Chapter 4-DEMAND

1. Chapter 4-DEMAND Section1- Understanding Demand

2. Economics Journal • Take 5 minutes to list the last 5 goods or services you purchased and how much you spent on each. What led you to buy each one? • What is most important when you consider buying something? Learning about demand will help you learn how price affects the demand for goods and services.

3. Section 1-Understanding Demand • Demand is the desire to own something and the ability to pay for it. (You can desire something but choose not to purchase it.) • The law of demand says that when a good’s price is lower, consumers (you) will buy more of it. (On the other hand, when prices are higher consumers will buy less of it.) • Sketch figure 4.1 in your notebooks now!

4. Substitution Effect and Income Effect • Substitution Effect-When consumers react to an increase in a good’s price by consuming less of that good and more of other goods. (Example-the price of pizza has increased so you sub tacos because they are cheaper!) • Income Effect-the change in consumption resulting from a change in real income (money you have to spend).

5. Demand Schedules • The demand schedule is a table that lists the quantity of a good that a person will purchase at each price in a market. (Look at figure 4.3 demand schedule) Answer building key concepts next to demand schedule. Let’s read together Background on page 81 about common misconceptions. Now let’s graph the demand schedule on page 81 in your book.

6. Market Demand Schedule • A market demand schedule shows the quantities demanded at each price by all consumers in the market. (Example: A market demand schedule for pizza would allow a restaurant owner to predict the total sales of pizza at several different prices.

7. Demand Curve • A demand curve is a graphic representation of a demand schedule. The curve or line usually slopes downward and to the right. • More practice! Look at page 83, #6-Let’s graph this demand curve from the demand schedule. (Remember your graph must have a title, price, quantity.)

8. Section2-Shifts of the Demand Curve • What causes a shift in demand? Income is one reason for a shift. • Consumer Expectations is another reason for shifts in demand. What can one predict to happen? What are things that may happen in the future that can affect demand? (Ex: You want to buy a bike and the sales clerk tells you that the bike you are looking at is going on sale next week-this is a future event and your demand for the bike at that moment is 0. What are you going to do? You are going to wait til next week when the bike is on sale!)

9. More Reasons for Shifts in Demand • Population is another reason for shifts in demand. An increase in the number of people living in the US will cause higher demand for houses, food, goods, and services. (Ex: After World War II there were record #s of people getting married and having families. This trend in population aka “baby boom” led to higher demand for baby clothes, food, and books on baby care.)

10. Population (continued) • Now the “baby boomer” generation hit the 50s and 60s and became teenagers. Now towns had to build thousands of new schools, then universities that needed more classrooms, dormitories, and maybe even more room for an increased # of students. • Today, baby boomers are reaching retirement age and there are increased demands for goods and services that are desired by senior citizens, including medical care, recreational vehicles, and homes in the Sunbelt. • QUESTIONS?!

11. Consumer Tastes/Preferences and Advertising • Consumers demand certain products because of their particular likes and dislikes. (In the 60s young adults demanded bell bottoms because that was the fad then.) What types of clothes do you like? Think about it? Does it reflect your taste or preference in clothing. • Advertising also is a factor for shifts in demand curves. Your favorite celebrity, rap or rock star advertise something and you are influenced to buy that good based on ads that you see on TV or in magazines.

12. Prices of Related Goods • Prices of related goods sometimes affect the demand for certain goods or services. • Complements are 2 goods that are bought and used together. (Example: flashlight and batteries-Can you think of other goods that have complements?) • Substitutes are goods and services used in place of one another.

13. Economic Profile • Read the economic profile on Christy Haubegger-page 89 • Who was Christy Haubegger? • What magazine did she plan?

14. Section 3-Elasticity of Demand • Elasticity of demand is the way consumers respond to price changes. • Inelastic demand is your demand for a good despite a price increase. • Elastic demand describes demand that is sensitive to a change in price • In other words elasticity of demand is consumer’s degree of willingness to continue to purchase a good or service in view of rising prices

15. Factors Affecting Elasticity • Availability of substitutes • Relative importance • Necessities vs. luxuries • Change over time

16. More on elasticity • Think of a rubber band-does it stretch? Well, yes it does! • When something is elastic, it can be stretched out and then returned to its original shape. Elastic demand rises and falls-as easily as elastic can be stretched out and snapped back. Material that is not elastic does not stretch; it remains the same. Inelastic demand remains the same, despite price fluctuations.