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Splash Screen. 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. Contents.

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  1. Splash Screen

  2. CHAPTER INTRODUCTION SECTION 1What Is Demand? SECTION 2Factors Affecting Demand SECTION 3Elasticity 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. Contents

  3. Study Guide Main Idea Demand is a willingness to buy a product at a particular price.  Reading Strategy Graphic 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. Section 1-1

  4. Study Guide (cont.) 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. Section 1-2

  5. Study Guide (cont.) 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. Section 1-3

  6. Introduction • 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. Section 1-4

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

  8. An Introduction to Demand • 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. Click the mouse button or press the Space Bar to display the information. Section 1-6

  9. Demand Illustrated • To illustrate how demand affects business planning, imagine you are opening a store. • Before you begin, you need to know where the demand is. Click the mouse button or press the Space Bar to display the information. Section 1-7

  10. Demand Illustrated (cont.) • 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.  • All of these methods would give you a general idea as to the desire, willingness, and ability of people to pay. Click the mouse button or press the Space Bar to display the information. Section 1-8

  11. Figure 4.1The Demand for Compact Discs The Individual Demand Schedule • A demand scheduleis 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. Section 1-9

  12. The Individual Demand Curve • 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. Click the mouse button or press the Space Bar to display the information. Section 1-10

  13. Figure 4.1The Demand for Compact Discs The Individual Demand Curve (cont.) • Economists call this the demand curve, a graph showing the quantity demanded at each and every price that might prevail in the market. Figure 4.1b

  14. The Law of Demand • TheLaw of Demandstates that the quantity demanded of a good or service varies inversely with its price. • When the price goes up, quantity demanded goes down.  • When the price goes down, quantity demanded goes up. Click the mouse button or press the Space Bar to display the information. Section 1-11

  15. Foundations for the Law of Demand • 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. Click the mouse button or press the Space Bar to display the information. Section 1-12

  16. The Market Demand Curve • Amarket 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. Click the mouse button or press the Space Bar to display the information. Section 1-13

  17. Figure 4.2Individual and Market Demand Curves Figure 4.2

  18. Demand and Marginal Utility • 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. Click the mouse button or press the Space Bar to display the information. Section 1-15

  19. Demand and Marginal Utility (cont.) • 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. Click the mouse button or press the Space Bar to display the information. Section 1-16

  20. Demand and Marginal Utility (cont.) • 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. Click the mouse button or press the Space Bar to display the information. Section 1-17

  21. 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. Section 1-Assessment 1

  22. 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. Click the mouse button or press the Space Bar to display the answer. Section 1-Assessment 2

  23. Section Assessment (cont.) Describehow 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. Click the mouse button or press the Space Bar to display the answer. Section 1-Assessment 3

  24. Section Assessment (cont.) 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. Click the mouse button or press the Space Bar to display the answer. Section 1-Assessment 4

  25. Section Assessment (cont.) 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. Click the mouse button or press the Space Bar to display the answer. Section 1-Assessment 5

  26. Section Assessment (cont.) 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. Click the mouse button or press the Space Bar to display the answer. Section 1-Assessment 6

  27. Section Close 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 1-Assessment 7

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

  29. Study Guide Main Idea There are a number of factors that will cause demand to either increase or decrease.  Reading Strategy Graphic OrganizerAs 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. Click the mouse button or press the Space Bar to display the information. Section 2 begins on page 95 of your textbook. Section 2-1

  30. Study Guide (cont.) 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. Section 2-2

  31. Study Guide (cont.) Objectives After studying this section, you will be able to:  • Explain what causes a change in quantity demanded.  • Describethe factors that could cause a change in demand.  Applying Economic Concepts Change in Demand Would you buy more clothes if your employer doubled your salary? Read to find out what causes a change in demand. Click the Speaker button to listen to the Cover Story. Click the mouse button or press the Space Bar to display the information. Section 2 begins on page 95 of your textbook. Section 2-3

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

  33. Change in Quantity Demanded • 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. Click the mouse button or press the Space Bar to display the information. Section 2-5

  34. Figure 4.3A Change in Quantity Demanded Figure 4.3

  35. The Income Effect • 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. Click the mouse button or press the Space Bar to display the information. Section 2-6

  36. The Substitution Effect • 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. Click the mouse button or press the Space Bar to display the information. Section 2-7

  37. The Substitution Effect (cont.) • 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. Click the mouse button or press the Space Bar to display the information. Section 2-8

  38. Change in Demand • 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. Click the mouse button or press the Space Bar to display the information. Section 2-9

  39. Change in Demand (cont.) • 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. Click the mouse button or press the Space Bar to display the information. Section 2-10

  40. Figure 4.4A Change in Demand Section 2-10

  41. Consumer Income • 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. Click the mouse button or press the Space Bar to display the information. Section 2-11

  42. Consumer Income (cont.) • 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. Click the mouse button or press the Space Bar to display the information. Section 2-12

  43. Consumer Tastes • 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. Click the mouse button or press the Space Bar to display the information. Section 2-13

  44. Consumer Tastes (cont.) • 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. Click the mouse button or press the Space Bar to display the information. Section 2-14

  45. Substitutes • 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. Click the mouse button or press the Space Bar to display the information. Section 2-15

  46. Complements • 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. Click the mouse button or press the Space Bar to display the information. Section 2-16

  47. Change in Expectations • “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. Click the mouse button or press the Space Bar to display the information. Section 2-17

  48. Change in Expectations (cont.) • 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. Click the mouse button or press the Space Bar to display the information. Section 2-18

  49. Number of Consumers • 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. Click the mouse button or press the Space Bar to display the information. Section 2-19

  50. 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. Click the mouse button or press the Space Bar to display the answer. Section 2-Assessment 1

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