you have less money. You can no longer afford to buy the same combi-nation of goods, and you must cut back your purchases of some goods. If you buy fewer slices of pizza without increasing your purchases of other foods, that is the income effect.

One important fact to remember is that economists measure consumption in the amount of a good that is bought, not the amount of money spent to buy it. Although


income effect the change in consumption that results when a price increase causes real income to decline

GRAPH SKILLSBoth the substitution effect and the income effect lead consumers to buy less of good A when it becomes more expensive. However, while the income effect leads consumers to spend less on other goods so they can afford good A, the substitution effect encourages consumers to replace expensive good A with other, less expensive substitutes.

1. How does an increase in the price of good A affect consumption of other goods?

2. How does a decline in the price of good A affect consumption of other goods?

Figure 4.1 The Law of Demand in Action

Income effect

Consumption of A

Consumption of other goods

Substitution effect

Combined effect

Price of A Increases

Consumption of A


Price of A Decreases



Chapter 87

Chapter Section 1

BELLRINGER

Write only the first column of this table on the board. Ask students to write down the maximum they would be willing to pay for each item.

= to or less than

More than

Cold soda $2

Sneakers $100

Sandwich $

Cellphone $70

Teachonline To present this topic using digital

resources, use the lecture notes on www.PearsonSchool.com/PHecon.

L1 L2 ELL LPR Differentiate To help students who are struggling readers, assign the Vocabulary worksheet (Unit 2 All-in-One, p. 12).

DISCUSS BELLRINGER

Add price thresholds to the list. Call for a show of hands for those students willing to buy the products at each price level. Record the results. Ask What happens to the number of students willing to buy at higher prices? (It drops.) Explain. (Possible answers: preferences, available money) Ask Why might you have been willing to pay less for a sandwich if the other products cost more? (less money available) If others acted this way too, what would happen to the quantity of sandwiches demanded? (It would drop.) Ask students if they would have responded differently to the Bellringer activity if they had more money to spend than they currently do. Ask What principle does this demonstrate? (income effect)

VISUaL GLoSSaRy

Have students look at the diagram on the Visual Glossary. Ask them why price and demand change.

L1 L2 Differentiate Use the lesson on the Visual Glossary page to review this term. As an alternate, direct students to the Visual Glossary Online to reinforce their understanding of the law of demand.

AnswersGraph Skills 1. The income effect encourages consumers to spend less on other goods; the substitution effect encourages them to increase consumption of cheaper substitutes. 2. The income effect encourages consumers to spend more on other goods (in addition to A); the substitution effect encourages them to decrease consumption of cheaper substitutes.

Differentiated ResourcesL1 L2 Guided Reading and Review (Unit 2

All-in-One, p. 1)

L1 L2 Vocabulary worksheet (Unit 2 All-in-One, p. 12)

L2 Food Prices and Demand (Unit 2 All-in-One, p. 16)

L2 Using Charts and Graphs skills worksheet (Unit 2 All-in-One, p. 18)

CHAPTER

4SECTION 1

ANALYZING ECONOMIC CARTOONS

Food Prices and Demand 2

16Copyright by Pearson Education, Inc., or its affiliates. All rights reserved.

Name _________________________ Class _______________ Date _______________

In 2007 and 2008, food prices increased sharply. Editorial cartoonists often used humor to show the pain that high food prices caused.

2

008

John

Dar

kow

/C

agle

Car

toon

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ight

s R

eser

ved

.

Questions to Think About

Directions: Study the cartoon, and then answer these questions. Use complete sentences.

1. Why is the man eating a salad made out of fi ve-dollar bills?

___________________________________________________________________________

2. How does the cartoon show the law of demand?

___________________________________________________________________________

3. What products (besides fi ve-dollar bills) might you substitute for

lettuce if the price of lettuce increases? ______________________________________

ECN10NAE2_WSAO01_0204_0016.indd Page 16 3/2/09 6:14:12 PM elhi /Volumes/109/PHS00048/AIO_indd%0/Unit_02/Chapter_04/ECN10NAE_WSAO01_0204_0


Name _________________________ Class _______________ Date _______________

You and your group are going to start a new business. You will sell two products: a fruit juice and a sports drink. These tables provide the lowest and highest price and the quantity demanded for each product per day.

Step 1: Complete the following tables. Use what you have learned about the relationship between price and quantity demanded.

Price of Fruit Juice Quantity Demanded/Day

$2.00 351. (a) 1. (b) 302. (a) $2.50 2. (b)3. (a) 3. (b)4. (a) 4. (b)5. (a) 5. (b)

$3.50 5

Price of Sports Drink Quantity Demanded/Day

$1.00 701. (c) 1. (d)2. (c) $2.00 2. (d)3. (c) 3. (d)4. (c) 4. (d) 305. (c) 5. (d)

$4.00 10

Step 2: Use the completed demand schedules to draw the demand curve for each product. Label the horizontal axes with the quantities demanded and the vertical axes with the prices. Use a separate sheet of paper or spreadsheet software to draw the demand curves.


Directions: Use your demand curves to answer the following questions. Use complete sentences.

6. Why do demand curves slope down and to the right? _________________________

___________________________________________________________________________

7. What is one possible reason quantity demanded is different for the two products?

___________________________________________________________________________

8. How many units of each product would you buy at each price? Explain your answer.

___________________________________________________________________________

CHAPTER

4SKILL ACTIVITY

Using Charts and Graphs 2

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online

86

Reviewing Key Terms

To understand the law of demand review these terms:

free market economy, p. 30consumer sovereignty, p. 34demand, p. 85substitution effect, p. 87income effect, p. 87

law of demand consumers will buy more of a good when its price is lower and less when its price is higher.

What is the

Law of Demand?

People will react to changes in price. How do these two images reflect the law of demand in action?

To expand your understanding of this and other key economic terms, visit PearsonSchool.com/PHecon



David Henderson, an economics pro-fessor who served as a senior economist with the Presidents Council of Economic Advisers, describes the importance of the law of demand:

The most famous law in economics, and the one that economists are most sure of, is the law of demand. On this law is built almost the whole edifice of economics.David Henderson, Demand,

The Concise Encyclopedia of Economics

Now ask yourself a question: Would you buy a slice of pizza for lunch if it cost $2? Many of us would, and some of us might even buy more than one slice. But would you buy the same slice of pizza if it cost $4? Fewer of us would buy it at that price. Even real pizza lovers might reduce their consumption from 3 or 4 slices to just 1 or 2. How many of us would buy a slice for $10? Probably very few would pay that amount. As the price of pizza gets higher and higher, fewer of us are willing to buy it. That is the law of demand in action.

The law of demand is the result of not one pattern of behavior, but two separate patterns that overlap. These two behavior patterns are the substitution effect and the income effect. The substitution effect and the income effect describe two different ways that a consumer can change his or her spending patterns. Together, they explain why an increase in price decreases the amount purchased. As shown in Figure 4.1, the substitution effect and the income effect can change a consumers buying habits.

The Substitution EffectWhen the price of pizza rises, pizza becomes more expensive compared with other foods, such as tacos and salads. So, as the price of a slice of pizza rises, consumers have an incentive to buy one of those alternatives as a substitute for pizza. This causes a drop in the amount of pizza demanded. For example, instead of eating pizza for lunch on Mondays and Fridays, a student could eat pizza on Mondays and a bagel on Fridays. This change in consump-tion is known as the substitution effect. The substitution effect takes place when a consumer reacts to a rise in the price of

one good by consuming less of that good and more of a substitute good.

The substitution effect can also apply to a drop in prices. If the price of pizza drops, pizza becomes cheaper compared to other alternatives. Consumers will now substitute pizza for tacos, salads, and other lunch choices, causing the quantity of pizza demanded to rise.

The Income EffectRising prices have another effect that we have all felt. They make us feel poorer. When the price of movie tickets, shoes, or pizza increases, your limited budget just wont buy as much as it did in the past. It feels as if you have less money. You can no longer afford to buy the same combi-nation of goods, and you must cut back your purchases of some goods. If you buy fewer slices of pizza without increasing your purchases of other foods, that is the income effect.

One important fact to remember is that economists measure consumption in the amount of a good that is bought, not the amount of money spent to buy it. Although


income effect the change in consumption that results when a price increase causes real income to decline

GRAPH SKILLSBoth the substitution effect and the income effect lead consumers to buy less of good A when it becomes more expensive. However, while the income effect leads consumers to spend less on other goods so they can afford good A, the substitution effect encourages consumers to replace expensive good A with other, less expensive substitutes.

1. How does an increase in the price of good A affect consumption of other goods?

2. How does a decline in the price of good A affect consumption of other goods?

Figure 4.1 The Law of Demand in Action

Income effect

Consumption of A


Substitution effect

Combined effect

Price of A Increases

Consumption of A


Price of A Decreases


ECON13_TE_FL_CH04_S01.indd 87 3/18/11 12:12:32 PM

88 Unit2

Chapter Section 1

DISTRIBUTE ACTIVITY WORKSHEET

DistributetheFoodPricesandDemandworksheet(Unit2All-in-One,p.15).Studentswillanalyzethecartoonanddescribewhatitsaysaboutthesubstitutionandincomeeffects.

L2 Differentiate DistributetheFoodPricesandDemandworksheet(Unit2All-in-One,p.16).

Checkstudentanswers.Havestudentsgiveexamplesofboththesubstitutionandtheincomeeffectontheirownortheirfamilyspurchases.

COMPARE

DirectstudentsattentiontothetwodemandschedulesinFigure4.2.Askthemtoexplainwhateachscheduleshows.(The individual demand schedule shows the quantity demanded by Ashley at different prices. The market demand schedule shows the quantity demanded by all buyers in the market at the same prices.)AskHow are they similar and how are they different?(In both, demand decreases as price increases. Demand for the entire market is much higher than demand for one individual.)

L1 L2 Differentiate DirectstudentsattentiontomarketdemandscheduleforpizzainFigure4.2.Askstudentstodescribewhathappenstothequantityofpizzaslicespeoplewanttobuyeachdayasthepricegoesup(Quantity demanded goes down.)andasthepricegoesdown(Quantity demanded goes up.)AskHow many slices could the pizza shop sell if each slice cost less than $1?(more than 300)Havestudentsexplainwhythatresponsedemonstratesthelawofdemand.(When the price goes down, quantity demanded goes up.)

AnswersCheckpoint Quantitydemandedforthegoodgoesdown.

Economics & You Possibleresponse:Whenthepriceofmovieticketsrose,Iwenttoafternoonshowsinsteadofeveningshowsbecausetheycostless.

Virtual EconomicsL4 Differentiate

Exploring the Law of Demand UsethefollowinglessonfromtheNCEEVirtual Economics CD-ROMtohelpstudentscreateademandcurve.ClickonBrowseEconomicsLessons,specifygrades912,andusethekeywordsnature of demand.

Inthisactivity,studentswilltakepartinasimulationtocreateademandcurveandexplainthelawofdemand.

LESSOn TITLE THE nATURE Of DEMAnD

TypeofActivity Simulation,Graphing

Complexity Moderate

Time 80100minutes

NCEEStandards 8,9

Copyright by Pearson Education, Inc., or its affiliates. All rights reserved.

15

Name ___________________________ Class _____________________ Date __________

CHAPTER

4SECTION 1

ANALYZING AN ECONOMIC CARTOON

Food Prices and Demand 3

In 2007 and 2008, food prices experienced a sharp increase. Many editorial cartoonists tried to depict the impact of this rise in prices upon consumers. Study the cartoon, and then answer the questions that follow.


1. (a) What is the man doing? (b) Why is he taking this action? (c) How do the other characters in the cartoon react to this behavior?

2. (a) What is the woman holding? (b) How does this object contribute to the message of the cartoon?

3. Does the mans unusual solution to the rising price of food symbolize the substitution effect or the income effect? Why?

4. Which groups of consumers do rising food prices affect the most? Which groups do rising food prices affect the least? Why?

2

008

John

Dar

kow

/C

agle

Car

toon

s. A

ll R

ight

s R

eser

ved

.

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88 DemanD

you are spending more on pizza, you are consuming fewer slices, so your consump-tion has gone down. If the price rises from $2 a slice to $4 a slice, you may decide to pay extra and order your usual lunch, but you certainly would not choose to buy more slices than before. When the price goes up, consumers spend more of their money on pizza, but they may demand less of it. Thus, the income effect has led to a decrease in the quantity demanded.

Remember, too, that the income effect also operates when the price is lowered. If the price of pizza falls, all of a sudden you feel wealthier. If you buy more pizza as a result of the lower price, thats the income effect.

CHECKPOINT What happens to demand for a good when the price increases?

A Demand ScheduleThe law of demand explains how the price of any item affects the quantity demanded of that item. Before we look at the rela-tionship between price and the quantity demanded for a specific good, we need to look more closely at how economists use the word demand.

Understanding DemandTo have demand for a good, you must be willing and able to buy it at the speci-fied price. Demand means that you want the good and can afford to buy it. You may desperately want a new car, a laptop computer, or a trip to Alaska, but if you cant truly afford any of these goods, then you do not demand them. You might demand digital music downloads, though, if at the current price you have enough money and want to buy some.

A demand schedule is a table that lists the quantity of a good that a person will purchase at various prices in a market. For example, the table on the left in Figure 4.2 illustrates Ashleys individual demand for pizza. The schedule shows specific quantities of pizza that a student named Ashley is willing and able to purchase at specific prices. For example, at a price of $4, Ashleys quantity demanded of pizza is two slices per day.

Market Demand SchedulesIf you owned a store, knowing the demand schedule of one customer might not be as helpful as knowing how all of your customers would react to price changes. When you add up the demand schedules of every buyer in the market, you can create a market demand schedule. A market demand schedule shows the quantities demanded at various prices by all consumers in the market. A market demand schedule for pizza would allow a restaurant owner to predict the total sales of pizza at several different prices.

The owner of a pizzeria could create a market demand schedule for pizza slices by surveying his or her customers and then adding up the quantities demanded by all individual consumers at each price. The resulting market demand schedule will look

demand schedule a table that lists the

quantity of a good a person will buy at

various prices in a market

market demand schedule a table that lists the quantity of a good all consumers

in a market will buy at various prices

When the price of one good increases, people have an incentive to buy substitutes. Your decision to purchase a less expensive lunch is the substitution effect in action.

The substitution effect also applies when a drop in price creates a cheaper alternative. Your purchase of the reduced car is another example of the substitution effect.

The Substitution Effect

Chili$1.99

Roast Beefsandwich

$4.50$5.25

A rise in the price of a good will cause consumers to buy more of a substitute good. Has the substitution effect been a factor in any of your recent purchases?


like Ashleys demand schedule, but the quan-tities will be larger, as shown in Figure 4.2.

Note that the market demand schedule on the right in Figure 4.2 contains the same prices as Ashleys individual demand schedule, since those are the possible prices that may be charged by the pizzeria. The schedule also exhibits the law of demand. At higher prices the quantity demanded is lower. The only difference between the two demand schedules is that the market schedule lists larger quantities demanded because the market demand schedule reflects the purchase decisions of all potential consumers in the market.

CHECKPOINT To have demand for a good, what two conditions must be met?

The Demand GraphWhat if you took the numbers in Ashleys demand schedule in Figure 4.2 and plotted them on a graph? The result would be a demand curve. A demand curve is a graphic representation of a demand schedule.

How do economists create a demand curve? When they transfer numbers from a demand schedule to a graph, they always label the vertical axis with the lowest possible prices at the bottom and the highest price at the top. Likewise, they always label the quantities demanded on the horizontal axis with the lowest possible quantity at the left and the highest possible quantity at the right. All demand

graphs show that each pair of price and quantity-demanded numbers on the demand schedule is plotted as a point on the graph. Connecting the points on the graph creates a demand curve.

Reading a Demand CurveNote two facts about Ashleys demand curve shown in Figure 4.3 on page 90. First, the graph shows only the relationship between the price of this good and the quantity that Ashley will purchase. It assumes that all other factors that would affect Ashleys demand for pizzalike the price of other goods, her income, and the quality of the pizzaare held constant.

Second, the demand curve on the graph slopes downward to the right. If you follow the curve from the top left to the bottom right, you will notice that as price decreases, the quantity demanded increases. All demand schedules and demand curves reflect the law of demand, which states that higher prices will always lead to lower quantities demanded.

Ashleys demand curve in Figure 4.3 shows her demand for slices of pizza. The market demand curve in Figure 4.3 shows the quantities demanded by all consumers at the same prices. Thus, the prices listed on the vertical axis are identical to those in Ashleys demand curve. The quan-tities listed on the horizontal axis are much larger, corresponding to those in the market demand schedule in Figure 4.2.

demand curve a graphic representation of a demand schedule

This 2006 maga-zine cover reflects the increased demand for luxury goods that began in 2003. But an economic downturn in late 2007 led to reduced demand for luxury items. What other goods or services might con-sumers have less demand for during an economic downturn?


Figure 4.2 Demand Schedules

Chart SkillSDemand schedules show that the quan-tity demanded falls as the price rises.

1. How does market demand change when the price falls from $3 to $2 a slice?

2. What behaviors affect individual demand when pizza is $6 per slice?

Price of a slice of pizza

$1.00

$2.00

$3.00

$4.00

$5.00

$6.00

Quantity demanded per day

5

4

3

2

1

0

Individual Demand Schedule


$1.00

$2.00

$3.00

$4.00

$5.00

$6.00


300

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Chapter 89

Chapter Section 1

GRAPHING

Direct students attention to the demand curves in Figure .3. Call on volunteers to explain what each curve shows. Form the class into groups. Distribute the Using Charts and Graphs skill worksheet (Unit 2 All-in-One, p. 17). Have students work in their groups to create two demand schedules and two demand curves. Tell students to review the Graph Preview on page xxviii.

L2 Distribute the Using Charts and Graphs skill worksheet (Unit 2 All-in-One, p. 18).

Tell students to compare the two demand schedules and demand curves point by point, to see how the curves accurately display the information in the schedules.

EXTEND

Tell students to take the role of the pizza shop owner and decide how much they would charge for each slice of pizza, explaining their reasons based on the demand schedule on this page.

online Have students review the Action Graph animation for a step-by-step look at demand curves.

GuIDING QuEsTIoN WRAP uP

Have students return to the section Guiding Question. Review the completed graphic organizer and clarify any misunderstandings. Have a wrap up discussion about the law of demand.

Assess and RemediateL3 L2 Collect the Food Prices and Demand worksheets and assess student understanding of the income and substitution effects.

L3 L2 Collect the Using Charts and Graphs skill worksheets and assess student ability.

L3 Assign the Section 1 Assessment questions; identify student misconceptions.

L3 Give Section Quiz A (Unit 2 All-in-One, p. 19).L2 Give Section Quiz B (Unit 2 All-in-One, p. 20).

(Assess and Remediate continued on p. 90)

Background NoteThe Slope of Demand Curves Students may think that the downward slope of demand curves means that demand decreases as prices drop. Have students review Ashleys demand schedule for pizza (Figure .2), and then find each price and corresponding demand on Ashleys demand curve (Figure .3). Suggest that students read each point on the demand curve in this way: When the price of a slice of pizza is (have students name the price), Ashley wants to buy (have students fill in the number) slices.

AnswersChart Skills 1. It increases from 200 to 250 slices a day. 2. substitution effect and income effect

Checkpoint the desire to own and ability to pay

Caption new cars, new appliances

88 DemanD

you are spending more on pizza, you are consuming fewer slices, so your consump-tion has gone down. If the price rises from $2 a slice to $4 a slice, you may decide to pay extra and order your usual lunch, but you certainly would not choose to buy more slices than before. When the price goes up, consumers spend more of their money on pizza, but they may demand less of it. Thus, the income effect has led to a decrease in the quantity demanded.

Remember, too, that the income effect also operates when the price is lowered. If the price of pizza falls, all of a sudden you feel wealthier. If you buy more pizza as a result of the lower price, thats the income effect.

CHECKPOINT What happens to demand for a good when the price increases?

A Demand ScheduleThe law of demand explains how the price of any item affects the quantity demanded of that item. Before we look at the rela-tionship between price and the quantity demanded for a specific good, we need to look more closely at how economists use the word demand.

Understanding DemandTo have demand for a good, you must be willing and able to buy it at the speci-fied price. Demand means that you want the good and can afford to buy it. You may desperately want a new car, a laptop computer, or a trip to Alaska, but if you cant truly afford any of these goods, then you do not demand them. You might demand digital music downloads, though, if at the current price you have enough money and want to buy some.

A demand schedule is a table that lists the quantity of a good that a person will purchase at various prices in a market. For example, the table on the left in Figure 4.2 illustrates Ashleys individual demand for pizza. The schedule shows specific quantities of pizza that a student named Ashley is willing and able to purchase at specific prices. For example, at a price of $4, Ashleys quantity demanded of pizza is two slices per day.

Market Demand SchedulesIf you owned a store, knowing the demand schedule of one customer might not be as helpful as knowing how all of your customers would react to price changes. When you add up the demand schedules of every buyer in the market, you can create a market demand schedule. A market demand schedule shows the quantities demanded at various prices by all consumers in the market. A market demand schedule for pizza would allow a restaurant owner to predict the total sales of pizza at several different prices.

The owner of a pizzeria could create a market demand schedule for pizza slices by surveying his or her customers and then adding up the quantities demanded by all individual consumers at each price. The resulting market demand schedule will look

demand schedule a table that lists the

quantity of a good a person will buy at

various prices in a market

market demand schedule a table that lists the quantity of a good all consumers

in a market will buy at various prices

When the price of one good increases, people have an incentive to buy substitutes. Your decision to purchase a less expensive lunch is the substitution effect in action.

The substitution effect also applies when a drop in price creates a cheaper alternative. Your purchase of the reduced car is another example of the substitution effect.

The Substitution Effect

Chili$1.99

Roast Beefsandwich

$4.50$5.25

A rise in the price of a good will cause consumers to buy more of a substitute good. Has the substitution effect been a factor in any of your recent purchases?


like Ashleys demand schedule, but the quan-tities will be larger, as shown in Figure 4.2.

Note that the market demand schedule on the right in Figure 4.2 contains the same prices as Ashleys individual demand schedule, since those are the possible prices that may be charged by the pizzeria. The schedule also exhibits the law of demand. At higher prices the quantity demanded is lower. The only difference between the two demand schedules is that the market schedule lists larger quantities demanded because the market demand schedule reflects the purchase decisions of all potential consumers in the market.

CHECKPOINT To have demand for a good, what two conditions must be met?

The Demand GraphWhat if you took the numbers in Ashleys demand schedule in Figure 4.2 and plotted them on a graph? The result would be a demand curve. A demand curve is a graphic representation of a demand schedule.

How do economists create a demand curve? When they transfer numbers from a demand schedule to a graph, they always label the vertical axis with the lowest possible prices at the bottom and the highest price at the top. Likewise, they always label the quantities demanded on the horizontal axis with the lowest possible quantity at the left and the highest possible quantity at the right. All demand

graphs show that each pair of price and quantity-demanded numbers on the demand schedule is plotted as a point on the graph. Connecting the points on the graph creates a demand curve.

Reading a Demand CurveNote two facts about Ashleys demand curve shown in Figure 4.3 on page 90. First, the graph shows only the relationship between the price of this good and the quantity that Ashley will purchase. It assumes that all other factors that would affect Ashleys demand for pizzalike the price of other goods, her income, and the quality of the pizzaare held constant.

Second, the demand curve on the graph slopes downward to the right. If you follow the curve from the top left to the bottom right, you will notice that as price decreases, the quantity demanded increases. All demand schedules and demand curves reflect the law of demand, which states that higher prices will always lead to lower quantities demanded.

Ashleys demand curve in Figure 4.3 shows her demand for slices of pizza. The market demand curve in Figure 4.3 shows the quantities demanded by all consumers at the same prices. Thus, the prices listed on the vertical axis are identical to those in Ashleys demand curve. The quan-tities listed on the horizontal axis are much larger, corresponding to those in the market demand schedule in Figure 4.2.

demand curve a graphic representation of a demand schedule

This 2006 maga-zine cover reflects the increased demand for luxury goods that began in 2003. But an economic downturn in late 2007 led to reduced demand for luxury items. What other goods or services might con-sumers have less demand for during an economic downturn?


Figure 4.2 Demand Schedules

Chart SkillSDemand schedules show that the quan-tity demanded falls as the price rises.

1. How does market demand change when the price falls from $3 to $2 a slice?

2. What behaviors affect individual demand when pizza is $6 per slice?


$1.00

$2.00

$3.00

$4.00

$5.00

$6.00


5

4

3

2

1

0

Individual Demand Schedule


$1.00

$2.00

$3.00

$4.00

$5.00

$6.00


300

250

200

150

100

50

Market Demand Schedule



90 Unit2

Chapter Section 1

HavestudentscompletetheSelf-TestOnlineandcontinuetheirworkintheEssential Questions Journal.

REMEDIATION AND SUGGESTIONS

Usethechartbelowtohelpstudentswhoarestrugglingwithcontent.

WEAKNESS REMEDIATION

Definingkeyterms(Questions3,4,5,6,7,8)

HavestudentsusetheinteractiveEconomicDictionaryOnline.

Describingthelawofdemand(Questions1,2,4)

ReteachtheconceptusingtheVisualGlossary;thenhavestudentssummarizethemeaningofthelaw of demandintheirownwords.

Explainingsubstitutionandincomeeffects(Questions5,8)

Havestudentsreviewtherelevantsectionsandwriteasummary.

Usingdemandschedulesanddemandcurves(Questions9,10,11)

Reteachusingtheskillworksheet.DirectstudentstoreviewtheActionGraphonlineforFigure4.3.

AnswersGraph Skills 1.2slices2.Forboth,demandgoesdownaspricegoesup.

Checkpoint acurveshowingdemandforagoodbyallconsumersinamarket

1. Quantitydemandedincreaseswhenpricedecreasesandquantitydemandeddecreaseswhenpriceincreases.

2. Possible response:AwinterjacketthatIlikedwasputonsaleattheendoftheseason,soIboughtit.

3. thedesiretoownsomethingandtheabilitytopayforit

4. Consumerswillbuylessofit. 5. Consumerswillbuymoreofthegoodand

lessofanysubstitutegoods. 6. thequantitiesofagooddemandedat

variouspricesbyallconsumersinamarket

7. ademandcurve 8. substitution effect:whenpeoplereactto

anincreaseinagoodspricebybuyingasubstitutegood;income effect:whenpeoplereacttoanincreaseinagoodspricebybuyinglessofthatgoodbecausetheirrealincomehasdeclined.

9. Icanuseittosetprices. 10. (a)howdemandforagoodwillchange

baseduponitsprice(b)whensomefactorotherthanpriceaffectsdemandforthegood

11. Studentsdemandcurveswilldisplaythedatainthemarketdemandschedule.

Assessment Answers

SECTION AssessmentSECTION 1 ASSESSMENT

90 demand

Limits of a Demand CurveThe market demand curve in Figure 4.3 can predict how people will change their buying habits when the price of a good rises or falls. For example, if the price of pizza is $3 a slice, the pizzeria will sell 200 slices a day.

This market demand curve is only accurate for one very specific set of market condi-tions. It cannot predict changing market conditions. In the next section, you will learn how demand curves can shift because of changes in factors other than price.

CHECKPOINT What is a market demand curve?

Guiding Question1. Useyourcompletedtabletoanswer

thisquestion:Howdoesthelawofde-mandaffectthequantitydemanded?

2. ExtensionCanyouthinkofatimewhenthepriceofsomethingyouwantedwasraisedordropped?Brieflydescribewhathappenedtocausethepricechange,andhowthisaffectedyourdecisiontobuyornotbuytheproduct.

Key Terms and Main Ideas3. Whattwoqualitiesmakeupdemand?4. Accordingtothelaw of demand,

whatwillhappenwhenthepriceofagoodincreases?

5. Underthesubstitution effect,whatwillhappenwhenthepriceofagooddrops?

6. Whatdoesamarket demand scheduleshow?

7. Whatisademand schedulecalledwhenitisrepresentedasagraph?

Critical Thinking8. ContrastDescribethedifference

betweenthesubstitutioneffectandtheincomeeffect.

9. ExtendSupposeyouareasmallbusinessowner.Howwouldamarketdemandscheduleoramarketdemandcurvebeusefultoyou?

10.Predict (a)Whatcaneconomistspredictbycreatingademandcurve?(b)Whenwouldademandcurvenotbeuseful?

Math Skills11.Usethefollowingmarketdemand

scheduletodrawademandcurveforminiaturegolf.

VisitPearsonSchool.com/PHeconforadditionalmathhelp.

$1.50$2.00$3.00$4.00

Cost to Play a Game Games Played per Month

350250140

80

TocontinuetobuildaresponsetotheEssentialQuestion,gotoyourEssential Questions Journal.

Journal

0 1 2 4

Slices of pizza per day

Pric

e pe

r slic

e (in

dol

lars

)

3 5 50 100 150 200 250 300 350

Slices of pizza per day

6.00

5.00

4.00

3.00

2.00

1.00

0

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dol

lars

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6.00

5.00

4.00

3.00

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1.00

Demand

Demand

Ashleys Demand Curve Market Demand Curve

Figure 4.3 Demand Curves

Graph SkillSAshleys demand curve shows the number of slices she is willing and able to buy at each price, while the market demand curve shows demand for pizza in an entire market.

1. How many slices does Ashley demand at is $4.00 per slice?

2. How are the demand curves similar?

onlineForananimatedversion

ofthisgraph,visitPearsonSchool.com/PHecon

MA.912.A.2.2, LA.1112.2.2.2, SS.912.E.1.4, LA.1112.2.2.3, MA.912.A.2, LA.1112.1.6.1


MA.912.A.2.2, LA.1112.2.2.2, SS.912.E.1.4, LA.1112.2.2.3, MA.912.A.2, LA.1112.1.6.1


NGSSS

Chapter 91

Chapter Section 2

Guiding Question

Why does the demand curve shift?

Get Started

LESSON GOALS

Students will:

Know the Key Terms.

Use graphs to distinguish between a change in quantity demanded and a change in demand.

Describe factors that can cause a shift in the demand curve by completing a worksheet.

BEFORE CLASS

Have students complete the graphic organizer in the Section Opener as they read the text. As an alternate activity, have students complete the Guided Reading and Review worksheet (Unit 2 All-in-One, p. 21).

L1 L2 ELL LPR Differentiate Have students complete the Guided Reading and Review worksheet (Unit 2 All-in-One, p. 22).

AnswerCaption Demand would increase and the demand curve would shift to the right.

Focus on the BasicsStudents need to come away with the following understandings:

FACTS: A demand curve shows how demand varies as price changes. Changes in factors other than a goods price can cause a goods demand curve to shift to the right or to the left. Price changes in one good can affect demand for related goods.

GENERALIZATION: Factors other than price can shift the demand curve to the left or to the right. These include income, consumer expectations, demographics, consumer tastes, and advertising.

Causes of a shift inthe demand curve

Demographics

Population

Income

Consumerexpectations

Consumer tastes and advertising

Prices of relatedgoods

Consumerexpectations Causes of a

shift in the demand curve

Chapter 4 SeCtion 2 91

ceteris paribus a Latin phrase that means all other things held constant

SECTION 2 Shifts in the Demand Curveeconomic dictionary


ceteris paribusnormalgoodinferiorgooddemographicscomplementssubstitutes

Guiding QuestionWhy does the demand curve shift?

Copythisconceptwebandfillitinasyouread.

Economics and You The text message says it all: Raining 2 hrd! Your plans to go out to eat with your friends have suddenly been scuttled. No burger is worth the bother. Not only has your demand for burgers at any price dropped, your demand for home-delivered pizza at any price has risen.Principles in Action Sometimes increases or decreases in demand are not connected to price. On a stormy night, the Burger Barn may be nearly empty while the phone is ringing off the hook at the Pizza Palace. As you will read, David Ogilvy, the Innovator featured on page 95, based his career on increasing consumers demand.

Changes in DemandWhen we counted the number of pizza slices that would sell as the price went up or down, we assumed that nothing besides the price of pizza would change. Economists refer to this assumption as ceteris paribus, the Latin phrase for all other things held constant. The demand schedule took into account only changes in price. It did not consider the effects of news reports or any one of thousands of other factors that change from day to day.

A demand curve is accurate only as long as there are no changes other than price that could affect the consumers decision. In other words, a demand curve is accurate only as long as the ceteris paribus assumption is true. When the price changes, we move along the curve to a different quantity demanded.

For example, in the graph of Ashleys demand for slices of pizza, an increase in the price from $2 per slice to $3 will make Ashleys quantity demanded fall from four slices to three slices per day. This movement along the demand curve

Natural disasters such as hurricanes can create sudden demand for household goods. Based on the image, how would the demand curve for plywood change?


LA.1112.6.3 Understand media literacy as a life skill.

MA.912.A.2.2 Interpret a graph to represent a real-world situation.


SS.912.E.2.3 Research the contributions of key individuals of various backgrounds in the development of the U.S.

NGSSS



LA.1112.6.3 Understand media literacy as a life skill.




NGSSS


92 Unit2

Chapter Section 2

BELLRINGER

Tellstudentstothinkofsomethingtheywouldbeabletobuyiftheygotaraiseatajob.Havestudentswritetheirresponsesintheirnotebooks.

Teachonline Topresentthistopicusingdigital

resources,usethelecturenotesonwww.PearsonSchool.com/PHecon.

CONTRAST

CallonseveralstudentstostatetheirresponsestotheBellringeractivity.Askthemtoexplainwhetherthissituationfollowstheceteris paribusruleandtoexplainwhyorwhynot.(It does not because a raise is an increase in the recipients income, which is a factor other than price.

Then,directstudentsattentiontothegraphsinFigure4.4.HavethemidentifywhichofthetwographsreflectsthesituationdescribedintheBellringerandexplainwhy.(the right graph: it shows an increase in demand made possible by an increase in income.)

Havestudentsdescribewhatwouldhappentothedemandcurveiftheydidnotreceivearaise,butwereabletopurchasethegoodbecauseitwentonsale.(The demand curve does not move; price changed to a point on the demand curve where I could now afford it.)

L1 L2 Differentiate CallonstudentstorestatethetwocomponentsofdemandtheylearnedaboutinSection1.Then,havethemexplainhowtheraisecanchangetheirdemandforagoodbychangingtheirabilitytopayforthatgood.

online HavestudentsreviewtheActionGraphanimationforastep-by-steplookatchangesindemand.

(lesson continued on p. 94)

Differentiated ResourcesL1 L2 Guided Reading and Review(Unit2All-in-One,p.22)

L2 Analyzing Shifts in Demand (Unit2All-in-One,p.24)

L3 Creating Demand (SimulationActivities,Chapter4)L4 Explaining Shifts in Demand (Unit2All-in-One,

p.25)

AnswersCheckpoint Ateveryprice,consumerswillbuyadifferentquantityofthegoodthanbefore.

Graph Skills 1.asmovementuptheoriginaldemandcurve2.Achangeinthequantitydemandedisaresponsetoapricechangeonly.Achangeindemandshiftsthedemandcurveleftorright,inresponsetochangesthataffecttheproductateveryprice.

CHAPTER

4SECTION 2


Name _________________________ Class _______________ Date _______________

The descriptions below illustrate changes in demand for various products.

Description 1 Weather forecasters say that a holiday weekend will be sunny and warm. People buy more sunglasses and sunblock.

Description 2 The government sends tax rebate checks to many citizens. People buy more cars and television sets.

Description 3 A famous actress introduces a new perfume. The perfume sells very well in its first year on the market.

Description 4 For 20 years, a company has been producing foods that are popular among Hispanics. During those 20 years, sales have doubled.


Directions: Use the above descriptions to answer the following questions. Use complete sentences.

1. All of these descriptions tell about shifts in demand curves.

Explain why this is true. ____________________________________________________

___________________________________________________________________________

2. Which description is an example of population trends affecting

demand? __________________________________________________________________

3. Which description is an example of income affecting demand?

___________________________________________________________________________

4. Which description is an example of advertising affecting demand?

___________________________________________________________________________

5. Which description is an example of consumer expectations

affecting demand? _________________________________________________________

STUDENT ACTIVITY

Analyzing Shifts in Demand 2

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Copyright by Pearson Education, Inc., or its affiliates. All rights reserved.

25

Name ___________________________ Class _____________________ Date __________

The demand curve below shows the monthly market demand for 26-inch, flat screen, standard-definition televisions (SDTVs) at an electronics store. Using the demand curve, answer the questions below.

Demand for 26-inch, Flat Screen SDTVs

0 50 150 200

$200

$500

$400

$600

$100

$0100

$300

Quantity Demanded

Pric

e


1. High-definition televisions (HDTVs) of the same size sell for $200 more than the SDTVs in this electronics store. What might happen to the demand curve above if the store cut the price of HDTVs by $100? Why?

2. Suppose this store had a sale on SDTVs and sold more than fifty sets. Within a few weeks of the sale, twenty buyers place very negative ratings for this TV on the stores Web site. (a) What might happen to demand for this television? Why? (b) Might the effect be the same if

only two or three buyers posted negative reviews? Why or why not? (c) Does this shift reflect a change in consumer preferences, a change in consumer expectations, or some other factor?

3. Identify two other scenarios that could decrease demand for these SDTVs. Explain.

4. Identify two other scenarios that could increase demand for these SDTVs. Explain.

CHAPTER

4SECTION 2

ANALYZING CHARTS AND GRAPHS

Explaining Shifts in Demand 4

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92 demand

is referred to as a decrease in the quan-tity demanded. By the same reasoning, a decrease in the price of pizza would lead to an increase in the quantity demanded.

When we drop the ceteris paribus rule and allow other factors to change, we no longer move along the demand curve. Instead, the entire demand curve shifts. A shift in the demand curve means that at every price, consumers buy a different quantity than before. This shift of the entire curve is what economists refer to as a change in demand.

Suppose, for example, that Ashleys town is hit by a heat wave, and Ashley no longer feels as hungry for pizza. She will demand fewer slices at every price. The graph on the left in Figure 4.4 shows her original demand curve and her new demand curve, adjusted for hot weather.

CHECKPOINT What does a shift in the demand curve say about a particular good?

What Causes a Shift?As you have read, a change in the price of a good does not cause the demand

curve to shift. The effects of changes in price are already built into the demand curve. However, several other factors can cause demand for a good to change. These changes can lead to a change in demand rather than simply a change in the quan-tity demanded.

IncomeA consumers income affects his or her demand for most goods. Most items that we purchase are normal goods, goods that consumers demand more of when their incomes increase. In other words, an increase in Ashleys income from $50 per week to $75 per week will cause her to buy more of a normal good at every price level. If we were to draw a new demand schedule for Ashley, it would show a greater demand for slices of pizza at every price. Plotting the new schedule on a graph would produce a curve to the right of Ashleys original curve. For each of the prices on the vertical axis, the quantity demanded would be greater. This shift to the right of the curve is called an increase in demand. A fall in income would cause

normal good a good that consumers demand

more of when their incomes increase

Figure 4.4 Graphing Changes in Demand

4

$3

$2

Quantity

Pric

e

3

Decrease in Demand Increase in Demand

Quantity

Pric

e

Original Demand

New Dem

and

New Dem

and

Original Demand

Graph SkillSWhen factors other than price cause demand to fall, the demand curve shifts to the left. An increase in demand appears as a shift to the right.

1. If the price of a book rose by one dollar, how would you show the change on one of these graphs?

2. How does a change in the quantity demanded differ from a change in price?

onlineFor an animated version

of this graph, visit PearsonSchool.com/PHecon




If Americans are cutting back on big purchases for the home, theyre doing so while talking on their iPhones about their new flat-screen TVs.

Government data show that after pouring money into their homes during the previous decade, consumers are redi-recting their purchases to eye-grabbing technology and socking away more of whats left over into savings.

David Wu, a Los Angeles high-school teacher, says he has spent about $4,000 on new technology over the past two years, including a high-tech mobile phone and a large-screen television. The 25-year-old says that because computers and other electronics are constantly evolving, he has an incentive to keep buying the latest items.

With a toaster and microwave, he

says, as long as it works, I dont see myself buying a flashier one.

Over the course of a year, Spence Witten, 27, spent about $8,000 on new electronics, including a new smart-phone, laptop, tablet computer and music player. He also bought a Blu-ray player and a $2,000 stereo system.

Mr. Witten says some home improve-ments fell down the list of priorities as a result of his electronics purchases. He could use a new toaster, microwave, professional wardrobe and hardwood floors for his Washington home, but who needs to eat and buy more ties?

The electronics boom alone isnt enough to sustain an economic recovery, says economist Chris Christopher; spending on technology accounts for only a sliver of the overall economy.

Still, the trend toward buying elec-tronics at the expense of other goods is leaving its mark. Manufacturing, for example, has been especially strong in high-tech businesses.

Meanwhile, apparel marketers say the shift is eating into their sales. Electronics has taken a huge chunk out of the average household spending budget, said Eric Wiseman, CEO of clothing maker VF. Apparel executives say the iPhone in particular has become an ornament in its own right.

Many hit by the weak economy cut spending on big-ticket items and services, including vacations. Sally Manesis, a 56-year-old from of New Canaan, Conn., recently installed a $5,000 home-enter-tainment system, equipped with a 64-inch flat-screen television, surround sound and a Blu-ray video player.

She says she thought about spending that money on a trip to Europe, but relaxing in the comforts of her home appealed to her more than long-distance travel.

Who Needs to Eat?ELECTRONICSAmericans are devoting more of their dollars to electronicsnot enough to trigger a recovery, but enough to leave a mark on the economy.

By Emmeline ZhaoThe Wall Street Journal

Applying Economic PrinciplesChanges in the economy have af-fected demand for a variety of goods and services. Electronics sales have expanded as demand for house-hold improvements and apparel has dropped. What are some of the factors that have caused this shift in demand?

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Chapter 93

Chapter Section 2

Teach Case StudySUMMARIZE AND EXPLAIN

Call on students to summarize and discuss the case study. Ask What is influencing consumers increase in technology purchases? (Consumers want the latest technology; they often value high tech gadgets over improvements to their homes, vacations, or new clothes.) Discuss this shift in consumer spending. Ask Why do you think people value electronics over other goods? (possible answers: Electronics are a status symbol; technology is constantly evolving; electronics continue to update with new software, unlike static goods, such as clothing or home improvements.)

L2 Differentiate The case study presents the economic idea of wants and needs, which might cause problems to students with limited knowledge of economics. Prepare students for the reading by helping them define economic wants and needs. In pairs, ask the students to write a list of wants and needs based on what people spend money on today. Have volunteers share their lists and their rationale.

AnswerApplying Economic Principles American consumers are now redirecting more of their durable-goods spending to eye-grabbing technology, but this demand doesnt mean the economy is rebounding. Consumer spending on technology accounts for only a sliver of the overall economy. Apparel companies are seeing reduced sales, and travel spending is down as Americans seek more of their entertainment at home.

All print resources are available on the Teachers Resource

Library CD-ROM and online at www.PearsonSchool.com/PHecon.

92 demand

is referred to as a decrease in the quan-tity demanded. By the same reasoning, a decrease in the price of pizza would lead to an increase in the quantity demanded.

When we drop the ceteris paribus rule and allow other factors to change, we no longer move along the demand curve. Instead, the entire demand curve shifts. A shift in the demand curve means that at every price, consumers buy a different quantity than before. This shift of the entire curve is what economists refer to as a change in demand.

Suppose, for example, that Ashleys town is hit by a heat wave, and Ashley no longer feels as hungry for pizza. She will demand fewer slices at every price. The graph on the left in Figure 4.4 shows her original demand curve and her new demand curve, adjusted for hot weather.

CHECKPOINT What does a shift in the demand curve say about a particular good?

What Causes a Shift?As you have read, a change in the price of a good does not cause the demand

curve to shift. The effects of changes in price are already built into the demand curve. However, several other factors can cause demand for a good to change. These changes can lead to a change in demand rather than simply a change in the quan-tity demanded.

IncomeA consumers income affects his or her demand for most goods. Most items that we purchase are normal goods, goods that consumers demand more of when their incomes increase. In other words, an increase in Ashleys income from $50 per week to $75 per week will cause her to buy more of a normal good at every price level. If we were to draw a new demand schedule for Ashley, it would show a greater demand for slices of pizza at every price. Plotting the new schedule on a graph would produce a curve to the right of Ashleys original curve. For each of the prices on the vertical axis, the quantity demanded would be greater. This shift to the right of the curve is called an increase in demand. A fall in income would cause

normal good a good that consumers demand

more of when their incomes increase

Figure 4.4 Graphing Changes in Demand

4

$3

$2

Quantity

Pric

e

3

Decrease in Demand Increase in Demand

Quantity

Pric

e

Original Demand

New Dem

and

New Dem

and

Original Demand

Graph SkillSWhen factors other than price cause demand to fall, the demand curve shifts to the left. An increase in demand appears as a shift to the right.

1. If the price of a book rose by one dollar, how would you show the change on one of these graphs?

2. How does a change in the quantity demanded differ from a change in price?

onlineFor an animated version

of this graph, visit PearsonSchool.com/PHecon




If Americans are cutting back on big purchases for the home, theyre doing so while talking on their iPhones about their new flat-screen TVs.

Government data show that after pouring money into their homes during the previous decade, consumers are redi-recting their purchases to eye-grabbing technology and socking away more of whats left over into savings.

David Wu, a Los Angeles high-school teacher, says he has spent about $4,000 on new technology over the past two years, including a high-tech mobile phone and a large-screen television. The 25-year-old says that because computers and other electronics are constantly evolving, he has an incentive to keep buying the latest items.

With a toaster and microwave, he

says, as long as it works, I dont see myself buying a flashier one.

Over the course of a year, Spence Witten, 27, spent about $8,000 on new electronics, including a new smart-phone, laptop, tablet computer and music player. He also bought a Blu-ray player and a $2,000 stereo system.

Mr. Witten says some home improve-ments fell down the list of priorities as a result of his electronics purchases. He could use a new toaster, microwave, professional wardrobe and hardwood floors for his Washington home, but who needs to eat and buy more ties?

The electronics boom alone isnt enough to sustain an economic recovery, says economist Chris Christopher; spending on technology accounts for only a sliver of the overall economy.

Still, the trend toward buying elec-tronics at the expense of other goods is leaving its mark. Manufacturing, for example, has been especially strong in high-tech businesses.

Meanwhile, apparel marketers say the shift is eating into their sales. Electronics has taken a huge chunk out of the average household spending budget, said Eric Wiseman, CEO of clothing maker VF. Apparel executives say the iPhone in particular has become an ornament in its own right.

Many hit by the weak economy cut spending on big-ticket items and services, including vacations. Sally Manesis, a 56-year-old from of New Canaan, Conn., recently installed a $5,000 home-enter-tainment system, equipped with a 64-inch flat-screen television, surround sound and a Blu-ray video player.

She says she thought about spending that money on a trip to Europe, but relaxing in the comforts of her home appealed to her more than long-distance travel.

Who Needs to Eat?ELECTRONICSAmericans are devoting more of their dollars to electronicsnot enough to trigger a recovery, but enough to leave a mark on the economy.

By Emmeline ZhaoThe Wall Street Journal

Applying Economic PrinciplesChanges in the economy have af-fected demand for a variety of goods and services. Electronics sales have expanded as demand for house-hold improvements and apparel has dropped. What are some of the factors that have caused this shift in demand?

Powered by

The Wall Street JournalClassroom Edition

Use videos at PearsonSchool.com/PHecon as a springboard for a discussion on a current topic.





94 Unit2

Chapter Section 2

IDENTIFY

Callonvolunteerstostatethedifferencebetweennormalandinferiorgoodsintheirownwords.Havethemgiveexamplesofeach.ThendisplaythetransparencyNormalGoodsvs.InferiorGoods(ColorTransparencies,4.a).Pointtoeachgoodorserviceandhavetheclassidentifythecategorythateachonebelongsto.Guidestudentstoseethatcannedpeaches,genericpeanutbutter,andausedbicyclemaybeinferiorgoodsbecausedemandfortheseitemsislikelytodecreaseasapersonsincomeincreases.Tohelpthemseewhy,contrasteachitemwithanothergoodforexample,freshblueberriesvs.cannedpeachesandhavethemexplainwhichismoredesirable.

CONNECT TO STUDENTS LIVES

Askstudentsiftheyhaveeverputoffpurchasingsomethingbecausetheyknewitwouldbeonsaleatalaterdate.Pointoutthatthisbehaviordemonstratesashiftindemandduetoconsumerexpectations.Ask:How does Introductory pricing for new products take advantage of this economic behavior? (anticipating increase in price)

Havestudentsgiveexamplesofhowchangingconsumertasteshaveaffecteddemandforagood.Iftheyhavedifficultyidentifyingexamples,promptthemtothinkofclothingstylesorgadgetsthattheyhaveseengrowordeclineinpopularity.

L3 Differentiate ForalternativeoradditionalpracticewiththeconceptoftheeffectofadvertisingonmarketshavestudentsusetheCreatingDemandactivity(SimulationActivities,Chapter4).Studentswillcreateanadvertisementthatgeneratesdemandforarealorimaginedproduct.

L4 Havestudentsresearchandcomparedefinitionsofthewordspropagandaandmarketing.Havethempresenttheirfindings,alongwithexamplesofpropaganda,totheclass.

Background NoteAdvertising AccordingtoaMarch2008reportinTNSMediaIntelligenceNews,companiesspentalmost$150billiononadvertisingintheUnitedStatesin2007.Whiletelevisionadvertising(includingnetworkTV,cableTV,andsyndicatedTV)accountedforover43percentofthoseaddollars,thetwonextlargestcategoriesweremagazineandnewspaperadsat20.4and17.7percent,respectively.AdsontheInternet(7.6percent)andradio(7.2percent)accountedformostoftheremainingspending.Theautoindustryspentthemostonads,$15.17billion.Financialservicesweresecond,at$9.12billion,withtelecommunications($9.05billion)aclosethird.


2003 and 2004. The Census Bureau esti-mates that by 2025, Hispanic Americans will make up 18.9 percent of the U.S. popu-lation. As their purchasing power grows, firms will devote more of their resources to producing goods and services demanded by Hispanic consumers.

Consumer Tastes and AdvertisingWho can explain why bell-bottom blue jeans were everywhere one year and rarely seen the next? Is it the result of clever advertising campaigns, social trends, the influence of television shows, or some combination of these factors? Although economists cannot always explain why some fads begin, advertising and publicity often play an important role.

Changes in tastes and preferences cannot be explained by changes in income or population or worries about future price increases. Advertising is a factor that shifts demand curves because it plays an impor-tant role in many trends. Meanwhile, new media and new technology have led to new trends in advertising. Although broadcast television is still the biggest advertising

medium, viewers can now watch television programs on the Internet, cellphones, or DVD players. Digital media makes it easier for consumers to avoid advertisements.

Marketers who want to reach these new media consumers are changing their tradi-tional advertising strategies.

Spending for online ads continues to grow. Video is the fastest growing Internet ad format, topped only by search engine advertising. Ad spending on social network Web sites such as Facebook and MySpace, was estimated at $1.9 billion in 2008.

The popularity of social network Web sites has inspired companies to build their own sites. The goal is to connect with consumers on a personal level while promoting their products and brand names.

Companies spend money on advertising because they hope that it will increase the demand for the goods they sell. Considering the growing sums of money spent on advertising in the United States each year, companies must believe that this investment is paying off.

CHECKPOINT How will an anticipated rise in price affect current demand for a good?

Simulation Activity

Creating DemandYou may be asked to take part in a role-playing game about creating demand.

David OgilvyBorn: June 23, 1911Died: July 21, 1999Education: Oxford University Claim to Fame: Founded the

advertising agency Ogilvy & Mather

David Ogilvy

Unless your advertising contains a big idea, it will pass like a ship in the night.Those words reflect the life experience of their author, David Ogilvy, a legendary ad man who brought a lot of big ideas to the advertis-ing industry.

The son of a Scottish stockbroker, Ogilvy won a scholarship to Oxford. But he left Oxford in 1931, because he was, in his own words, a dud. After working as a chef at the Hotel Majestic in Paris, he returned to England and sold stoves door-to-door. His brother got him his first advertising job with a London agency. I loved advertising, Ogilvy later wrote. I studied and read and took it desperately seriously.

He decided to seek his fortune in America. In 1938, Ogilvy joined the staff of George Gallups National Research Institute. The experience convinced him that market research was the foundation of good advertising.

In 1948, Ogilvy founded his own ad agency in New York, which became known as Ogilvy & Mather. A series of stylish, successful ads for compa-nies like Hathaway and Rolls Royce attracted blue-chip clients like Shell, General Foods, and American Express. Ogilvys ads helped to generate demand and led to huge sales increases for his clients.

Ogilvys lasting legacy is as a pioneer in the development of brand images. He recognized that branding is the key to a companys success: Every advertisement should be thought of as a contribution to the complex symbol which is the brand image.Critical Thinking:Listwaysthatadvertisingmightaffectdemand.


ECON13_SE_FL_CH04_S02.indd 95 3/1/11 12:25:42 PM

94 demand

the demand curve to shift left. This shift is called a decrease in demand. For more information on normal goods, see Figure 4.1 on page 87.

There are also other goods called infe-rior goods. They are called inferior goods because an increase in income causes demand for these goods to fall. Inferior goods are goods that you would buy in smaller quantities, or not at all, if your income were to rise and you could afford something better. Possible exam-ples of inferior goods include macaroni and cheese, generic cereals, and used cars.

Consumer ExpectationsOur expectations about the future can affect our demand for certain goods today. Suppose that you have had your eye on a new bicycle for several months. One day you walk into the store to look at the bike, and the salesperson mentions that the store will be raising the price in one week. Now that you expect a higher price in the near future, you are more likely to buy the bike today. In other words, the expectation of a higher price in the future has caused your immediate demand to increase.

If, on the other hand, the salesperson were to tell you that the bike will be on

sale next week, your immediate demand for the bicycle would fall to zero. You would rather wait until next week to buy the bike at a lower price.

The current demand for a good is posi-tively related to its expected future price. If you expect the price to rise, your current demand will rise, which means you will buy the good sooner. If you expect the price to drop, your current demand will fall, and you will wait for the lower price.

PopulationChanges in the size of the population will also affect the demand for most products. For example, a growing population needs to be housed and fed. Therefore, a rise in population will increase demand for houses, food, and many other goods and services.

Population trends can have a strong effect on certain goods. For example, when American soldiers returned from World War II in the mid- to late-1940s, record numbers of them married and started fami-lies. This trend led to the baby boom, a jump in the birthrate from 1946 through 1964. Initially, the boom led to higher demand for baby clothes, baby food, and books on baby care. In the 1950s and 1960s, towns built thousands of new schools. Later, universities expanded and opened new campuses to make room for new students.

The baby boomers have now begun to retire. Over the next few decades the market will face rising demand for the goods and services that are desired by senior citizens, including medical care, recreational vehi-cles, and homes in the Sunbelt.

DemographicsDemographics are the statistical charac-teristics of populations, such as age, race, gender, occupation, and income level. Businesses use this data to identify who potential customers are, where they live, and how likely they are to purchase a specific product. Demographics also have a strong influence on the packaging, pricing, and advertising for a product.

Growing ethnic groups like Asians and Latin Americans can create shifts in demand for goods and services. In the United States, Hispanics accounted for about one half of the national population growth between

Hispanics, or Latinos, are now the largest minority group in the United States. Firms have responded to this shift by providing products and ser vices for the growing Hispanic population.

inferior good a good that consumers demand

less of when their incomes increase

demographics the statistical characteristics

of populations and population segments, especially when used to identify consumer

markets



Chapter 95

Chapter Section 2

ANALYZE

After reviewing the factors that can shift demand, distribute the Analyzing Shifts in Demand worksheet (Unit 2 All-in-One, p. 23). Have students complete the worksheet

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Chapter Essential Questions 4 Demand SECTIONjb-hdnp.org/Sarver/Econ_Honors/Student_Edition/... · Essential Questions ... have demand for a good or service, both of these conditions