Key Terms

1. Key Terms • demand  • microeconomics  • demand schedule  • demand curve  • Law of Demand  • market demand curve  • marginal utility  • diminishing marginal utility Click the mouse button or press the Space Bar to display the information. Section 1 begins on page 89 of your textbook.

2. Objectives After studying this section, you will be able to:  • Describe and illustrate the concept of demand.  • Explain how demand and utility are related.  Applying Economic Concepts Demand You express your demand for a product when you are willing and able to purchase it. Read to find out how demand is measured. Click the Speaker button to listen to the Cover Story. Click the mouse button or press the Space Bar to display the information. Section 1 begins on page 89 of your textbook.

3. 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.

4. 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.

5. 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.

8. 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.

10. 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.

11. Key Terms • change in quantity demanded  • income effect  • substitution effect  • change in demand  • substitutes  • complements Click the mouse button or press the Space Bar to display the information. Section 2 begins on page 95 of your textbook.

12. 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.

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

14. Discussion Question Section 2-Assessment 1 Imagine you have a weekly budget for groceries. When you shop one week, certain items you needed were on sale, and after you paid the cashier, you had $20 left. What would you do with the extra money? Answers will vary. Students should explain how their responses illustrate the income effect. Click the mouse button or press the Space Bar to display the answer.

15. Change in Demand Section 2-9 • 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.

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

17. Key Terms • inelastic  • unit elastic  • elasticity  • demand elasticity  • elastic  Click the mouse button or press the Space Bar to display the information. Section 3 begins on page 101 of your textbook.

18. 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.

19. 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.

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

21. 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.

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

23. 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.

24. 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.

25. 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.

26. 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.

27. Elasticity of Demand • 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.

28. 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.

29. Economic Concepts 1

30. Focus Activity 3.1 Continued on next slide.

31. Focus Activity 3.2