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Contents

CHAPTER INTRODUCTION

SECTION 1 What Is Demand?

SECTION 2 Factors Affecting Demand

SECTION 3 Elasticity of Demand

CHAPTER SUMMARY

CHAPTER ASSESSMENT

Click a hyperlink to go to the corresponding section.Press the ESC key at any time to exit the presentation.

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Section 1-1

Study GuideMain Idea

Demand is a willingness to buy a product at a particular price.

Reading StrategyGraphic Organizer As you read this section, use a graphic organizer like the one found on page 89 of your textbook to note characteristics of demand.

Click the mouse button or press the Space Bar to display the information. Section 1 begins on page 89 of your textbook.

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Key Terms

– microeconomics

– demand schedule

– demand curve

– Law of Demand

– market demand curve

– marginal utility

– diminishing marginal utility

– demand

Section 1-2

Study Guide (cont.)


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Section 1-3

ObjectivesAfter studying this section, you will be able to:

Applying Economic ConceptsDemand You express your demand for a product when you are willing and able to purchase it. Read to find out how demand is measured.

Study Guide (cont.)

– Describe and illustrate the concept of demand.

– Explain how demand and utility are related.

Click the Speaker button to listen to the Cover Story.


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Section 1-4

• Only those people with demand–the desire, ability, and willingness to buy a product–can compete with others who have similar demands.

• Demand 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.

Click the mouse button or press the Space Bar to display the information.

Introduction

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Section 1-5

• Collectively, these concepts of microeconomics help explain how prices are determined and how individual economic decisions are made.

Introduction (cont.)

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Section 1-6


• In a market economy people and firms act in their own best interests to answer the WHAT, HOW, and FOR WHOM questions.

• Knowledge of demand is important for sound business planning.

An Introduction to Demand

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Section 1-7


• To illustrate how demand affects business planning, imagine you are opening a store.

• Before you begin, you need to know where the demand is.

Demand Illustrated

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Section 1-8


• How do you measure the demand for your services? – You may visit other shops and gauge the

reactions of consumers to different prices.

– You may poll consumers about prices and determine demand from this data.

– You could study data compiled over past years, which would show consumer reactions to higher and lower prices.

Demand Illustrated (cont.)

• All of these methods would give you a general idea as to the desire, willingness, and ability of people to pay.

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Section 1-9

• A demand schedule is a listing that shows the various quantities demanded of a particular product at all prices that might prevail in the market at a given time.

The Individual Demand ScheduleFigure 4.1The Demand for Compact Discs

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Section 1-10


• The information found in a demand schedule can also be shown graphically as a downward-sloping line on a graph.

• Transfer the price-quantity observations in the demand schedule to the graph, and then connect the points to form the curve.

The Individual Demand Curve

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Figure 4.1b

• Economists call this the demand curve, a graph showing the quantity demanded at each and every price that might prevail in the market.

The Individual Demand Curve (cont.)

Figure 4.1The Demand for Compact Discs

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Section 1-11


• The Law of Demand states that the quantity demanded of a good or service varies inversely with its price.

The Law of Demand

– When the price goes up, quantity demanded goes down.

– When the price goes down, quantity demanded goes up.

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Section 1-12


• Price is an obstacle which discourages consumers from buying.

• The higher this obstacle, the less of a product they will buy; the lower the obstacle, the more they will buy.

• Common sense and simple observation are consistent with the Law of Demand.

Foundations for the Law of Demand

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Section 1-13


• A market demand curve shows the quantities demanded by everyone who is interested in purchasing the product.

• To get the market demand curve we add together the number of items that everyone would purchase at every possible price, and then plot them on a separate graph.

• The only real difference between the individual demand curve and the market demand curve is that the market demand curve shows the demand for everyone that is interested in buying the product.

The Market Demand Curve

Figure 4.2

Figure 4.2Individual and Market Demand Curves

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Section 1-15


• Economists use the term utility to describe the amount of usefulness or satisfaction that someone gets from the use of a product.

• Marginal utility is the extra usefulness or satisfaction a person gets from acquiring or using one more unit of a product.

• The reason we buy something in the first place is because we feel the product is useful and that it will give us satisfaction.

Demand and Marginal Utility

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Section 1-16


• As we use more and more of a product, we encounter the principle of diminishing marginal utility.

• This states that the extra satisfaction we get from using additional quantities of the product begins to diminish.

• Because of our diminishing satisfaction, we are not willing to pay as much for the second, third, fourth, and so on, as we did the first.

Demand and Marginal Utility (cont.)

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Section 1-17


• Diminishing marginal utility is why our demand curve is downward-sloping.

• When you reach the point where the marginal utility is less than the price, you stop buying.

Demand and Marginal Utility (cont.)

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Section 1-Assessment 1

Section Assessment

Main Idea Using your notes from the graphic organizer activity on page 89, write a definition of demand in your own words.

Answers should include the desire, ability, and willingness to buy a product.

Click the mouse button or press the Space Bar to display the answer.

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Section Assessment (cont.)

Describe the relationship between the demand schedule and demand curve.

Both provide information about demand–the schedule in the form of a table and the curve in the form of a graph.


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Describe how the slope of the demand curve can be explained by the principle of diminishing marginal utility.

Diminishing marginal utility says that as we use more of a product, we are not willing to pay as much for it. Therefore, the demand curve is downward sloping. People will not pay as much for the second and third product as they will for the first.


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Demand Record the names and approximate prices of the last two items you purchased. In general, would you have spent your money differently if the price of each item was twice as high? Would you have spent your money differently if each of the items cost half as much as it did? Explain your responses.

Answers should reflect an understanding of the economic concepts studied in the section.


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Using Graphs Create your own demand schedule for an item you currently purchase. Next, plot your demand schedule on a demand curve. Be sure to include correct labels.

Answers should reflect an understanding of demand schedules and curves.


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Analyzing Information Analyze several magazine or newspaper ads to determine how the ads reflect or use the law of diminishing marginal utility.

Answers should show an understanding of the law of diminishing marginal utility.


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Choose an item that you buy regularly, for example a food item or jeans, and create a simple demand schedule and curve for that item.

Section Close

End of Section 1

Click the mouse button to return to the Contents slide.

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Section 2-1

Study GuideMain Idea

There are a number of factors that will cause demand to either increase or decrease.

Reading StrategyGraphic Organizer As you read about the determinants of demand, list each on a table similar to the one on page 95 of your textbook and provide an example of each.


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Section 2-2

Key Terms

– income effect

– substitution effect

– change in demand

– substitutes

– complements

– change in quantity demanded

Study Guide (cont.)


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Section 2-3



Applying Economic ConceptsChange in Demand Would you buy more clothes if your employer doubled your salary? Read to find out what causes a change in demand.

– Explain what causes a change in quantity demanded.

– Describe the factors that could cause a change in demand.

Study Guide (cont.)


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Section 2-4

• The demand curve is a graphical representation of the quantities that people are willing to purchase at all possible prices that might prevail in the market.

• Occasionally something happens to change people’s willingness and ability to buy.

• These changes are usually of two types: a change in the quantity demanded, and a change in demand.


Introduction

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Section 2-5


• A change in quantity demanded is movement along the demand curve that shows a change in the quantity of the product purchased in response to a change in price.

• Like the principle of diminishing marginal utility, the income and substitution effects can add to our understanding of demand.

Change in Quantity Demanded

Figure 4.3

Figure 4.3A Change in Quantity Demanded

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Section 2-6


• When prices drop, consumers pay less for the product and, as a result, have some extra real income to spend.

• The increase in spending is due to consumers feeling richer.

• If the price goes up, the opposite would happen and consumers would feel poorer.

• This illustrates the income effect, the change in quantity demanded because of a change in price that alters consumers’ real income.

The Income Effect

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Section 2-7


• A lower price also means that the product would be relatively less expensive than other similar goods and services.

• As a result, consumers will have a tendency to replace a more costly item with a less costly one.

• The substitution effect is the change in quantity demanded because of the change in the relative price of the product.

The Substitution Effect

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Section 2-8


• Note that whenever a change in price causes a change in quantity demanded, the change appears graphically as a movement along the demand curve.

• The change in quantity demanded can be either an increase or a decrease–but in either case the demand curve itself does not shift.

The Substitution Effect (cont.)

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Section 2-9


• Sometimes something happens to cause the demand curve itself to shift.

• This is known as a change in demand because people are now willing to buy different amounts of the product at the same prices.

• As a result, the entire demand curve shifts–to the right to show an increase in demand or to the left to show a decrease in demand for the product.

Change in Demand

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Section 2-10


• Therefore, a change in demand results in an entirely new curve.

• When the demand curve changes, a new schedule or curve must be constructed to reflect the new demand at all possible prices.

• Individual demand, and therefore market demand, is affected by four principal factors.

• A fifth factor affects only the market demand curve.

Change in Demand (cont.)

Section 2-10

Figure 4.4A Change in Demand

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Section 2-11


• Change in consumer income can cause a change in demand.

• When your income goes up, you can afford to buy more goods and services.

• As incomes rise, consumers are able to buy more products at each and every price.

• When this happens, the demand curve shifts to the right.

Consumer Income

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Section 2-12


• Exactly the opposite could happen if there was a decrease in income.

• The demand curve then shifts to the left, showing a decrease in demand.

Consumer Income (cont.)

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Section 2-13


• Consumers do not always want the same things.

• Advertising, news reports, fashion trends, the introduction of new products, and even changes in the season can affect consumer tastes.

• If consumers want more of an item, they would buy more of it at each and every price.

• As a result, the demand curve shifts to the right.

Consumer Tastes

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Section 2-14


• If people get tired of a product, they will buy less at each and every price, causing the demand curve to shift to the left.

• The development of new products can also have an effect on consumer tastes.

Consumer Tastes (cont.)

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Section 2-15


• A change in the price of related products can cause a change in demand.

• Some products are known as substitutes because they can be used in place of other products.

• In general, the demand for a product tends to increase if the price of its substitute goes up.

• The demand for a product tends to decrease if the price of its substitute goes down.

Substitutes

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Section 2-16


• Other related goods are known as complements, because the use of one increases the use of the other.

• Personal computers and software are two complementary goods.

• When the price of computers decreases, consumers buy more computers and more software.

• If the price of computers rises, consumers would buy fewer computers and less software.

Complements

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Section 2-17


• “Expectations” refers to the way people think about the future.

• For example, suppose that a leading maker of audio products announces a technological breakthrough that would allow more music to be recorded on a smaller disk at a lower cost than before.

• Even if the new product might not be available for another year, some consumers might decide to buy fewer music CDs today simply because they want to wait for a better product.

Change in Expectations

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Section 2-18

• Purchasing less at each and every price would cause demand to decline, which is illustrated by a shift of the demand curve to the left.

• If future shortages of a product are predicted, this might cause demand to increase, which is demonstrated by a shift of the demand curve to the right.

Change in Expectations (cont.)


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Section 2-19


• A change in income, tastes, and prices of related products affects individual demand schedules and curves.

• This in turn affects the market demand curve, which is the sum of all individual demand curves.

• An increase or decrease in the number of consumers can cause the market demand curve to shift.

Number of Consumers

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Section Assessment

Main Idea How does the income effect explain the change in quantity demanded that takes place when the price goes down?

Because of the decrease in price, consumers have more real income, leading to an increase in the quantity demanded of a product.


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Section Assessment

Describe the difference between a change in quantity demanded and a change in demand.

A change in quantity demanded reflects a change in the quantity of the product purchased in response to a change in price. A change in demand reflects a willingness to buy different amounts of the product at the same price.


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Explain how a change in price affects the demand for a product’s substitute(s).

The demand for a product tends to increase if the price of its substitutes goes up, and vice versa.


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Change in Demand Name a product that you recently purchased because it was on sale. Identify one substitute and one complement for that product. What happened to your demand for the substitute good when the item you bought went on sale? What happened to your demand for the complementary good when that item went on sale?

Answers should reflect an understanding of the economic concepts studied in this section.


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Understanding Cause and Effect What happens to the price and the quantity of goods and services sold when a store runs a sale? How do these factors relate to the downward-sloping curve?A reduction in prices during a sale leads to an increase in quantity of products sold. The downward slope of the demand curve reflects these trends as prices decrease and quantity increases.


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Write a paragraph explaining all of the factors that can lead to a change in individual demand.

Section Close

End of Section 2


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Section 3-1

Study Guide


Main IdeaConsumers react differently to price changes depending on whether the good is a necessity or a luxury.

Reading StrategyGraphic Organizer As you read about price elasticity, complete a web like the one on page 101 of your textbook to illustrate what effect a change in price has on products that are elastic, inelastic, or unit elastic.

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Section 3-2

Study Guide (cont.)

Key Terms

– demand elasticity

– elastic

– elasticity



– Explain why elasticity is a measure of responsiveness.

– Analyze the elasticity of demand for a product.

– Understand the factors that determine demand elasticity.

– inelastic

– unit elastic

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Section 3-3


Section 3 begins on page 101 of your textbook.

Applying Economic ConceptsElasticity of Demand What are you willing to pay to see a popular movie? Read to find out about the elasticity of demand for a product and what factors influence your willingness and ability to pay for a product.

Study Guide (cont.)

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Section 3-4

• Cause-and-effect relationships are important in the study of economics.

• An important cause-and-effect relationship in economics is elasticity.

• Elasticity is 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.

• Elasticity is also a very general concept that can be applied to income, the quantity of a product supplied by a firm, or to demand.


Introduction

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Section 3-5


• Demand elasticity is the extent to which a change in price causes a change in the quantity demanded.

• The demand for most products is such that consumers do care about changes in prices.

• The concept of elasticity tells us just how sensitive consumers are to these changes.

Demand Elasticity

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Section 3-6


• Economists say that demand is elastic when a given change in price causes a relatively larger change in quantity demanded.

• This type of elasticity is typical of the demand for products like fresh garden vegetables.

Elastic Demand

– Because prices are lower in the summer, consumers increase the amount they purchase.

– When prices are higher in the winter consumers normally buy fewer fresh vegetables and use canned products instead.

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Section 3-7


• Inelastic demand means that a given change in price causes a relatively smaller change in the quantity demanded.

• This is typical of the demand elasticity for a product like table salt.

Inelastic Demand

– If the price of salt was cut in half, the quantity demanded would not increase by much because people can consume only so much salt.

– If the price doubled, we would expect consumers to demand about the same amount because the portion of a person’s budget that is spent on salt is so small.

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Section 3-8


• Sometimes demand for a product or service falls midway between elastic and inelastic.

• When this happens, demand is unit elastic.

• This means that a given change in price causes a proportional change in quantity demanded.

• When demand is unit elastic, the percent change in quantity roughly equals the percent change in price.

Unit Elastic Demand

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Section 3-9


• To estimate elasticity, it is useful to look at the impact of a price change on total expenditures, or the amount that consumers spend on a product at a particular price.

• This is sometimes called the total expenditures test.

The Total Expenditures Test

Section 3-9

Figure 4.5The Total Expenditures Test for Demand Elasticity

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Section 3-10


• Total expenditures are found by multiplying the price of a product by the quantity demanded for any point along the demand curve.

• By observing the change in total expenditures when the price changes, we can test for elasticity.

Determining Total Expenditures

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Section 3-11


• The relationship between the change in price and total expenditures for the elastic demand curve is described as “inverse.”

• In other words, when the price goes down, total expenditures go up.

• For inelastic demand, total expenditures decline when the price declines.

• For unit elastic demand, total expenditures remain unchanged when the price decreases.

Three Results

69

Section 3-12


• If the changes in price and expenditures move in opposite directions, demand is elastic.

• If they move in the same direction, demand is inelastic.

• If there is no change in expenditure, demand is unit elastic.

• The results would be the same if the prices went up instead of down.

Three Results (cont.)

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Section 3-13


• Knowledge of demand elasticity is extremely important to businesses.

• If you are in business and you want to do something that will raise your profits, you might be tempted to raise the price of your product in order to increase total revenue from sales.

• If your product has an elastic demand your total revenue–which is the same thing as consumer expenditures–will go down instead of up.

Elasticity and Profits

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Section 3-14


• There are three questions we can ask about a product to determine whether the demand is elastic or inelastic.

Determinants of Demand Elasticity

– Can the purchase be delayed?

– Are adequate substitutes available?

– Does the purchase use a large portion of income?

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Section 3-15

• A consumer’s need for a product is sometimes urgent and cannot be put off.

• Whenever this happens, demand tends to be inelastic, meaning that the quantity of the product demanded is not especially sensitive to changes in price.

• Being able to delay or postpone the purchase of a product is a characteristic of elastic demand.

Can the Purchase Be Delayed?

Section 3-15

Figure 4.6Estimating the Elasticity of Demand

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Section 3-16


• If adequate substitutes are available, consumers can switch back and forth between a product and its substitute to take advantage of the best price.

• With enough substitutes, even small changes in the price of a product will cause people to switch, making the demand for the product elastic.

• The fewer substitutes available for a product, the more inelastic the demand.

Are Adequate Substitutes Available?

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Section 3-17


• The availability of substitutes also depends on the extent of the market.

• The demand for gasoline from a particular station tends to be elastic because the consumer can buy gas at another station.

• Demand for gasoline in general, however, is much more inelastic because there are few adequate substitutes for gasoline.

Are Adequate Substitutes Available? (cont.)

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Section 3-18


• The third determinant is the amount of income required to make the purchase.

• Whenever the answer to the question “Does the purchase use a large portion of income?” is yes, then demand tends to be elastic.

• Demand tends to be inelastic whenever the answer to this question is no.

Does the Purchase Use a Large Portion of Income?

77


Section Assessment

Main Idea What luxuries do you think would have a higher price elasticity than others? Give three examples and explain why you think they would have an exceptionally high elasticity.

Answers will vary but should reflect an understanding of price elasticity.


78


Section Assessment

Describe the three determinants of demand elasticity.

Can the purchase be delayed? Are adequate substitutes available? Does the purchase use a large portion of income?


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Explain why the demand for insulin is inelastic.

There is a lack of adequate substitutes for insulin.


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Elasticity of Demand Why are airlines reluctant to offer reduced round-trip airfares during holidays such as Christmas, Easter, and Thanksgiving? Refer to the three determinants of demand elasticity in your answer.

Demand tends to be inelastic because the purchase of tickets cannot be delayed since holiday travel is time specific; there are few adequate substitutes for air travel; the ticket price would not represent a large portion of income for many people.

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Understanding Cause and Effect A hamburger stand raised the price of its hamburgers from $2.00 to $2.50. As a result, its sales of hamburgers fell from 200 per day to 180 per day. Was the demand for its hamburgers elastic or inelastic? How can you tell?

The demand is inelastic because a 25 percent increase in price resulted in a 10 percent decrease in units sold.

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Draw graphs representing the various types of elasticity. Be prepared to explain how each type works.

Section Close

End of Section 3


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Chapter Summary 1

Section 1: What Is Demand?


• Microeconomics is the area of economic study that deals with individual units in an economy, such as households, business firms, labor unions, and workers.

• You express demand for a product when you are both willing and able to purchase it.

• Demand can be summarized in a demand schedule, which shows the various quantities that would be purchased at all possible prices that might prevail in the market.

• Demand can also be shown graphically as a downward sloping demand curve.

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Chapter Summary 2


Section 1: What Is Demand? (cont.)

• The Law of Demand refers to the inverse relationship between price and quantity demanded.

• Individual demand curves for a particular product can be added up to get the market demand curve.

• Marginal utility is the amount of satisfaction an individual receives from consuming one additional unit of a particular good or service.

• Diminishing marginal utility means that with each succeeding unit, satisfaction decreases.

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Chapter Summary 3


Section 2: Factors Affecting Demand• Demand can change in two ways–a change in

quantity demanded or a change in demand.

• A change in quantity demanded means people buy a different quantity of a product if that product’s price changes, appearing as a movement along the demand curve.

• A change in demand means that people have changed their minds about the amount they would buy at each and every price. It is represented as a shift of the demand curve to the right or left.

• A change in consumer incomes, tastes and expectations, and the price of related goods causes a change in demand.

87

Chapter Summary 4


Section 2: Factors Affecting Demand (cont.)

• Related goods include substitutes and complements. A substitute is a product that is interchangeable in use with another product. A complement is a product that is used in conjunction with another product.

• The market demand curve changes whenever consumers enter or leave the market, or whenever an individual’s demand curve changes.

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Chapter Summary 5


Section 3: Elasticity of Demand• Elasticity is a general measure of responsiveness

that relates changes of a dependent variable such as quantity to changes in an independent variable such as price.

• Demand elasticity relates changes in the quantity demanded to changes in price.

• If a change in price causes a relatively larger change in the quantity demanded, demand is elastic.

• If a change in price causes a relatively smaller change in the quantity demanded, demand is inelastic.

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Chapter Summary 6


Section 3: Elasticity of Demand (cont.)

• When demand is elastic, it stretches as price changes. Inelastic demand means that price changes have little impact on quantity demanded.

• Demand is unit elastic if a change in price causes a proportional change in quantity demanded.

• The total expenditures test can be used to estimate demand elasticity.

• Demand elasticity is influenced by the ability to postpone a purchase, by the substitutes available, and by the proportion of income required for the purchase.

End of Chapter Summary


91

___ the desire, ability, and willingness to buy a product

___ a movement along the demand curve showing that a different quantity is purchased in response to a change in price

___ a statement that more will be demanded at lower prices and less at higher prices

Click the mouse button or press the Space Bar to display the answer. The Chapter Assessment is on pages 110–111.

Chapter Assessment 1

Identifying Key TermsMatch the letter of the term best described by each statement.

B

F

G

A. demand schedule E. demand curveB. demand F. change in quantity

demandedC. microeconomics G. Law of DemandD. change in demand H. elastic demand

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Identifying Key Terms (cont.)

Match the letter of the term best described by each statement.

___ a listing in a table that shows the quantity demanded at all possible prices in the market at a given time

___ a principle illustrating that consumers demand different amounts at every price, causing the demand curve to shift to the left or the right

___ the field of economics that deals with behavior and decision making by individuals and firms



A

D

C

93



Identifying Key Terms (cont.)

Match the letter of the term best described by each statement.

___ a principle illustrating that a relatively small change in price causes a relatively large change in the quantity demanded

___ a graph that shows the quantity demanded at all possible prices in the market at a given time

H

E



94



Describe a demand schedule and a demand curve. How are they alike?

A demand schedule is a list that shows the quantities demanded for a product at all prices that prevail in the market. A demand curve shows the same data in graphic form.

Reviewing the Facts

95



Explain how the principle of diminishing marginal utility is related to the downward-sloping demand curve.

Diminishing marginal utility states that as we use more of a product, we are not willing to pay as much for it. People will not pay as much for the second and third product as they did for the first, therefore the demand is downward sloping.

Reviewing the Facts (cont.)

96



Describe the difference between the income effect and the substitution effect.

The income effect is the change in quantity demanded due to a change in price that alters consumers’ real income. The substitution effect is the change in quantity demanded due to the change in the relative price of the product.


97



Identify the five factors that can cause a change in market demand.

The five factors that can cause a change in market demand are:

– consumer income– consumer tastes– substitutes and complements– change in expectations– number of consumers


98



Describe the difference between elastic demand and inelastic demand.

When demand is elastic, there is a relatively large change in quantity demanded when the price changes, giving the demand curve a flat slope. The change in quantity demanded is much smaller for inelastic demand, making the slope of the demand curve steeper.


99



Explain how the total expenditures test can be used to determine demand elasticity.

By observing the change in total expenditures when the price changes, you can determine demand elasticity. If expenditures and price move in opposite directions, demand is elastic, If they move in the same direction, demand is inelastic. If expenditures do not change, demand is unit elastic.


100



Making Generalizations Do you think the Law of Demand accurately reflects most people’s behavior regarding certain purchases? Explain.

Answers will vary, but most will note that when prices fall, consumers tend to demand more of a product.

Thinking Critically

101



Drawing Conclusions What would normally happen to a product’s market demand curve in a growing and prosperous community if consumer tastes, expectations, and the prices of related products remained unchanged?

An increase in the number of consumers would shift the market demand curve to the right.

Thinking Critically (cont.)

102



Demand Why do you think a knowledge of demand would be useful to an individual like yourself? To a businessperson like Keith Clinkscales (cover story, page 89)?

Knowledge of demand will help an individual make more informed decisions as a consumer. Business people need such knowledge in order to run their businesses effectively.

Applying Economic Skills

103



Applying Economic Skills (cont.)

Demand How do you think the market demand curve for pizza would be affected by (1) an increase in everyone’s pay, (2) a successful pizza advertising campaign, (3) a decrease in the price of hamburgers, and (4) new people moving into the community? Explain your answers.

(1) Demand would increase since more people could afford to buy pizza. (2) Demand would increase as more people became aware of pizza. (3) Demand would decrease since people would buy more hamburgers. (4) Demand would increase as more consumers would buy pizza.

104



Demand Elasticity How would you, as a business owner, use your knowledge of demand elasticity to determine the price of your product?

If demand is elastic, lower the price to increase total business revenues. If demand is inelastic, raise the price to increase business revenues.

Applying Economic Skills (cont.)

105


How would a successful advertising campaign affect the elasticity of demand for the advertised product? Explain.

It would make demand more inelastic. Some people would be influenced by the advertising and would demand the advertised product rather than buy a substitute.


End of Chapter Assessment


Extra Credit Project

Research and write a report about a product or service for which you believe there will be a high demand in the twenty-first century.

– Explain why you think such a high demand will exist.

– Use the Internet and financial magazines to make predictions about the product or service’s potential growth.

– Create charts and graphs to support your position.

Economics Online

Explore online information about the topics introduced in this chapter.

Click on the Connect button to launch your browser and go to the Economics: Principles and Practices Web site. At this site, you will find interactive activities, current events information, and Web sites correlated with the chapters and units in the textbook. When you finish exploring, exit the browser program to return to this presentation. If you experience difficulty connecting to the Web site, manually launch your Web browser and go to http://epp.glencoe.com

BusinessWeek Online

Explore online information about the topics introduced in this chapter.

Click on the Connect button to launch your browser and go to the BusinessWeek Web site. At this site, you will find up-to-date information dealing with all aspects of economics. When you finish exploring, exit the browser program to return to this presentation. If you experience difficulty connecting to the Web site, manually launch your Web browser and go to http://www.businessweek.com

Infobyte 1

Housing Starts The number of housing starts shows the demand for new homes. Economists forecast housing starts by using the current month’s permits as a predictor. Building permits tend to move in tandem with starts on a month-to-month basis. They are also considered to be a leading indicator of the economy in general. Increases in building permits and starts are common during periods following a drop in mortgage rates.

Global Economy 2

Finland is becoming the leader in cell-phone technology. Some 58 percent of all Finns own a cell phone; by the year 2004, the devices will outnumber Finland’s population of five million people.

Trading Gold for Salt Just as gold and salt were necessary trading commodities in some parts of Africa, so are oil and iron ore in some regions of the world today. The Japanese, for example, produce automobiles. They must trade with other countries, however, to obtain the raw materials needed to produce those automobiles.

Global Economy 3

The demand for some products has become more elastic because of technological innovations. VCRs, for example, have allowed consumers to substitute home viewing of movies for going to a movie theater. As a result, demand for tickets to movie theaters has become more elastic.

FYI 3

College Textbooks

Online Shopping

Cybernomics 3.1

Click on a hyperlink to choose that topic.

Companies now sell college textbooks over the Internet. Universities enroll online and provide the required reading lists for their classes. Students can buy new and used textbooks from these lists, saving up to 40 percent on the cost of books. There is an economic incentive for colleges to use these Internet companies: the colleges receive a share in the revenue.

Cybernomics 3.2

More About … Online Shopping E-commerce is finally becoming a popular method of shopping. Although there has been no significant change in the technology, sales over the Internet are increasing due to the confidence level of the consumer. In 1998, more than half of Web users had been online for over a year. More people are comfortable with navigating the Internet and using it for information.

Cybernomics 3.3

Continued on next slide.

Other factors have led to increased usage of the Web for shopping. Safety features have improved, so there is diminishing fear of hackers stealing credit card numbers. Web sites are better, too, and are often interactive, colorful, and informative. Many people find that the Internet allows them to save money because it is convenient for quick price comparisons.

Cybernomics 3.4

BW Newsclip 1


McDonald’s opened its first restaurant in Des Plaines, Illinois, in 1955. In 1967 McDonald’s opened its first restaurants in cities in other countries. Today, the company operates nearly 25,000 McDonald’s restaurants in 115 countries on six continents.

Read the BusinessWeek Newsclip article on page 100 of your textbook. Learn how and why McDonald’s has adapted its menu in Indonesia.

Holding the Fries “At the Border”

This feature is found on page 100 of your textbook. Click the Speaker button to listen to an audio introduction.


BW Newsclip 2


Understanding Cause and Effect Why did McDonald’s change its menu in Indonesia?

The collapse of the rupiah made the cost of imports such as potatoes quintuple in price. Since people could not afford to pay for potatoes, McDonald’s was forced to find a substitute product, rice, which could be used instead.

Click the mouse button or press the Space Bar to display the answer. This feature is found on page 100 of your textbook.



Synthesizing Information Did McDonald’s introduce rice to its Indonesian menu in response to a change in consumer tastes? Explain your reasoning.

Answers will vary but should reflect knowledge of consumer tastes and substitutes.


BW Newsclip 3


Making Predictions What will happen if the change in the menu increases demand? Explain your answer.


BW Newsclip 4

If the change in menu increases demand, more rice will be produced, stimulating the Indonesian economy. Prices might increase as well.

Economic Concepts 1

Focus Activity 1.1


Focus Activity 1.2

Focus Activity 2.1


Focus Activity 2.2

Focus Activity 3.1


Focus Activity 3.2

NBR 1.1

• Explain the Law of Demand.

• Differentiate between elastic and inelastic demand.

After viewing What Is Demand?, you should be able to:

Economics and YouVideo 5: What Is Demand?

Click the mouse button or press the Space Barto display the information.


NBR 1.2

Side 1Disc 1

Chapter 5Click the Videodisc button anytime throughout this section to play the complete video if you have a videodisc player attached to your computer.

Click the Forward button to view the discussion questions and other related slides.



Click inside this box to play the preview.

NBR 1.3


How does inelastic demand differ from elastic demand?

When demand for a product or service does not change in reaction to price changes, the demand is inelastic.

Side 1Disc 1

Chapter 5


CTS 1


Understanding cause and effect involves considering why an event took place. A cause is the action or situation that produces an event. What happens as a result of a cause is an effect.

This feature is found on page 108 of your textbook.

Understanding Cause and Effect

CTS 2


Learning the Skill


– Identify two or more events or developments.

– Decide whether one event caused the other. Look for “clue words” such as because, led to, brought about, produced, as a result of, so that, since, and therefore.

– Look for logical relationships between events, such as “She overslept, and then she missed her bus.”

Click the mouse button or press the Space Bar to display the information. This feature is found on page 108 of your textbook.

CTS 3


Learning the Skill (cont.)


– Identify the outcomes of events. Remember that some effects have more than one cause, and some causes lead to more than one effect. Also, an effect can become the cause of yet another effect.


CTS 4



Practicing the SkillAnalyze the following statements. Then, identify the causes and effects found in each statement.

1. Historically, prices have shown their greatest fluctuations in times of war.

2. The government also is confronted with scarcity, and must make choices.

Click the mouse button or press the Space Bar to display the answers. This feature is found on page 108 of your textbook.

cause: war; effect: greater price fluctuation

cause: scarcity; effect: government must make choices




3. Because of scarcity, people, businesses, and the government must all make trade-offs in choosing the products they want the most.

4. When a choice is made, an opportunity cost is paid.


cause: scarcity; effect: trade-offs

cause: making a choiceeffect: paying an opportunity cost

CTS 5




5. It is impossible for us to produce all the products we would like to have because the factors of production exist in limited quantities.


cause: limited factors of production effect: impossible to produce all wanted products

CTS 6




6. Because consumers don’t always want the same things, items that are popular now may not sell in the future.

7. If income increases, people can afford to buy more products.


cause: consumers’ changing wantseffect: popular items may not sell in the future

cause: income increases effect: people can buy more products

CTS 7



8. If the price of butter goes up, more people would buy margarine instead.


cause: price of butter goes upeffect: demand for margarine goes up

CTS 8

Profiles in Economics 1.1


Wealth and Influence:Oprah Winfrey

(1954–)


Click the picture to learn more about Oprah Winfrey. Be prepared to answer the questions that appear on the next two slides.


Drawing Conclusions Why is Oprah Winfrey considered one of the most powerful women in America?

You might equate power with influence. Winfrey’s influence stems from the popularity of her television show, her wealth (and what she has done with it), and the programs in which she has participated.



(1954–)


For Further Research Make an annotated time line of Winfrey’s career, highlighting her major achievements.

1971 became newscaster at WVOL1973 became reporter/anchor at WTVF1976 became co-host of People Are Talking1984 became host of AM Chicago1986 The Oprah Winfrey Show went into

national syndication



(1954–)


End of Slide Show


splash screen

Documents

concept of demand

knowledge of demand

characteristics of demand

corresponding section

mouse button

space bar

marginal utilitydemand

speaker button