UNIT
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3
Resource Manager
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The following transparencies may be used at any time during Unit 3.
Economic Forms and Financial Pages Transparencies
Transparency 8
8
G
Transparency 14
Transparency 10
10
RID LINE GRAPH
14
G
New York Stock Exchange Composite Transactions
Wall Street Journal excerpt
52 weeks
Hi
Lo
301/4
351/16
279/16
n 265/8
43
115/16
83/4
101/2
69/16
141/4
101/16
1411/16
2513/16
58
s 541/2
2811/16
f 233/8
181/2
257/8
1211/16
391/2
243/8
26
n 257/16
151/2
31
2315/16
s 8915/16
n 26
n 265/16
123/4
255/8
265/8
n 269/16
n 261/4
961/8
nl 551/8
215/16
801/4
1511/16
231/2
271/16
s 517/16
Economic Forms
8
145/8
25
141/4
245/8
243/8
75/8
73/16
71/2
57/8
73/4
77/8
133/8
95/16
23
251/8
51/4
173/16
115/8
24
41/8
175/8
135/8
205/16
221/4
8
37/8
187/16
455/8
241/2
251/4
2
123/16
135/8
25
241/4
483/8
517/8
129/16
381/4
1
111/8
255/16
347/8
&
&
&
&
&
&
&
Quotations as of 5 p.m. Eastern Time Wednesday, April 7, 1999
YTD
Vol
Sym
Div
%
PE
100s
Hi
Lo
-A-A-A697 185/16
13
.34
1.9
AIR
18
147 2911/16 297/16
20
.56
1.9
ABM
477 211/8
...
3.0
.62e
AAN
203/4
1079 257/16
...
7.4
1.88
253/16
2199 311/8
9
1.2
.36
ACL
297/8
595
...
.90 10.7
ACG
81/2
83/8
58
...
8.5
.63a
ADF
77/16
73/8
1435
...
.90 11.5
GSF
715/16
713/16
843
...
9.0
.54
SI
61/16
515/16
563
...
ADF 1.35a 13.9
913/16
911/16
329
...
1.02 11.7
AMF
815/16
83/4
103 1311/16 139/16
...
6.4
.87
AMU
118 1215/16 123/4
18
...
ACX
3794 391/8
23
...
AES
381/16
4941 513/16
21
.5
.26
AFL
50
2158
7
.6
.04
AG
63/16
63/8
407 171/2
14
6.2
1.08
ATG
171/8
82 1411/16 147/16
12
...
ASV
16 243/8
...
9.3
2.25
241/4
239
...
...
GTF
61/4
61/8
123 243/4
...
...
PLB
245/16
3221 243/8
13
2.1
.50
AKS
237/8
514 209/16
16
6.8
1.40f
AMB
205/16
41 231/8
...
9.2
2.13
23
403
12
2.5
.24
ACO
91/2
97/8
472
... dd
PIN
43/8
37/8
265 201/2
14
9.0
AML
1.80f
201/16
9 21241 673/16
...
AMR
66
1139 251/4
...
8.0
2.0G
251/8
161 253/8
...
8.0
2.02
251/4
299
...
...
ATS
23/4
21/2
1066 141/16
9
1.2
ARM
.16
133/4
164 167/16
...
3.7
ASA
.60f
161/4
345 2515/16 253/4
...
8.0
PNS
2.06
538 263/16
...
7.8
PNS
2.03
26
22 121145 851/8
1.6
T
1.32
813/8
56 567/16
...
...
543/4
370 1715/16 173/16
24
1.5
AVX
.26
836 701/4
...
1.1
AXA
.74e
693/8
1874
... dd
AAM
.10j
11/2
13/8
495 157/8
15
.3
RNT
.04
155/16
2 261/2
...
8.3
2.19
261/2
32 16447 481/2
1.4
ABT
.68f
479/16
Stock
Close
AAR
ABM Indus
ABN Am ADR
ABN Am pfA
ACE Ltd
ACM Gvt Fd
ACM OppFd
ACM SecFd
ACM SpctmFd
ACM MgdDlr
ACM MgdInco
ACM MuniSec
ACX Tch A
AES Cp
AFLAC
AGCO Cp
AGL Res
AgSvcAm
AICI CapTr pf
AIM EstEurFd
AIPC
AK Steel
AMB Prop
AMB Prop pfA
AMCOL
AMF Bowlng
AMLI Rresdntl
AMR
ANZ pf
ANZ II pf
APT Satalt
ARM FnlGp A
ASA
AT&T 8 1/4
AT&T 8 1/8
AT&T
AT&T wi
AVX Cp
AXA UAP
AamesFnl
AaronRent
AbbeyNtl pfA
AbbotLab
181/4
299/16
21
257/16
311/16
83/8
73/8
713/16
6
911/16
83/4
135/8
127/8
39
50
65/16
175/16
1411/16
241/4
63/16
243/4
243/8
209/16
231/8
95/8
315/16
201/16
661/2
251/8
251/4
23/4
137/8
161/4
257/8
261/16
847/8
561/16
173/8
703/16
17/16
155/16
261/2
481/2
OVERNMENT AGENCY ISSUES
Net
Chg
+ 1/4
– 3/16
+ 7/16
+ 3/16
+ 1 3/16
– 1/16
– 1/16
– 1/16
Government Issues
(Treasury Bonds, Notes, and Bills as of July 28, 1999)
Current
Previous
Mat Data
Price/Yield
Price/Yield
Yld Chg
3month
10/28/99
4.56(4.69)
4.57(4.70)
– 0.01
–1
6month
1/27/00
4.60(4.79)
4.57(4.76)
0.03
+3
1year
7/20/00
4.76(5.02)
4.57(5.01)
0.01
+1
Yld Chg
Prc Chg
Bills
Prc Chg
...
...
–
1/16
+
–
–
1/16
...
1/16
7/16
...
–
1/8
Notes/Bonds
...
–
+
+
+
–
+
–
–
–
+
–
1/8
Coupon Mat Data
1/16
3/8
3/8
Current
Previous
Price/Yield
Price/Yield
2year
5.750
6/30/01
100-11(5.56) 100-12(5.54)
0.02
5year
5.250
5/15/04
98-06(5.68) 98-07(5.68)
0.00
– 0.01
10year
5.500
5/15/09
97-25(5.80) 97-23(5.80)
0.00
+ 0.01
30year
5.250
2/15/29
89-16(6.01) 89-17(6.01)
0.00
– 0.01
– 0.01
1/16
3/16
5/16
3/16
3/16
13/16
1/16
...
+ 5/16
+ 1/16
– 3/16
– 1/16
+ 1/16
+ 43/4
+213/16
– 5/8
+313/16
+ 1/16
– 9/16
Source: Bloomberg.com http://www.bloomberg.com/markets/
...
+
1/4
Economic Forms
10
Economic Forms
14
Economic Concepts Transparencies
Transparency 7
Transparency 8
7
M
Transparency 9
8
S
ARKETS AND PRICES
The cartoon shows three individuals doing the same job but receiving different wages in the same location. In this
miniature marketplace, they have negotiated with each other to arrive at different rates of pay.
9
C
UPPLY AND DEMAND
This photograph illustrates a problem of supply and demand in a market economy: too little demand during the
Great Depression.
OMPETITION AND MARKET STRUCTURE
The diagram illustrates different market structures.
IMPORTANT CHARACTERISTICS OF MARKET STRUCTURES
Monopoly
Oligopoly
Monopolistic
Competition
• one seller
• few sellers
• many sellers
• very many
sellers
• complete
price control
• considerable
price control
• little price
control
Perfect
Competition
• no price
control
• very large
barriers to
market entry
• large
barriers to
market entry
• little barrier
to market
entry
• no barriers
to market
entry
More
Competitive
Least
Competitive
UPI/CORBIS–BETTMAN
Economic Concepts
7
Economic Concepts
Real-World Economics
Have your students learn about investing and
managing their financial futures by participating in
the exciting simulation The Stock Market Game™
.
See Teacher pages in front of book for more information.
Strengthen students' research, cooperation,
presentation, and critical thinking skills by having
them compete in the Fed Challenge. See Teacher
pages in front of book for further information.
166A
8
Economic Concepts
9
Additional Glencoe Resources for This Unit
Nightly Business Report Economics & You
Video Program
Economic Survival: A Financial Simulation
Interactive Economics! Software
3
UNIT
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Resource Manager
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Assessment and Evaluation
Unit 3 Test
Form A
Name
Date
Unit 3 Test
Form B
Class
Name
Unit 3,
Date
M ICROECONOMICS: MARKETS, PRICES,
Date SCORE
Name
M ICROECONOMICS: MARKETS, PRICES,
Class
AND BUSINESS COMPETITION
Name
Unit 3,
Date SCORE
Class
Unit 3,
B
USING KEY TERMS
12. Small business incubators provide new businesses with
Matching: Match each item in Column A with the items in Column B. Write the correct
a. credit.
b. low-rent buildings.
letters in the blanks.
c. raw materials.
d. heating oil.
A
B
1. barriers to entry
a.
2. law of demand
b.
3. proprietor
c.
4. antitrust legislation
5. deregulation
d.
e.
6. perfect competition
7. inventory
9. law of diminishing returns
13. One of the biggest disadvantages of a sole proprietorship is that
Matching: Match each item in Column A with the items in Column B. Write the correct
a. profits are not shared with partners or shareholders.
letters in the blanks.
b. profits are limited by the amount of initial capital.
c. liability is unlimited.
debt tends
to and
be high.
1. voluntary exchange
a. transaction d.
in which
a buyer
a seller exercise their eco-
A
13. People who start their own businesses are known as
a. competitive
agents. buyers and sellers and
b. entrepreneurs.
market in which
there are numerous
c. shareholders.
d. small business incubators.
no single buyer
or seller can affect price
suppliers cover their costs and earn a
owner of a a.
business
small profit.
economic rule stating that the quantity demanded and price
c. costs are lower than profits.
move in opposite directions
B
nomic14.
freedom
working out their own terms of exchange
In anbyoligopoly,
2. marginal utility
economic
dealing
with
responsiveness
to
14. concept
According
to the
lawconsumers’
of supply, higher
prices prompt
producers to
an increase or decrease in price
a. produce more.
b. maintain current production.
economic rule
c. stating
producethat
less.the additional satisfaction a cond. increase demand.
sumer gets from purchasing one more unit of a product
15.with
In each
a perfectly
competitive
market,
declines
additional
unit purchased.
4. black market
b. many different producers can earn
obstacles to competition that prevent others from entering
CRITICAL
THINKING QUESTIONS
the
market
partnership set up for a specific purpose for a short period
Directions:
Answer each of the following sets of questions on a separate sheet of paper.
of time
reduction
of government
regulation
control
overfactors
business
16.
Understanding
Cause
and and
Effect
What
might prompt a business owner to incorporate? What
7. shortage
f.
8. price ceiling
g.
9. inventory
h.
10. price elasticity of demand
j.
materials or goods for sale
Initial Investment
Number in Existence
1900
3600
200,000-800,000
11. When prices are above the equilibrium price, Blockbusters
a. suppliers produce more than consumers want
to purchase.
Dunkin
Donuts
45,000-200,000
b. consumers purchase more of the items supplied.
Subway
60,000-170,000
c. suppliers have less incentive to supply as much
as is desired.
d. consumers purchase none of the items supplied.
18. Which franchise has the highest initial investment?
1000
Copyright © by The McGraw-Hill Companies, Inc.
60,000-80,000
110,000-165,000
4800
13,000
19. How many Subway franchises are in existence today?
20. What are some of the advantages of owning a franchise?
market
situationmonopolize
in which a their
singleindustries?
supplier makes up an entire
it believes
industry
How do prices compare in each of the following types of markets: perfect competition, monopolistic competition, oligopoly, monopoly?
17. Making Comparisons
RECALLING FACTS AND IDEAS
APPLYING SKILLS
Multiple Choice: In the blank at the left, write the letter of the choice that best completes
the statement or answers the question.
Making Comparisons Study the table and answer the questions below.
11. If demand is greater than supply at a particular price,
Franchise
Initial Investment
a. scarcity will exist.
b. shortage will exist.
c. price will be inelastic.
d. price will be elastic.
Radio Shack
60,000-80,000
12. When people’s income falls, they usually consume
Mail Boxes Etc.
a. more of a good.
b. less of a good.
Blockbusters
c. the same quantity of the good.
d. more of complementary goods.
Number in Existence
1900
110,000-165,000
3600
200,000-800,000
1000
Dunkin Donuts
45,000-200,000
4800
Subway
60,000-170,000
13,000
18. Which franchise has the least number of locations?
Copyright © by The McGraw-Hill Companies, Inc.
Copyright © by The McGraw-Hill Companies, Inc.
laws passed by federal and state governments to prevent new
APPLYING SKILLS
monopolies from forming and to break up those that already
exist
Making Comparisons Study the table and answer the questions below.
Franchise
illegal market in which goods are traded at prices above their
legal Determining
maximum pricesRelevance
or in which illegal
soldthe Antitrust Division of the Justice Department sues companies
16.
Why goods
do youare
think
extraFinding
supply ofthe
theMain
itemsIdea
used inWhat
a business,
such to
as entry
raw and how do they affect consumers?
17.
are barriers
RECALLING FACTS AND IDEAS
CRITICAL THINKING QUESTIONS
i.
activity
advantages and disadvantages does a corporate structure have over a sole proprietorship or a partnership?
Radio Shack
Multiple Choice: In the blank at the left, write the letter of the choice that best completes
Mail Boxes Etc.
the statement or answers the question.
an additional
satisfaction
c. amount
several of
suppliers
exercise some control over price.
requirementd.that
an owner
is personally
and fully responsible
barriers
to entry
do not exist.
for all losses and debts of a business
15. A corporation’s board of directors
extra supply of the items used in a business, such as raw
oversees
the day-to-day affairs of the corporation
materials ora.
goods
for sale
b. hiresthat
officers
runhow
the business
andaffects
hire other
economic concept
dealstowith
much price
the employees
oversees
company’s
amount thatc.people
are awilling
to buyfinancial affairs
d. is legally responsible for all of a company’s debts
situation in which the quantity demanded is greater than the
quantity supplied
Directions: Answer each of the following sets of questions on a separate sheet of paper.
legal maximum price that may be charged for a particular
good or service
e.
6. monopoly
high profits.
d. prices are determined by suppliers.
h.
j.
economic rule
if two by
items
the need
and sellers and buyers.
a. stating
price is that
determine
thesatisfy
interaction
of many
the price ofb.
oneone
rises,
people
will buy
other
firm
dominates
thethe
market.
c.
d.
5. substitution effect
g.
i.
b.
3. unlimited liability
f.
8. joint venture
10. elasticity
• Performance Assessment Strategies and
Activities
• Section Quizzes
• Chapter and Unit Tests
• ExamView® Pro Testmaker
• Interactive Tutor Self-Assessment Software
• SAT I/II Test Practice
• MindJogger Videoquiz
• tx.ett.glencoe.com
19. Compared to Radio Shack, how much more would owning a Mail Boxes Etc. cost initially?
20. What are some of the disadvantages of owning a franchise?
Application and Enrichment
Business Week Focus on
the New Economy
Economics Laboratory 2
Name
Date
Class
Name
2
Name
L
Date
Date
Class
2
Class
4. Compare the change in quantity supplied when the price drops from $10 to $5 to the change in quantity sup-
2
EARNING FROM SUPPLY AND DEMAND CURVES
plied when the price drops from $60 to $55. What factor regarding the production of crude oil may account for
this difference?
Businesses and governments must keep a constant watch on factors that influence supply and
demand. Even slight changes in supply or demand for a good may signal a need for a price
Answer the following questions.
adjustment or policy change. One of the most significant products that is subject to such
change is crude oil. That is because demand for crude oil is strong, especially
in industrial
1. Compare
your graph to the one on page 000 of your text. Is demand for crude oil relatively elastic or inelastic?
nations, and because political events may cause big changes in supply. Why
This do
labyou
willthink
help demand for crude oil is relatively (elastic, inelastic)?
you build models to understand how the demand for oil and supply of oil operate. (The
STEP 3. SUPPLY AND THE PROFIT INCENTIVE
figures below do not duplicate, but only approximate, world conditions.)
Locating and drilling for oil is expensive. The price a company charges must cover all the costs and give a profit. Also
Instructions: You may do this lab by yourself. However, with the teacher’s permission,
remember the law of diminishing returns: at some point the output for each additional unit of production input will
you may want to have a partner or two work together with you2.to Demand
complete
lab.oil is more elastic at some price ranges than at others. Check your World Demand
forthe
crude
fortoCrude
begin
decrease. Finally, the cost of producing one barrel of crude oil varies greatly throughout the world. Look at
You will need pencils or pens of two different colors, some paper, and
your textbook.
Oil table.
At what price ranges is demand more elastic? How does your graph illustrate this?
Figure 5. Then answer the questions below.
A calculator would also help you do the math.
Figure 5. Costs of Producing Crude Oil
STEP 1. GRAPHING DEMAND
Remember that price and demand have an inverse relationship. As the price rises, demand falls.
Use the information in Figure 1 to graph daily demand for crude oil on
Figure2.
2 below.
First,
STEP
GRAPHING
SUPPLY
place a dot at each point on the graph to represent how many million barrels would be
demanded at each price listed on the left. Then connect the dots. Supply and price have a direct relationship. As the price rises, supply also rises. Use the information in Figure 3 to
graph daily supply for crude oil on Figure 4. First, place a dot at each point on the graph to represent how many
Figure 1. World Demand for Crude Oil
Figure 2. Daily
Demand
for
Crude
million
barrels
would
beOil
supplied at each price listed on the left. Then connect the dots.
$10
67
$15
62
$20
58
$25
56
$30
54
$35
52
$40
49
$45
48
$50
48
$55
47
$60
47
50
Price per
Barrel
45
$60
Quantity Supplied
(million
barrels per day)
40
$11
$14
55
$7
$2
Indonesia
$6
Nigeria
$7
5. What areas would not make a profit when the price of crude oil is below $10?
50
45
35
$5
40
25
$10
47
20
$15
52
$20
56
$25
60
15
$30
63
10
66
5
30
15
10
5
0
$10
Siberia (Russia)
Venezuela
Figure 4. Daily Supply of Crude Oil
40
50
60
70
$35
Million Barrels per Day
$40
80
69
$45
72
$50
75
$55
78
$60
80
40
35
6. Russia produced about 6.9 million barrels of crude oil per day in 1998. How would a world market price of $12
30
25
20
0
40
50
60
70
Million Barrels per Day
Answer the following questions.
3. How does the graph show the direct relationship between quantity supplied and price?
Copyright © by The McGraw-Hill Companies, Inc.
72
Figure 3. World Supply of Crude Oil
55
Price per Barrel
$5
Cost per Barrel
North Sea
Middle East
$60
Price per Barrel
Price per Barrel
Quantity Demanded
(million barrels per day)
Area
Gulf of Mexico
per barrel affect the Russian economy?
80
Copyright © by The McGraw-Hill Companies, Inc.
Copyright © by The McGraw-Hill Companies, Inc.
Copyright © by The McGraw-Hill Companies, Inc.
B
AND BUSINESS COMPETITION
A
USING KEY TERMS
Use the following tools to easily
assess student learning:
Class
Unit 3,
A
ECONOMICS
Glencoe's Web sites provide additional resources. All essential content is covered in the Student Edition.
tx.ett.glencoe.com
Visit the Economics Today and
Tomorrow Web site for Chapter
Overviews, Textbook Updates,
Student Web Activities, Web
Activity Lesson Plans, and SelfCheck Quizzes.
socialstudies.glencoe.com
Visit the Glencoe Social
Studies Web site for additional
social studies activities, updates,
and links to other sites.
Glencoe's Guide to Using the
Internet provides an introduction
to many of the current Internet
technologies, social studies and
professional resources, and
teaching strategies.
166B
Introducing
UNIT
3
Unit Objectives
After studying this unit, students will
be able to:
• Explain the laws of supply and
demand as they apply to voluntary markets.
• Characterize the types of business organizations.
• Discuss how competition and
monopolies affect prices.
Unit Overview
Unit 3 introduces the laws of
supply and demand, business
organizations, and the effect of
competition and monopolies on
prices.
Chapter 7 explains the demand
curve, elasticity of demand, the supply curve, and supply and demand
in a voluntary market.
Chapter 8 describes starting a
business, kinds of business organizations, the corporate world, and
franchises.
Chapter 9 explains perfect
competition, monopoly, oligopoly,
monopolistic competition, and
government policies toward
competition.
Chapter 7
Demand and Supply
Chapter 8
Business Organizations
Chapter 9
Competition and Monopolies
In this unit, read to FIND OUT . . .
• how your consumer decisions affect prices.
A federal government
agency regulates the
radio station over
which you listen to
the ball game.
• what risks and expectations you’ll have when
Out of Time?
If time does not permit teaching
each chapter in this unit, you may
use the Audio Program that
includes a 1-page activity and a
1-page test for each chapter.
starting a business.
• why competition among businesses is vital to
the price you pay for goods and services.
ECONOMIC SIMULATION
Supply Affects Price List the following crops on the board: corn, wheat, soybeans,
oats. Tell students that they are farmers who can grow 10,000 bushels of one crop.
Have each student write his or her decision of what to plant. By a show of hands, count
the number of students who grew each crop. Next to each crop listed on the board,
write the total number of bushels grown. Then post a price for each crop, using the following formulas: Largest crop=$1.00 per bushel; Second largest=$2.00 per bushel;
Third largest=$3.00 per bushel; Smallest=$4.00 per bushel. After students calculate
how much they earned, ask whether these prices would affect their planting decision for
the next year. Discuss why supply affected price. ECON: 7A, 23A, 23G
166
Introducing
UNIT
Rawlings®® currently
holds a monopoly on
manufacturing all
baseballs for major
league and minor
league teams.
3
Making It Relevant
ASK: How much does a baseball
glove cost? Answers should vary, suggesting that prices for baseball gloves
differ widely. Discuss with students
the possible reasons for the different prices. (brand name, type of
glove, type of store, quality of leather,
and so on)
Suggest to students that the price
of a baseball glove depends on
demand for that glove relative to
supply. In turn, the other factors
can influence demand. For example, advertising may increase
demand for a particular brand
name, thus affecting the price.
ECON: 4A-B, 7A
Some major league owners
form partnerships to buy
their teams.
To find up-to-date news and
analysis on the economy, business, technology, markets,
entrepreneurs,
investments,
and finance, have students
search feature articles and special reports on the Business
Week Web site.
www.businessweek.com
The price of these
tickets was determined
by the interaction of
demand and supply.
A winning team
often results in
a shortage of
game tickets.
167
Choose a business in or near your community. Contact the business by phone or by
letter and arrange for a visit and an interview. Explain that you want to find out how the
business got started, how it is organized, how it determines consumer wants and needs,
and what plans it has for the future. Obtain permission to take photographs of the business. Write a feature about the business and display it with your photographs on a classroom bulletin board. ECON: 9A, 23A, 24C-D
167
7
CHAPTER
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Resource Manager
■
Teaching Transparency
■
■
■
■
■
■
■
■
Application and Enrichment
Economic Concepts
Transparency 8
Name
Name
Date
Free Enterprise
Activity 8
Consumer Applications
Activity 5
Enrichment Activity 7
Date
Class
Name
Date
Class
Class
8
7
8
S
S
UPPLY AND DEMAND
This photograph illustrates a problem of supply and demand in a market economy: too little demand during the
Great Depression.
5
P
UPPLY AND DEMAND
RICING COLLECTIBLES
S
You have read that forces underlying supply and demand determine price. What underlying
forces determine the price of collectibles such as baseball cards? You can use what you know
to analyze the costs of baseball cards, shown in the table below.
DETERMINANTS OF SUPPLY AND DEMAND
You have learned that companies in need of money raise it in several ways. One way is to sell
a part of the company in the form of stocks. The following announcement is an offer to sell
stocks in Hollywood Shoes, Inc.
Prices for Topps Rookie Baseball Cards in 1999
Population, consumer income, and people’s tastes and preferences are sometimes called determinants of demand. Changes in demand sometimes occur because of changes in these areas.
The existence of substitute goods or complementary goods also affects demand. Likewise,
improvements in technology, changes in taxation, the cost of resources, and other factors may
cause changes in supply. These factors are sometimes called determinants of supply.
Year
Directions: Read the following information regarding the development of Internet auctions. Study the
descriptions of bid items and answer the questions that follow.
Many consumers in the late 1990s began to participate in auctions on the Internet. A shopper registers online and
then easily searches through categories that list thousands of items. Bids can be offered in a few seconds by e-mail.
[photo: Enrich07:digital camera]
Here are some typical items and bid prices that were found on the Internet.
A. Babe Ruth trading card from Upper Deck. This card has a splinter of a Ruth bat imbedded in it. Bid at $1,350.00.
Player
Directions: Use what you have learned to complete the exercises below.
Team
Near Mint
Cleveland Indians
Excellent
$30
Very Good
1964
Tommy John
$15
$7.50
1964
Charlie Dees
California Angels
$3
$1.50
$.75
1964
Tony Conigliaro
Boston Red Sox
$50
$25
$12.50
1965
Joe Morgan
Houston Astros
$70
$35
$17.50
1965
Dennis McLain
Detroit Tigers
$30
St. Louis Cardinals
$15
$250
Steve Carlton
Fergie Jenkins
Philadelphia Phillies
$80
$40
$20
1966
Don Sutton
Los Angeles Dodgers
$80
$40
$20
1967
Monday/Pierce
Kansas City Athletes
$20
$10
1967
Allen/Carew
1967
Tom Seaver
Washington Senators
$125
$250
New York Mets
$5
$62.50
$350
$175
1968
Nolan Ryan/Koosman
New York Mets
$775
$387
$193
C. Lot of 100 uncirculated comics. Bid at $16.95.
1968
Johnny Bench
Cincinnati Reds
$125
$62.50
$31.25
1969
Reggie Jackson
Oakland Athletics
$260
$130
$65
1969
Rollie Fingers
Oakland Athletics
$35
$17.50
$8.75
That is, they are distributing new shares to the public. These companies guarantee the sale of the entire 990,000
shares. An underwriter will either buy the whole issue itself and sell it to the individual investors, or the firm will
form an underwriting syndicate with other dealers, and together they will sell the stock. Do you think
underwriting is risky? Explain.
Directions: Use the information above and at the right to help
you to complete the exercises.
Economic Concepts
Copyright © by The McGraw-Hill Companies, Inc.
3. Would you expect the price of items A and C to be higher or lower ten years from now? What does this have to
do with supply?
4. What complementary goods would affect demand for item B?
Induction
Year
Name
1989
Johnny Bench
1990
Joe Morgan
1991
Rod Carew
1991
Fergie Jenkins
1992
1. How does a card’s condition (near mint, excellent, or very good)
2. Interested investors are urged to send for the company’s prospectus, which gives information about the company
affect its price?
and the stock that will be sold. If you owned Hollywood Shoes, Inc., what would you include about plans for the
company that might encourage investment?
2. What is the relationship between a player’s membership in the
Baseball Hall of Fame and the price of a card?
Rollie Fingers
3. What other methods of raising money might the company use?
3. A rookie card is minted the year that a player begins his professional
1992
Tom Seaver
1993
Reggie Jackson
1994
Steve Carlton
1998
Don Sutton
1999
Nolan Ryan
career. In 1999 Nolan Ryan’s rookie card was much more valuable
than his more recent 1990s cards. Why?
Copyright © by The McGraw-Hill Companies, Inc.
Copyright © by The McGraw-Hill Companies, Inc.
Baseball Hall of Fame Inductees
2. How might a change in technology affect the supply of item B? What would happen to the price?
Craig-Stein, Inc.
Jessup & LaRosa Securities Co., Inc.
Rosen, Olmstead, Kennedy & Marcus
Moore & Kim Corporation
Smith, Herman & Co.
Schneider, Hall, Sale & Associates, Inc.
First Oregon Securities, Inc.
R. Myers & Co.
Martin, Viner, Gonzalez & Co., Inc.
1. The other company names on the announcement represent investment firms that are underwriting the stock.
demand for item A? How would it affect the price of this item?
UPI/CORBIS–BETTMAN
2000
990,000 Shares
HOLLYWOOD SHOES, INC.
Common Stock
Price $20.25 per Share
$62.50
$125
$700
NEW ISSUE
Philips, Arnold & Walden, Inc.
Bronson, Weill, Labouisse, March
LaRosa & Co.
Branch, Murphy and Company
B. G. Wykosky & Co.
Chan Investment, Inc.
Fisk Affiliated Securities, Inc.
Shultz & Company, Inc.
Krantz, Lesser & Ross
Jeffrey Adams & Company
Brown & Company, Incorporated
$7.50
1965
1966
B. New digital camera. This camera enables you to place pictures on the Web. Bid at $140.00
1. How might another Yankees vs. Dodgers World Series affect people’s tastes and preferences and change the
ELLING ASSETS
4. As a path to profit, how is collecting baseball cards a gamble?
8
Application and Enrichment
Name
Class
4
Date
Class
Date
Name
Name
Class
Date
Name
Class
5
T
GROUP PROJECT
T
Demand exists when a consumer has the desire, ability, and willingness to pay for goods
or services. Several factors affect
demand,
including the quantity demanded, diminishing
GROUP
PROJECT
marginal utility, the income effect, and the substitution effect. In the following activity your
group will use informationBusinesses
about demand
to determine
the best
product learn
to sellthat
in asome
school
that attempt
to expand
production
combinations of the factors of
fundraiser.
production are more efficient than others. For example, while adding labor generally increases
production, at some point each added worker makes production less efficient—returns
▼ MATERIALS:
diminish. The following activity simulates a work environment in which you will determine
Pencils, graph paper
the most efficient number of people who can work together on this project.
ple.” The newest chips and software don’t offer enough
improvement to entice companies to upgrade. Some com-
200 six-inch segments of thin ribbon; 200 sheets of scrap paper
Average Number of Certicates
per Student (total divided by
number of students working)
Number Meeting Standard
Measurement
Stage 1
COOPERATIVE
GROUP PROCESS:
Stage 2
if you doubled the price of each product? Plot a
new demand curve.
3. Group Work Stage 3: Students work in groups
of three to produce “ribboned certificates.” (The
final group may have two or four.) Two people
should either roll or tie, whichever you think is
faster. You have one minute. Record the results on
the table above.
Were the goals of the assignment clear?
Did the group agree on the assignment of tasks?
Did members work well together?
What is the most important thing you learned?
Primary and Secondary Source Readings
10
9
ECOGNIZING DEMAND AND ELASTIC DEMAND
4
Date
Class
5
DEMAND!
Demand is a fundamental concept in economics. It is perhaps best defined as what people in
the marketplace want to buy and at what price. But demand can get complicated. To truly
understand demand, one needs also to understand the law of demand, quantity demanded,
the demand curve, the elasticity of demand, and many other concepts. An imperfect underThe
supply
of goods
and services
standing of demand can
lead
to some
interesting
results,inasthe
youAmerican
shall see.economy is fundamentally affected by competition. What products are supplied, how they are supplied, who supplies them, where and
Directions: Study thewhen
cartoon
Then answer
questions
thatby
follow.
they below.
are supplied—all
are the
largely
determined
competition among suppliers. When
the level of competition changes, the effects on consumers can be dramatic.
SS
ANTA: A SLOPPY SUPPLIER?
Directions: Study the cartoon below. Then answer the questions that follow.
Total Receipts
Pricecan
of also
the mean
Product
Quantity
Sold gets smaller, the other variable gets smaller, as in y x/2: when
Varies directly
thatwhen
one variable
; when x 6, y (2)
; and when x 2, y (3)
.
x 10, y (1)
What are their total receipts on an average day? (1)
Variables are things that change. The variables to consider in the Law of Supply are quantity and price. If the
The couple raises the price to $3 a game after a while, and they still get in about 60 people a day to bowl. Their
quantity supplied varies directly with the price, an increase in price will mean a corresponding increase in quantity
total receipts on an average day now are (2)
supplied.
What is the difference between their total receipts now and their receipts when they first opened?
Supply is easier to understand if you take the point of view of the supplier. Imagine that you supply labor. If
(3)
someone offers you $10 an hour for tutoring after school, you are more likely to want to work more hours than if
Did demand increase, decrease, or stay the same? (4)
they offered you only $2 an hour.
They decide to raise the price to $5 a game. Only about 35 people a day come in. Their total receipts a day are
Compare the two situations. How many hours would you have to tutor at $2 an hour to equal the pay you
. How does this compare with their receipts at $3 a game?
now about (5)
would get for 4 hours at $10 an hour? (4)
(6)
What happened to demand this time?
The truth is that though you might not feel like giving up 20 hours a week at $2 an hour for a total of
(7)
(5) $
, you might gladly give up 20 hours a week at $10 an hour for a total of
On the long February weekend for “President’s Day,” the couple ran a special with games at $1. What a turnout!
(6) $
.
People were lined up waiting for lanes! After the weekend the management counted up the receipts and found that
Now you think about it. How many hours would you be willing to spend a week tutoring at $2 an hour? In your
over the three days, 618 people had come in. The total receipts for one day average (8)
At $10 an hour? In your opinion: (8)
opinion: (7)
What effect did the special offer for President’s Day have on demand?
There are other factors that affect supply. Imagine that you have an outlet for the beaded earrings you make.
(9)
Each pair of earrings costs you $1 in supplies and takes about 2 hours to make. If you work 10 hours a week, you
You may recall that if a change in price causes a relatively larger change in quantity demanded, demand is elastic.
pairs at a cost of (10)
. If you sell each pair for $5, your profit is
make (9)
All in all, would you say that demand for bowling in this town was elastic? (10)
(11)
.
The couple made a chart of their total receipts at different prices to analyze demand for their product. Fill in the
Soon you get an offer to sell your earrings at $10 a pair, so you work 14 hours a week. You make
chart below for each price as they did.
(12)
pairs and a profit of (13)
.
discover
cheaper
source
for your
beads,
so the
cost of making the earrings drops $.25 a
Price per Game (11) One day
you
Number
of aGames
Played
(12)
wire and
Total
Receipts
(13)
on each pair, you are inspired to work more hours.
pair. Since you are now making a profit of (14)
pairs. Your total profit is (16)
. This is an
You put in 18 hours, making (15)
example of how a change in the cost of input (wire and beads) causes a change in supply.
Copyright © by The McGraw-Hill Companies, Inc.
one minute. Record the results on the table above.
Copyright © by The McGraw-Hill Companies, Inc.
Copyright © by The McGraw-Hill Companies, Inc.
COOPERATIVE GROUP PROCESS
Copyright © by The McGraw-Hill Companies, Inc.
4. Group Work/Analysis Stage 4: Students work in
groups of four. Discuss and record the answers to
the following questions. What substitutes exist for
the products? How would the substitution effect
change demand for your products? Is the demand
2. Paired Work Stage 2: Students work in pairs to
for each of your products elastic or inelastic? Why?
choose two products to pursue
as fundraisers.
Draw three
graphs for4.each
product
that illus- Stage 4: Students work
1. Individual
WorkOne
Stage 1: Students
worknew
individuGroup
Work/Analysis
member should plot a demand
schedule
for
each
trate the certificates”
effect of a populationindecrease,
income
ally. Each student produces “ribboned
groups ofan
four.
Each person must handle every
product on graph paper whilebythe
otherup
member
or preferences.
rolling
8" 11" sheetsincrease,
of paperand
anda change in tastes
certificate.
For example: The first person rolls the
creates a demand curve from bow-tieing
the information.
allThe
of the
information, discuss
and hands
determine
each of them with Using
ribbon.
“ribboned
paper and
it to the second person, who holds
bestinproduct
to use in a school
fundraiser.
it while
the third person ties the bow, with the help
certificates”
must measure
to the
1 inch
diameter.
3. Group Work Stage 3: Students
work in groups
of
teacher
willfollowtime production and estimate
of the fourth person, who holds the ribbon in place.
three. Discuss and record the The
answers
to the
Group
Process
Questions
quality of
products at all four stages. You have
You have one minute. Record the results. Now review
ing questions. How does diminishing
marginal
minute.
Record
table
table. At what stage did the groups complete the
utility apply to your products?one
Mark
the point
on the results
Wereon
thethe
goals
of above.
the assignmentthe
clear?
most certificates
each demand curve at which
the consumer
would 2: Students
2. Paired
Work Stage
pairs. on
Each
Did thework
groupinagree
the assignment
of tasks? per person? At what stage did the
law of dimishing returns begin to apply?
achieve no additional satisfaction
from the “ribboned
product. certificates.” (Clue: you
pair produces
Did members work well together?
How would the real income effect
change
may be
fasterdemand
if one person rolls the paper and
Group
Process Questions
What
is the most
thing
you learned?
holds it while the other ties
the ribbon.)
Youimportant
have
Copyright © by The McGraw-Hill Companies, Inc.
1. Individual Work Stage 1: Students work individuStage 3 (such as baked
ally. List 3–5 different products
goods, carnations, etc.) Stage
that you
4 believe would make
a profitable fundraiser. Choose two products from
your list that you believe will sell best and create a
projected demand schedule for each product using
the table above.
it was not TV.collapse.
Since then,
spread almost
everywhere.
decompress,
that might
put it
Salesit’srevenues
will stay
flat or drop, stocks
becausewouldovercapacity
andand
downward
price (to
pressure.
It’s journeyedfierce
into roughly
half ofwill
all American
homesProfits
and will
mildly)
dampen the entire market.
competition
depress prices.
suffer.
onto (it seems)
virtually
the
foundation
Stocks
will every
slump.desktop.
The hurtIt’s
will
affect
satellite industries—
Samuelson, Robert J. “The PC Boom—and Now Bust?”
of countless personal
andsoftware.
a toy for the masses—
computerfortunes
chips and
Newsweek, April 5, 1999.
never has solitaire been as popular. But is the great PC
“Every major PC vendor has now
boom near its end? It is if you believe Fred Hickey.
ANALYZING
THE name,
READING
Though Hickey
is not a household
he is a seareported lower-than-expected
soned spectator of the computer industry. Since 1987,
1. How has the growth of the PC business affected the revenues
economy? in its latest report”
he’s published a monthly newsletter called The High-Tech
Strategist for investors. Hickey is not (make no mistake)
predicting that people will suddenly grow tired of their
When something continues for a long time, it’s hard to
PCs and throw them in the garage. What he is suggesting
imagine it ending. But unstoppable phenomena do stop.
is that the era of fabulous growth—when PC sales rose at
2.
Explain
the
“product
cycle”
as
described
by
Samuelson.
Crime receded; inflation fell; Michael Jordan retired. For
double-digit rates every year—is petering out. If he is cornew gadgets, we have the product cycle. Good new prodrect (and, of course, he may not be), the implications
ucts usually experience a manic phase. Everyone’s got to
could reverberate far beyond the computer industry for a
have one. Declining prices expand the market.
couple of reasons.
Performance gains attract new customers. But ultimately,
First, the PC explosion, and everything associated
3. Whattodoes
analyst
to the
PC industry
in coming
years?got
What
evidence
the market
becomes
saturated.
Everyone’s
one;
price does he
with it, from software
ISDN
lines, Fred
has Hickey
been abelieve
drivingwill happen
cite to support
declines slow; performance flattens. . . . Sales increasingly
force of the U.S. economy.
It has,his
fortheory?
example, propelled
reflect replacement needs and population growth.
strong business investment, as companies overhauled
For most of the 1990s, PCs have been in their manic
offices, factories, and customer networks. In 1990, comphase. In 1989, an estimated 21 million computers were
pany purchases of high-tech equipment (computers,
sold worldwide, about 9 million of them in the United
communications gear, instruments) was 20 percent of all
States. . . . In 1998, worldwide PC sales totaled almost
business investment.
. . factors
. And over
theprove
past Hickey’s
decade,theory
the incorrect?
4. What
might
93 million and U.S. sales about 36 million. In 1990, about
computer industry (including software) has generated
15 percent of U.S. households owned a computer. Now,
about 1 million new jobs.
that’s 50 percent. . . .
Second, faith in the computer boom has infused the
What makes Hickey think this manic phase is finstock market with much of its indomitable optimism. . . .
ished?
Well,for
he’s
a theory.Explain
He scours
Rises in the major
have
stemmed
5. Doindexes
you agree
with
Hickey’s significantly
prediction that the
market
thegot
PCevidence
might beand
saturated?
yourthe
answer.
industry for the latest sales intelligence. . . . “Every major
from investors’ enthusiasm for computer-related stocks,
I
5
end of each day the owners figure their total receipts using this formula.
Directions: Answer the following questions.
reported that top executives at three computer makers
(Compaq, Gateway, Apple) had sold $90 million of per-
Class
Name
Directions: Answer the following questions.
The Law of Supply states that the quantity supplied varies directly with its price. Varies directly means that when one
other
variable
gets alley.
larger,It as
in the
equation
3x:inwhen
1, y 3; when x 2, y 6;
Take this example: A retiredvariable
couple gets
who larger,
love tothe
bowl
open
a bowling
is the
only
place toy bowl
town.x When
x a 3,
y 9;
when xshoe
4, rental.
y 12;
and so
they first open, they chargewhen
only $2
game,
including
About
60on.
people a day come to bowl there. At the
prosperity than
the personal
Even afreeze
decade
profits. Thesestock
pricesprices
reflectwere
the belief
that the
problem.
With thatcomputer.
finished, “they’ll
spending.”
weakening.
A computerday later IBM revealed
ago, it existed on the
fringesAmerican
of popular
haspretax
embarked
on its
an PC
endless
period
By units,
PCconsciousness
sales rose 13,and
20, andindustrial
19 per- complex
that its
loss on
business
hadofjumped from
the economy.cent
It was
important
and discussed.
But growth
frenetictogrowth.
that assumption
popped,
computer
in visible,
1996, 1997
and 1998.
Hickey expects
$161Ifmillion
in 1997 to $992
million
in 1998. This signals
Ribboned Certificate Record
Number of Certificates Produced
4
Class
A PPLYING THE LAW OF SUPPLY
F ew things panies
better define
the spirit
of thesystems
1990s and
have traded
at astronomical
prices
in relation
to PC sales and
have been
replacing
to its
avoid which
the Y2K
sonal stock
in 1999. They
unloaded
just as
Quantity Demanded
Date
Demand is the desire, ability, and willingness to pay for goods or services. You will find examples of demand almost everywhere you look in your community.
Under most circumstances,
pricereported
of a product
in the marketplace
PC vendor hasthe
now
lower-than-expected
rev-is partly deterLet us note . . . that Hickey might be wrong. . . . The
its latest
he aswrote
in his
may nourish demand. Overseas sales may offset
mined by theenues
law of in
supply,
whichreport,”
states that
the price
risesFebruary
for a good, Internet
the
newsletter.
quantity supplied
rises. As the price falls, so too does the quantity supplied.any weaknesses in the United States. Some new products
The theory to economic
explain thelandscape
evidence of
is simple
enough. the(palm-sized
computers) may benefit the larger electronics
Similarly, in the ever-changing
high technology,
law of
Business demand
forsupplied.
PCs is weakening,
and because
that
is the complex.
supply also determines
quantity
As technology
improves
and
number ofA bit further out . . . looms the prospect of
the largest
part
of the market,
the shortfall
won’tincreases,
be easy so “pervasive
computing”—computer chips inserted in
companies involved
in the
production
of a particular
product
too does
offset. Consumers account for only 30 percent of PC
from household appliances to security
the supply of to
that
product. This fact is illustrated by the growing number ofeverything
personal computers
sales. . . . Businesses, government and schools represent the
systems. . . .
on the market today. As you read the article below, consider what economist Robert J.
rest. “You’ve reached saturation,” says Hickey. “In many
But some omens suggest that Hickey might be right
Samuelson predicts
about
the
future
of
the
PC
market.
Then
answer
the
questions
that
follow.
businesses, there’s a one-to-one ratio of computers to peoabout the PC boom. At midweek, The Wall Street Journal
HE LAW OF DIMINISHING RETURNS
Price per
Item
▼ MATERIALS:
R
HE PC BOOM—AND NOW BUST?
Date
Class
Name
5
D EMAND
Date
5
At what price did the management take in the most money? (14)
Remember, receipts are not profits. They are revenue. To calculate profit, you must subtract costs from revenue.
Now consider these questions. Do you think the couple had to pay employees overtime during the President’s Day
If they did, would that affect demand? (16)
special? (15)
Would it affect total receipts? (17)
Would it affect the couple’s profit? (18)
CALVIN AND HOBBESc Watterson. Reprinted with permission of UNIVERSAL PRESS SYNDICATE. All rights reserved.
EXAMINING THE CARTOON
Multiple Choice
1. This cartoon can be read and enjoyed on several levels. Which statement best captures the economic message of
the cartoon?
a. “Materialism increases the quantity demanded.”
c. “Monopolies negatively effect consumers.”
b. “Consumer demand is elastic.”
d. “Supply is related to demand.”
CALVIN AND HOBBESc Watterson. Reprinted with permission of UNIVERSAL PRESS SYNDICATE. All rights reserved.
Copyright © by The McGraw-Hill Companies, Inc.
Date
Name
Economic Cartoons
Activities 4, 5
Math Practice for
Economics Activities 4, 5
Copyright © by The McGraw-Hill Companies, Inc.
Name
Primary and Secondary
Source Reading 5
Copyright © by The McGraw-Hill Companies, Inc.
Cooperative Learning
Simulations and Problems 4, 5
2. What is economically wrong about the interpretation the boy makes in the last panel?
a. Santa Claus doesn’t really exist.
b. Santa Claus does have competition.
c. Santa Claus is not a manufacturer.
d. Santa Claus does not charge for goods.
3. Assume the assessment of Santa Claus the boy makes in the last panel is correct. How would competition make
him less “sloppy”?
a. Competition forces suppliers to improve service.
b. Competition has a direct effect on the quantity sup-
plied.
c. Competition increases the elasticity of supply.
d. Competition creates supply.
Critical Thinking
4. Analyzing the Cartoon What can you infer about the boy from the third panel of the cartoon?
5. Expressing Your Opinion Identify and explain what you think is the central message of the cartoon.
Primary and Secondary Source Readings
Review and Reinforcement
Critical Thinking
Activities 4, 5
Name
Date
Class
Name
Date
Name
Name
Class
10
5
C
Predicting future events is difficult, but the study of consumer demand makes predictions
less risky.
U NDERSTANDING CAUSE AND EFFECT
HAPTER 7 DEMAND AND SUPPLY
Directions: Complete each sentence by filling in the blanks with vocabulary terms from the chapter. Then
rearrange the letters marked by ❑ in the blanks at the bottom of the page to find the hidden term.
M AKING GENERALIZATIONS ABOUT
Directions: Use your knowledge of consumer demand to complete each prediction below. Circle the choice
that you think an economist would approve.
THE SUPPLY OF HOGS
❑
1. A market economy depends on
Generalizations
are media.
judgments that are usually true, based on the facts at hand.
1. A hair dye is successfully
advertised in the
❑
2. The
Prediction: Its demand
curve will shift
(right, the
left,facts
up, down).
Directions:
Combine
on the following table with what you have read about the law of supply.
Prediction: The demand curve for beanie babies will shift (right, left, up, down).
❑
Following the stock market crash of 1929, consumer spending fell dramatically in the United States. Products sat unsold
on store shelves. Demand diminished and factories found themselves without orders. In response, manufacturers cut
back production, and were forced to layoff many workers in the process. As more and more workers lost their jobs,
consumer spending fell significantly. Economic conditions all over the country worsened as millions of men and women
lost their jobs.
forces people to make choices
or trade offs.
Decisive action was needed, but President Herbert Hoover’s actions were insufficient to fix the situation. In 1932, an
election year, voters decided they wanted to give another person a chance and elected Hoover’s opponent, Franklin D.
Roosevelt.
Prediction: The demand for margarine will (increase, stay the
Yearsame, decrease).
Production Price per Hog
4. The prices of computers go down.
1980
67,318
Prediction: People will buy (more, the same amount of, less)
software. 53,788
1990
5. The declining level of satisfaction you receive from each additional unit purchased is explained by
38.00
❑
53.70
1992
57,649
41.60
1994
Prediction: Diabetics will use (more, the same amount, less).
57,904
39.90
1996
57,150
51.90
1998
Prediction: Shoppers will buy (more, the same amount, less).
61,600
81.00
means that people may buy the lower priced item.
8.
Prediction: The demand for used cars will (rise, remain the same, fall).
8. Strawberries are in season.
2. A sure sign that the law of supply is prevailing is when production and prices are up. In which year on the table
9. The measure of
Prediction: The demand for
frozen
strawberries
remainis the
same, fall).
does
it appear
that thewill
law(rise,
of supply
prevailing?
is an economist’s term for price responsiveness.
Copyright © by The McGraw-Hill Companies, Inc.
Copyright © by The McGraw-Hill Companies, Inc.
6. Did the production of hogs increase or decrese between 1980 and 1990? By how much?
a. Farmers offer more hogs for sale when the price per hog is high.
❑
demand.
3.
11. Bread and butter can be used separately, but bread is butter’s
❑.
12. The
❑
4.
shows a direct relationship between price and
5.
quantity supplied.
13. At a certain point the extra output for each unit of input decrease, according to the
❑
Hidden term
7. Circle the letter of the generalization that is best supported by facts in the table.
2.
.
Copyright © by The McGraw-Hill Companies, Inc.
5. When would you expect an increase in the rate of hog production?
b. Farmers increase the production of hogs for sale after the price per hog goes up.
168A
10. Sugar, salt, and certain medicines normally have
4. Based on your answer to question 3, when would you most likely see a decrease in the rate of hog production?
Effects
1.
is how much consumers respond to a given change in price.
Copyright © by The McGraw-Hill Companies, Inc.
Prediction: People will buy (more, the same amount of, less) beef.
.
Cause
❑
❑
9. The cost of casting materials
triples.
3. How
does the production of hogs differ from the production of a product that can be made in a matter of
hours?
Prediction: A (smaller, similar,
higher) ratio of patients with broken bones will get casts.
Roosevelt immediately took drastic action. He created the Civil Works Administration (CWA), which put four million
Americans back to work in public works projects. During his administration, Congress also passed the Social Security
Act and increased taxes on the rich.
List five effects mentioned in this excerpt. Then list the cause of each.
❑
7. When we graph demand, by connecting the points we get a
7. The price of new automobiles
goes
up. law of supply?
1. What
is the
10. The price of beef falls.
.
❑
6. If two items satisfy the same need, the
Understanding cause and effect involves considering why an event occurred. A cause is the
action or situation that produces an event or outcome. What happens as a result of a cause is
an effect.
Directions: Read the following passage, look for logical relationships between events, and answer the
questions that follow.
.
❑
4. The
U.S. Hog Production and Prices
(in thousands)
.
explains how people react to changing prices.
3. The power of a good to satisfy a need or want is
Thenbabies.
answer the questions and choose the most likely generalizations below.
2. People get tired of beanie
6. The price of salt doubles.
Class
Class
M AKING PREDICTIONS ABOUT CONSUMER DEMAND
5. The price of insulin goes down.
Date
4
Date
3. The price of butter goes up.
Reinforcing
Economic Skills 10
Economic Vocabulary
Activity 7
Reteaching Activity 7
7
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Assessment and Evaluation
Name
Date
Performance Assessment
Activities 4, 5
Chapter 7 Test Form B
Chapter 7 Test Form A
Name
Class
Date
Name
Date
D EMAND AND SUPPLY
SCORE
Class
7,
USING KEY TERMS
Name
A
7,
USING KEY TERMS
Matching: Match each item in Column A with the items in Column B. Write the correct
letters in the blanks.
14. Generally, the more substitutes there are for a good the
A
A
B
3.
4.
2. surplus
e.
economic rule stating that if two items satisfy the same need
and the price of one rises, people will buy the other
CRITICAL THINKING QUESTIONS
7. marginal utility
f.
APPLYING SKILLS
10. equilibrium price
Price
4
6
8
10
Quantity
18. At a price of $8 a unit, how many units are suppliers willing to provide?
a. floor leader
a. Floor leader and spokesperson will use issued materials to construct a graph grid with the black yarn and the
3. Distribute $15 in varying amounts to the sellers. Tell sellers that they are producers of hats. (Show them how to
string on the floor in front of their teammates. Tape may be used to secure the yarn to the floor.
fold a newspaper hat and to decorate it with one or more feathers.)
$12
b. Spokesperson will then sit with the other team members, leaving the floor leader to perform all other physiExplain that
the maximum
they teammates.
can charge for a hat is $3. Have them buy the items they need, make the hats,
cal tasks with verbal4.
assistance
and advice
from seated
label each
with aall
price,
and display them
the front
of the room.
c. Observers will remain seated
and record
the conversation
heardatfrom
teammates.
$8 have of something, the less satisfaction you will get from an
11. The principle that states that the more you
additional unit is the
a. law of demand.
c. law of equilibrium.
$6
$4
b. law of diminishing marginal utility.
d. price elasticity.
b. rises.
d. falls.
2
4
6
8
13. Demand for one particular brand of coffee is probably
Quantity
a. elastic.
b. inelastic.
c. marginal utility.
d. substitutable.
18. At a price of $6 a unit, how many units are suppliers willing to supply?
d. team adviser(s)
• Black yarn—X and Y axes of a graph grid
• Blue yarn—demand curve
1. Organize the class into two groups. Half will be sellers and half will be buyers.
• Red yarn—demand shift (Red shifts right)
• Lavender yarn—demand shift (Lavender shifts left)
2. Set allpoints
the items on a desk and
them as follows:
a sheet of newspaper for $.05, a piece of tape for $.05,
• Pennies—show price/quantity
• price
String—marks
graph grid
a yellow feather for $.50, a red feather for $1.50, and a blue feather for $2. Explain that each yellow
4. Instruct the floor leaders and
spokespersons
to take
issued
materials
toisthe
center
floor
areacredit
directly
in front
feather
is worth one
extratheir
credit
point,
each red
worth
three
extra
points,
and each blue is worth four
of where their teammates are
sitting.
team will then proceed as follows:
extra
creditThe
points.
Multiple Choice: In the blank at the left, write
the letter of the choice that best completes
$10
the statement or answers the question.
12. If the price of an item rises, demand usually
$2
a. reflects the presence of new suppliers.
c. remains unchanged.
quarters,
and nickels; $30 in $1 bills)
b.dimes,
spokesperson
c. observer/recorder
ball of white string, and
tape. The materials should be used for the following:
PROCEDURE
10
19. How many units are consumers interested in purchasing at a price of $9 a unit?
20. What is true when the price is above the equilibrium price?
19. How many units are consumers interested in purchasing at a price of $4 a unit?
Copyright © by The McGraw-Hill Companies, Inc.
2
Copyright © by The McGraw-Hill Companies, Inc.
12. According to the law of supply, higher prices
$2 prompt producers to
a. increase demand.
b. maintain current production.
c. produce less.
d. produce more.
Copyright © by The McGraw-Hill Companies, Inc.
$10
11. According to the law of demand, when $6
the price of an item goes up, the quantity demanded
a. stays at the same level.
b. rises.
$4
c. falls.
d. adjusts.
measure of responsiveness to a change in price
graph, poster, oral
presentation
Distribute
$15 totothe
Have
themgroup:
buy the hats and give the money to the sellers.
5. Distribute copies of the 5.
following
scenarios
bebuyers.
graphed
to each
6. Raise10
thecompact
price of discs.
yellow feathers
to$3,
$1 consumers
apiece. Then
tell the300
sellers
that they can charge any price they choose
a. At $27, consumers demand
f. At
demand
discs.
for their
product.
b. At $24, consumers demand
13 discs.
g. Assume that everyone receives a 10 percent income
c. At $21, consumers demand
18 discs.
from themake
government.
7. The sellers
who have money maytax
buyrefund
the materials,
hats, price them, and display them at the front of the
d. At $15, consumers demand
h. Assume
that
a new
invention
improves the sound
room.37If discs.
two or more sellers decide
to pool
their
resources,
let them.
e. At $6, consumers demand
162
discs.
quality
that
compact
discs
have.
8. Distribute the rest of the dollar bills to the buyers.
Have
them
buy whatever they can. Again, if two or more
buyers
pool their
resources,
6. Instruct the teams to construct
a demand
curve
properlyletonthem.
the chart using the string and the pennies.
Copyright © by The McGraw-Hill Companies, Inc.
$12
RECALLING FACTS AND IDEAS
j.
▼ OBJECTIVES
▼ MATERIALS
3. Give each floor leader two yards of black yarn, one yard of each of the other colored yarns, 10 pennies, a small
Supply and Demand of
Copper Bracelets
RECALLING FACTS AND IDEAS
the amount of a good or service that consumers are able and
willing toSupply
buy at various
possibleof
prices during a specific time
and Demand
period
Copper Bracelets
Multiple Choice: In the blank at the left, write the letter of the choice that best completes
$8
the statement or answers the question.
amount of satisfaction received from a purchase
RUBRICS
After completing this activity, students will be
able to
• Understand the concept of supply.
• Describe the factors that affect supply.
• Develop a supply curve.
12 sheets
newspaper,
12 feather-shaped
1. Before class, arrange the
chairsofaround
the classroom
in a circle, leaving the center of the room open for work.
of yellow paper,
Student teams will usepieces
the classroom
floor 12
as feather-shaped
an area to create supply and demand graphs.
pieces of red paper, 12 feather-shaped pieces
2. Organize the class intoofteams
of four
orplay
fivemoney
students.
the following roles to each of the team members.
blue paper,
tape,
($15 Assign
in
situation in which the quantity demanded is greater than the
Using Graphs: Study the chart and
answer
the questions below.
quantity
supplied
in the same direction
APPLYING SKILLS
i.
economic rule stating that individuals cannot keep buying the
same quantity of a product if its price rises while their
Using Graphs: Study the chart and
answer
the
questions
below.
incomes
stay
the
same
j.
h.
i.
5
graph, oral
presentation
each and every price.
PROCEDURE
good or service
9. price ceiling
After completing this activity, students will
be able to
Class
RUBRICS
Graph a demand curve.
UPPLY•• Illustrate
shifts in a demand curve.
▼ MATERIALS
▼ BACKGROUND
Black, blue, red, and lavender yarn;
40 to 50
Economists
want to know how much of a
pennies; white string; tape (optional)
certain product sellers are willing to supply at
sets?
f. the distribution of goods and services based on something
7. elasticity
other
price in relative price elasticities of the following services: heart
17. Making Comparisons Explain
thethan
differences
transplant operations, lawng.care,legal
tanning
salons.price that may be charged for a particular
8. utility
maximum
economic rule stating that the quantity demanded and price
move in opposite
directions on a separate sheet of paper.
Directions:
Answer each of the following
sets of questions
8. law of diminishing
returns
g. economic
stating
that theprice
additional
satisfaction
conhappensrule
to the
equilibrium
of a good
if moreasuppliers
enter the market?
9. supply 16. Drawing Conclusions What
sumer gets from purchasing one more unit of a product
17. Making Comparisons Givedeclines
an example
oneadditional
good for unit
which
demand is elastic and one for which
with of
each
purchased
10. real income effect
demand is inelastic. Explain your answer.
h. economic rule stating that price and quantity supplied move
▼ OBJECTIVES
S
c. amount that producers are willing to sell at various prices
4. rationingCRITICAL THINKING QUESTIONS
d. amount of a good or service that consumers are able and willing to buy at various possible prices
5. shortageDirections: Answer each of the following
sets of questions on a separate sheet of paper.
e. situation in which quantity supplied is greater than quantity
6. market 16. Making Predictions What demanded
changes or events would most affect the future price of apples? Of television
c. people have unlimitedaneeds.
diminishing rate
6. law of supply
▼ BACKGROUND
ers and sellers
3. supply
Date
RAPHING THE LAW OF DEMAND
Graphs help us visualize information quickly.
They also present material in an alternative
manner that helps us understand what we
are reading.
B
1. demand
is consumed.
duction are added, total output item
continues
to increase, but at
d. in equilibrium, supply equals demand.
5. demand
4
Name
G
B
a. more elastic the demand.
b. less valuable it is.
c. more complements there are.
d. less prices change.
a. isprice
at its
which
the amount
15. If the price of a product
above
equilibrium
price,producers
the resultare
is awilling to supply is
equal to the amount consumers are willing to buy
a. demand.
b. surplus.
b. process of freely exchangingd.
goods
andmarket.
services between buyc. shortage.
a black
Price
2.
a. inelastic demand.
b. substitutes.
c. inflation.
d. luxury items.
substitution effect
a. of
the
amount is
ofaffected
a good or
14. The quantity demanded
a product
by service that producers are able and
willing to sell at various prices during a specified time period
a. output
versus input.
b. surplus quantities.
law of diminishing marginal
utility
b. an additional amount of satisfaction
c. price.
d. shortages.
law of demand
c. economic concept dealing with consumers’ responsiveness to
15. Diminishing marginal utility
to the
fact thatin price
an refers
increase
or decrease
elasticity
a. demand declinesd.as income
falls.rule stating that asb.more
additional
as more of the
economic
units ofsatisfaction
a factor ofdeclines
pro-
Class
B
SCORE
Class
Matching: Match each item in Column A with the items in Column B. Write the correct
letters in the blanks.
13. When the price of a good is too high for consumers, they look for
1.
Copyright © by The McGraw-Hill Companies, Inc.
Date
Date
Copyright © by The McGraw-Hill Companies, Inc.
Name
7,
A
7,
D EMAND AND SUPPLY
ExamView® Pro Testmaker
Class
9. Tell sellers to pay back the teacher’s initial investment and to buy extra-credit feathers with their profits.
Assessment
10. Discuss the simulation by asking the students about the economic concepts they observed. If students fail to
1. Each group will select a product,
make
demand concepts—supply
schedule, and orally
present
theirproduction
scenario including:
mention
anyaofsimple
the following
and
demand,
costs, cost-push inflation, price passed
a. a demand curve
on to the consumer, formation of partnerships, scarcity, price ceilings, and consumer needs—point them out.
b. a shift right (with an explanation)
Assessment
c. a shift left (with an explanation)
1. With the class, produce a supply curve based on the simulation.
2. Have students choose a product, such as crude oil or microchips, and research shifts in its supply. Then direct
them to do a supply curve on a poster and explain why shifts occurred.
20. What is the equilibrium price shown? What is true at this price and quantity?
Technology and Multimedia
Vocabulary PuzzleMaker CD-ROM
Interactive Tutor Self-Assessment Software
ExamView® Pro Testmaker
NBR Economics & You Video Program (English/Spanish)
Presentation Plus!
Glencoe Skillbuilder Interactive Workbook CD-ROM,
Level 2
TeacherWorks CD-ROM
MindJogger Videoquiz
Interactive Economics! CD-ROM
ECONOMICS
You and your students can visit tx.ett.glencoe.com
ett.glencoe.com—
the Web site companion to Economics Today and
Tomorrow. This innovative integration of electronic and
print media offers your students a wealth of opportunities. The student text directs students to the Web site for
the following options:
• Chapter Overviews
• Self-Check Quizzes
• Student Web Activities
• Textbook Updates
Answers are provided for you in the Web Activity
Lesson Plan. Additional Web resources and Interactive
Puzzles are also available.
Use the Glencoe Web site for additional resources.
All essential content is covered in the Student Edition.
Audio Program (English or Spanish)
Additional Resources
Spanish Resources
Spanish Economic Concepts Transparency 8
Spanish Vocabulary Activity 7
Spanish Reteaching Activity 7
Spanish Section Quizzes for Chapter 7
Spanish Chapter 7 Audio Program, Activity, and Test
Reading for the Student
Economic Activity and Markets. Federal Reserve Bank
of St. Louis. Explains how the economic activity of individuals is coordinated in producing goods and services.
Reading for the Teacher
Supply and Demand. Gainesville, FL: Center for
Economic Education, University of Florida, 1996. Provides
ideas on how to teach supply and demand.
168B
CHAPTER
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Resource Manager
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Section Resources
Reading Objectives
Section 1
Demand
• How does the principle of voluntary
exchange operate in a market economy?
• What does the law of demand state?
• How do the real income effect, the substitution effect, and diminishing marginal utility relate to the law of
demand?
Section 2
The Demand Curve and Elasticity of
Demand
• What does a demand curve show?
• What are the determinants of demand?
• How does the elasticity of demand
affect the price of a given product?
Section 3
The Law of Supply and the Supply Curve
• What does the law of supply state?
• How does the incentive of greater
profits affect quantity supplied?
• What do a supply schedule and supply
curve show?
• What are the four determinants of
supply?
Section 4
Putting Supply and Demand Together
• How is the equilibrium price
determined?
• How do changes in equilibrium price
occur?
• How do shortages and surpluses affect
price?
• How do price ceilings and price floors
restrict the free exchange of prices?
Reproducible Resources
Technology/Multimedia Resources
Reproducible Lesson Plan 7-1
Daily Lecture Notes 7-1
Guided Reading Activity 7-1
Reading Essentials and Study Guide 7-1
Daily Focus Activity 9
Section Quiz 7-1*
Daily Focus Transparency 9
Vocabulary PuzzleMaker CD-ROM
Interactive Tutor Self-Assessment Software
MindJogger Videoquiz
NBR’s Economics & You*
Interactive Economics!
Presentation Plus!
ExamView® Pro Testmaker
Reproducible Lesson Plan 7-2
Daily Lecture Notes 7-2
Guided Reading Activity 7-2
Reading Essentials and Study Guide 7-2
Daily Focus Activity 10
Section Quiz 7-2*
Daily Focus Transparency 10
Vocabulary PuzzleMaker CD-ROM
Interactive Tutor Self-Assessment Software
MindJogger Videoquiz
NBR’s Economics & You*
Interactive Economics!
Presentation Plus!
ExamView® Pro Testmaker
Reproducible Lesson Plan 7-3
Daily Lecture Notes 7-3
Guided Reading Activity 7-3
Reading Essentials and Study Guide 7-3
Daily Focus Activity 13
Section Quiz 7-3*
Reinforcing Economic Skills 10
Daily Focus Transparency 13
Vocabulary PuzzleMaker CD-ROM
Interactive Tutor Self-Assessment Software
MindJogger Videoquiz
NBR’s Economics & You*
Interactive Economics!
Presentation Plus!
ExamView® Pro Testmaker
Reproducible Lesson Plan 7-4
Daily Lecture Notes 7-4
Guided Reading Activity 7-4
Reading Essentials and Study Guide 7-4
Daily Focus Activity 14
Section Quiz 7-4*
Daily Focus Transparency 14
Economic Concepts Transparency 8
Vocabulary PuzzleMaker CD-ROM
Interactive Tutor Self-Assessment Software
MindJogger Videoquiz
NBR’s Economics & You*
Interactive Economics!
Presentation Plus!
ExamView® Pro Testmaker
*Also available in Spanish
Blackline Master
Transparency
168C
Software
CD-ROM
Videodisc
Audiocassette
Videocassette
CHAPTER
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7
ACTIVITY
From the Classroom of
Resource Manager
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Timesaving Tools
Richard Joyce
Wilmington High School
Wilmington, Illinois
Demand, Supply, and the “Blinker” Test
Demand and supply curves shift to the left or right when
demand or supply as a whole changes. To help students
remember the direction of the change, use the “blinker”
test. ASK: When driving a car, if you push the blinker
(turn signal) control up, which way are you turning?
(right) Remember that an increase in demand or supply
always moves the curve to the right. ASK: Which way do
you push the blinker (turn signal) control when you are
turning left? (down) So when demand or supply
decreases, the curve always shifts to the left. Repeat with
the class “up to the right, down to the left.”
Teacher Edition Access your Teacher
• Interactive
Wraparound Edition and your classroom resources
•
with a few easy clicks.
Interactive Lesson Planner Planning has never been easier!
Organize your week, month, semester, or year with all the lesson
helps you need to make teaching creative, timely, and relevant.
Use Glencoe’s Presentation Plus! multimedia
teacher tool to easily present dynamic lessons
that visually excite your students. Using Microsoft
PowerPoint® you can customize the presentations to create your own personalized lessons.
ECON: 7A
Key to Ability Levels
Block Schedule
Activities that are particularly suited to use within the block
scheduling framework are identified throughout this chapter
BLOCK SCHEDULING
by the following designation:
Voluntary Standards Emphasized in Chapter 7
Content Standard 7 Students will understand that markets exist when buyers and sellers interact. This interaction
determines market prices and thereby allocates scarce goods
and services.
Content Standard 8 Students will understand that
prices send signals and provide incentives to buyers and
sellers. When supply or demand changes, market prices
adjust, affecting incentives.
Teaching strategies have been coded for varying
learning styles and abilities.
L1 BASIC activities for all students
L2 AVERAGE activities for average to above-average
students
L3 CHALLENGING activities for above-average students
ELL ENGLISH LANGUAGE LEARNER activities
Resources Available from NCEE
• Focus: High School Economics
• MCG—Economics and Entrepreneurship
• Capstone: The Nation’s High School Economics Course
To order these materials, or to contact your State
Council on Economic Education about workshops and
programs, call 1-800-338-1192 or visit the NCEE Web site
at http://www.nationalcouncil.org
168D
Introducing
CHAPTER
7
ECONOMICS
& YOU
What Is Demand?
!7U`2"
Chapter 5
Disc 1, Side 1
ASK: What is the law of
demand? When a product’s price
falls, consumers are more likely
to buy it.
Also available in VHS.
Chapter Overview
Consumers base their decisions
to buy goods and services on anticipated satisfaction, price, and their
incomes. Businesses set prices
according to the profit desired, the
demand anticipated, and the competition expected. Chapter 7 discusses the laws of supply and
demand and the ways in which a
voluntary market affects them.
Why It’s Important
Why do some CDs cost
more than others? Why does
the price of video rentals go
down when another video store
opens in the neighborhood? This
chapter will explain the relationship
between demand and supply—and how
this relationship determines the prices
you pay.
To learn more
about how
demand and
supply affect
price, view the Economics
& You Chapter 7 video
lesson: Demand and Supply
Use MindJogger
Videoquiz to preview Chapter 7
content.
Chapter Overview Visit the
Economics Today and Tomorrow Web
site at tx.ett.glencoe.com and click on
Chapter 7— Chapter Overviews
to preview chapter information.
Introduce students to chapter
content and key terms by having
them access Chapter 7—Chapter
Overviews at tx.ett.glencoe.com
ett.glencoe.com
CHAPTER LAUNCH ACTIVITY
In 1998 the President of the United States earned a salary of $200,000 plus a
$50,000 expense account. That same year Mike Piazza signed a seven-year contract
to play baseball for the New York Mets for $13 million per year—more than 50 times the
President’s annual salary. ASK: Why do major league players get paid higher
salaries than the President of the United States? Discuss the effects of demand for
and supply of skilled players. Point out nonfinancial incentives for a person to run for
the presidency (leadership, political objectives, service to nation). Contrast public and
private sector salaries and discuss reasons for the disparity.
ECON: 5A, 7A, 21A-B, 23A, 23D
168
CHAPTER 7
SECTION
SECTION 1,
1, Pages
Pages 169–175
169–175
1
READER’S GUIDE
Overview
Terms to Know
The morning after the Delia’s catalog arrives, the
halls of Paxton High School in Jacksonville, Florida, are
buzzing. That’s when all the girls bring in their copies
from home and compare notes.
“Everyone loves Delia’s,” says
Emily Garfinkle, 15. “It’s the
big excitement.”
If you’ve never heard of
Delia’s, chances are you
don’t know a girl between
12 and 17. The New York cataloger, with a database of 4
million names, has become one of
the hottest names in retailing by selling downtown
fashion to girls everywhere.
Motivational Activity
Project Daily Focus
Transparency 9 and have
students answer the questions.
1. How does the principle of
voluntary exchange operate
in a market economy?
This activity is also available
as a blackline master.
2. What does the law of
demand state?
3. How do the real income
effect, the substitution
effect, and diminishing
marginal utility relate to
the law of demand?
Daily Focus Transparency 9
T
Copyright © by The McGraw-Hill Companies, Inc.
The “Marketplace”
When you buy something, do you ever wonder why it sells at
that particular price? Few individual consumers feel they have
any influence over the price of an item. In a market economy,
9
W HAT DETERMINES CHANGES IN DEMAND?
1. How will demand change if you think these products are going
out of style?
2. How would the lower prices of substitute goods affect the
demand for the products shown here?
Daily Focus Transparencies
Demand and Supply
169
RESOURCE MANAGER
Reproducible Masters
Reproducible Lesson Plan 7–1
Reading Essentials and Study Guide 7–1
Guided Reading Activity 7–1
Section Quiz 7–1
Daily Focus Activity 9
Daily Lecture Notes 7–1
BELLRINGER
Reading Objectives
he word demand has a special meaning in economics.
Delia’s catalog may be sent to 4 million people, but that
doesn’t mean 4 million people demand clothes from the
retailer. Many girls may want to order items from the catalog. As
you read this section, however, you’ll learn that demand includes
only those people who are willing and able to pay for a product
or service.
SECTION 1
Section 1 explains or describes
the principle of voluntary exchange
as it applies to a market economy,
and how the real income effect, the
substitution effect, and diminishing
marginal utility each alter quantity
demanded.
Answers
1. Demand will decline if the items are going out of style. If suppliers greatly lower
the price, the quantity demanded may be maintained for a while. 2. If prices of substitute goods are low enough to influence consumers to purchase the substitute
goods, the demand for the original products will decline.
BUSINESS WEEK, FEBRUARY 15, 1999
• demand
• supply
• market
• voluntary exchange
• law of demand
• quantity demanded
• real income effect
• substitution effect
• utility
• marginal utility
• law of diminishing marginal
utility
Multimedia
Daily Focus Transparency 9
Vocabulary PuzzleMaker CD-ROM
Interactive Tutor Self-Assessment Software
ExamView® Pro Testmaker
MindJogger Videoquiz
NBR’s Economics & You
Interactive Economics!
Presentation Plus!
READER’S GUIDE
Answers to the Reading Objectives
questions are on page 175.
Preteaching Vocabulary
Vocabulary PuzzleMaker
Student Edition TEKS
Page 169: 4A-B, 5A, 7A, 23A, 24A
169
A Local Market
CHAPTER 7
A candy store located in your town or
city is an example of a local market
for buyers and sellers.
SECTION
SECTION 1,
1, Pages
Pages 169–175
169–175
B National Market
Catalogs bring buyers and sellers together on a national
scale—you can order chocolate
from this catalog and have it
shipped to you overnight.
Guided Practice
L1 Classifying Encourage students
to discuss the reasons for the choices
they made during their most recent
purchases. Have them tell whether
the reasons came under the real
income effect, the substitution effect,
or the law of diminishing marginal
utility. ECON: 4A-B, 5A, 7A, 23A, 23D
Daily Lecture Notes 7–1
7.1
7-1
L
Markets A market is any place where buyers and
sellers come together. What is the basis of activity
in a market economy?
ECTURE LAUNCHER
Proctor & Gamble’s introduced disposable diapers to the marketplace in 1961. At first parents
only used Pampers for special occasions. Today, 95% of American parents use disposable diapers at a cost of about $2,100 a child. Why do you think the change took place gradually?
How are the concepts of marketplace and voluntary exchange linked to the Laws of Demand?
PAGES 169–170
I. The “Marketplace”
A. Consumers influence the price of goods in a market economy.
B. Demand is how people decide what to buy and at what price.
C. Supply is how sellers decide how much to sell and what to charge.
D. A market represents actions between buyers and sellers.
•
Discussion Question
Describe two different types of marketplaces in which you shop. (Possible response: I
buy things at the mall where the seller and the buyer meet face to face. I also order products
on the Internet—the buyer and seller only communicate via computer.
PAGES 170–171
II. Voluntary Exchange
A. The seller sets the price.
C. Supply and demand analysis is a model of how buyers and sellers behave in the
marketplace.
Discussion Question
Suppose that the buyer does not agree to the product and price. Other than change
the price, how can the seller convince the buyer to agree to the price? (The seller can
change the product a little so that customer is more satisfied. The seller can market the product in such a way as to create a perceived need that the customer did not see before.)
Copyright © by The McGraw-Hill Companies, Inc.
B. The buyer agrees to the product and price through the act of purchasing product.
•
turn
Daily Lecture Notes
demand: the amount of a good
or service that consumers are
able and willing to buy at various
possible prices during a specified
time period
supply: the amount of a good or
service that producers are able
and willing to sell at various
prices during a specified time
period
40
market: the process of freely
exchanging goods and services
between buyers and sellers
Call on volunteers to identify
other examples of local, national,
and international markets.
Answer: voluntary exchange
ECON: 4A, 23A
voluntary exchange: a transaction in which a buyer and a seller
exercise their economic freedom
by working out their own terms of
exchange
170
however, all consumers individually and collectively have a great
influence on the price of all goods and services. To understand
this, let’s look first at how people in the marketplace decide what
to buy and at what price. This is demand. Then we’ll examine
how the people who want to sell those things decide how much
to sell and at what price. This is supply.
What is the marketplace? A market represents the freely chosen
actions between buyers and sellers of goods and services. As Figure
7.1 shows, a market for a particular item can be local, national,
international, or a combination of these. In a market economy, individuals—whether as buyers or sellers—decide for themselves the
answers to the WHAT?, HOW?, and FOR WHOM?
economic questions you studied in Chapter 2.
Voluntary Exchange
The basis of activity in a market economy is the
principle of voluntary exchange. A buyer and a
CHAPTER 7
Meeting Special Needs
English Language Learners Students with limited English vocabularies may have difficulty understanding phrases such as “real income effect,” “substitution effect,” and
“diminishing marginal utility.” Write the phrases on the board, and have student volunteers
draw illustrations with stick figures under each phrase that visualize these concepts. ELL
ECON: 23A, 24A, 24C
Refer to Inclusion for the Social Studies Classroom Strategies and Activities for
students with different learning styles.
170
CHAPTER 7
SECTION
SECTION 1,
1, Pages
Pages 169–175
169–175
C International Market
The World Wide Web
has helped create a
massive international
market. Chocolate lovers
anywhere in the world
can order chocolate in
seconds from this Swiss
manufacturer.
L2 Analyzing Ask students how
many soft drinks they would buy at
25¢ a can, at 50¢, at $1, at $1.50,
and so on. Note prices and quantities on the board. Then ask students
to write a generalization about
demand based on these figures. As
price rises, quantity demanded
decreases. ECON: 7A, 23A, 23G
Guided Reading Activity 7–1
Date
Name
seller exercise their economic freedom by working toward
satisfactory terms of an exchange. For example, the
seller of an automobile sets a price based on his or her
view of market conditions, and the buyer, through the
act of buying, agrees to the product and the price. In
order to make the exchange, both the buyer and the seller
must believe they will be better off—richer or happier—after the
exchange than before.
The supplier’s problem of what to charge and the buyer’s
problem of how much to pay is solved voluntarily in the market
exchange. Supply and demand analysis is a model of how buyers
and sellers operate in the marketplace. Such analysis is a way of
explaining cause and effect in relation to price.
7-1
For use with the textbook pages 169–175
D EMAND
FILLING IN THE BLANKS
Directions: Use your textbook to fill in the blanks using the words in the box. Some words may be used
more than once.
voluntary exchange
market
buyer
quantity demanded
substitution effect
market economy
demand
law of demand
marginal utility
supply
law of diminishing marginal utility
utility
real income effect
Introduction/ The “Marketplace”
1 __________________________ includes only those people who are willing and able to pay for a product or service.
In a 2 __________________________ , consumers have a great influence on the price of all goods and services.
3 __________________________ is what people want to buy and how much they will pay for it, while
4 __________________________ is the amount of goods and services that producers are able and willing to sell at a
particular price. A 5 __________________________ represents the freely chosen actions between buyers and sellers of
goods and services.
Copyright © by The McGraw-Hill Companies, Inc.
Voluntary Exchange
6 __________________________ involves a buyer and seller working toward satisfactory terms of exchange. In order to
make an exchange both the 7 __________________________ and seller must believe they will be better off than before.
The Law of Demand
Demand, in economic terms, represents all of the different
quantities of a good or service that consumers will purchase at
various prices. It includes both the willingness and the ability to
pay. A person may say he or she wants a new CD. Until that person is both willing and able to buy it, however, no demand for
CDs has been created by that individual.
The law of demand explains how people react to changing
prices in terms of the quantities demanded of a good or service.
There is an inverse, or opposite, relationship between quantity
demanded and price. The law of demand states:
As price goes up, quantity demanded goes down.
As price goes down, quantity demanded goes up.
Class
The Law of Demand
The 8 __________________________ states that there is an inverse or opposite relationship between quantity demanded
and price. Different factors explain the inverse relationship between price and 9 __________________________ , or
how much people will buy of any item at a particular price. If a person’s income stays the same while prices rise, they
will not be able to buy the same quantity of goods. This concept is known as the 10 __________________________.
The 11 __________________________ states that if two items satisfy the same need and the price of one rises, people
will buy the cheaper product. Economists use the term 12 __________________________ to describe the amount of
satisfaction a product brings. The amount of additional satisfaction one gets from a purchase is known as
13 __________________________. However, with each additional purchase the amount of satisfaction lessens, this
is called the 14 __________________________.
Guided Reading Activities
21
law of demand: economic
rule stating that the quantity
demanded and price move
in opposite directions
Demand and Supply
171
Cooperative Learning
Organize students in teams of three to play the “Up or Down?” game. Select two teams
and give each team member a flash card on which a large arrow is drawn. Present scenarios—for example, the price of CDs goes up, but income remains the same—then ask,
“Will quantity demanded go up or go down?” Team members should display their flash
cards with the arrow pointing in the correct direction. If any team member displays the
flash card incorrectly, that team is disqualified, and a new team joins the game. Continue
the game until all teams have competed. ECON: 7A
Student Edition TEKS
Page 170: 4A-B, 7A, 10A, 24A
Page 171: 1A, 4A-B, 7A, 10A, 24A,
26D
171
CHAPTER 7
SECTION
SECTION 1,
1, Pages
Pages 169–175
169–175
quantity demanded: the amount
of a good or service that a consumer is willing and able to purchase at a specific price
Several factors explain the inverse relation between price and
quantity demanded, or how much people will buy of any item at
a particular price. These factors include real income, possible
substitutes, and diminishing marginal utility.
Real Income Effect
ECONOMICS
& YOU
What Is Demand?
!7U`2"
Chapter 5
Disc 1, Side 1
ASK: What is the law of
demand? The law of demand
states that as prices fall, the
quantity of a product demanded
increases.
Also available in VHS.
Independent
Practice
L2 Cartooning Have students
create cartoons that show how people in different occupations might
affect demand for goods and services
in different ways. Encourage students to display their cartoons
around the classroom. ELL
No one—not even the
wealthiest person in the world—will ever be
able to buy everything he or she might possiA R EE R S
bly want. People’s incomes limit the amount
they are able to spend. Individuals cannot
Buyer
keep buying the same quantity of a good if its
s
ion
cat
price rises while their income stays the same.
lifi
Qua
Job Description
ege
This concept is known as the real income
coll
ar
■
4-ye
■ Determine
in
ree
deg
effect on demand.
ts
duc
pro
ch
whi
business
Suppose that you normally fill your car’s gas
a company will
■ Ability to accusell
tank twice a month, spending $15 each time.
rately predict
■ Buy the finThis means you spend $30 per month on gasodemand, or
for
ished goods
line. If the price of gasoline rises, you may have
what will
resale to the
to spend $40 per month. If the price continues
appeal to
public
to rise while your income does not, eventually
ers
sum
con
you will not be able to fill the gas tank twice
per month because your real income, or purSalary: $31,560
chasing power, has been reduced. In order to
e
rag
ave
ow
Bel
Job Outlook:
keep buying the same amount of gasoline, you
1
0–0
200
ok,
dbo
—Occupational Outlook Han
would need to cut back on buying other
things. The real income effect forces you to
make a trade-off in your gasoline purchases. The same is true for
real income effect: economic
rule stating that individuals cannot
every item you buy, particularly those you buy on a regular basis.
keep buying the same quantity of
See Figure 7.2.
a product if its price rises while
C
their income stays the same
BLOCK SCHEDULING
ECON: 7A, 23A, 24A, 24D
substitution effect: economic
rule stating that if two items satisfy the same need and the price
of one rises, people will buy the
other
172
Substitution Effect Suppose there are two items that are not
exactly the same but which satisfy basically the same need. Their
cost is about the same. If the price of one falls, people will most
likely buy it instead of the other, now higher-priced, good. If the
price of one rises in relation to the price of the other, people will
buy the now lower-priced good. This principle is called the
substitution effect.
Suppose, for example, that you listen to both CDs and audiocassettes. If the price of audiocassettes drops dramatically, you will
probably buy more cassettes and fewer CDs. Alternately, if the
price of audiocassettes doubles, you will probably increase the
number of CDs you buy in relation to cassettes. If the price of both
CDs and audiocassettes increases, you may decide to purchase
other music substitutes such as concert tickets or music videos.
CHAPTER 7
Extending the Content
Marginal Utility In some ways, marginal utility frustrated early economists because they
wanted a numerical measure of utility, much like prices or quantity demanded. They tried a
hypothetical measure called a util, but they soon had to abandon any notions of exact
measurement because utility is so subjective. To illustrate, if 20 people were asked how
much satisfaction they received from a second glass of lemonade, each one would give a
different answer. Economists later developed the concept of indifference curves (a topic
usually covered in college classes), which can be used to derive all of the propositions in
economics without having to actually measure utility. ECON: 7A, 23A
172
Economic Connection to...
Literature
Tom Sawyer Creates Demand
A
uthor Mark Twain introduced a different twist on the meaning of demand in
his story “The Glorious Whitewasher.” Tom
Sawyer is forced to whitewash his aunt’s
fence. To convince other boys to do the
work, Tom pretends to find it enjoyable and
to consider it a special privilege. The other
boys end up paying Tom to let them whitewash the fence:
Tom said to himself that it was not such
a hollow world, after all. He had discovered
a great law of human action, without knowing it—namely, that in order to make a man
or a boy covet [demand] a thing, it is only
necessary to make the thing difficult to
attain. ■
CHAPTER 7
SECTION
SECTION 1,
1, Pages
Pages 169–175
169–175
L3 Business Planning Have students develop plans to increase
demand for a given item or service.
Have them include in their plans the
pitfalls, risks, and trade-offs they
foresee and the solutions they implement to deal with them.
ECON: 4A-B, 5A-B, 7A, 23A, 24D, 25A
—From The Adventures of Tom Sawyer, 1876
Diminishing Marginal Utility Almost everything that people
like, desire, use, or think they would like to use, gives satisfaction. The term that economists use for satisfaction is utility.
Utility is defined as the power that a good or service has to satisfy a want. Based on utility, people decide what to buy and how
much they are willing and able to pay. In deciding to make a
purchase, they decide the amount of satisfaction, or use, they
think they will get from a good or service.
Consider the utility that can be derived from buying a cold
soft drink at a baseball game on a hot day. At $3 per cup,
how many will you buy? Assuming that you have some
utility: the ability of any good or
service to satisfy consumer wants
7.2
Real Income Effect If the price of gasoline rises but your
income does not, you obviously cannot continue buying the same
amount of gas AND everything else you normally purchase. The
real income effect can work in the opposite direction, too. If you are
already buying two fill-ups a month and the price of gasoline drops
in half, your real income then increases. You will have more purchasing power and will probably increase your spending.
LESSON 3: DEMAND
Have students review “A Change
in Demand” and “A Change in the
Quantity Demanded.” Then have
them draw two graphs—one showing a change in quantity demanded,
the other showing a change in
demand.
Supplied in both CD-ROM and
disk formats.
Ask students to consider how
their purchasing decisions might
be affected if the two fill-ups provided just enough gasoline to
drive to and from work during
the month. Students will note that
they will need to buy less of other
items. ECON: 1B, 4A-B, 7A
Extending the Content
William Stanley Jevons The first person to propose the theory of marginal utility was
English economist William Stanley Jevons in his book The Theory of Political Economy
(1871). Jevons illustrated diminishing marginal utility with the example of food. Assume that
a person’s daily food intake is divided into 10 parts, Jevons said. The first part is very
important to the person, for without it he or she would starve. The second provides satisfaction, but not as much as the first, and so on, up to the tenth part. “Each increment of food is
less necessary, or possesses less utility, than the previous one,” Jevons concluded.
ECON: 7A, 19A, 23A
Student Edition TEKS
Page 172: 4A-B, 5A-B, 7A, 11A,
24A
Page 173: 1B, 4A-B, 5A, 7A, 11A,
24A
173
CHAPTER 7
SECTION
SECTION 1,
1, Pages
Pages 169–175
169–175
Meeting Lesson
Objectives
Assign Section 1 Assessment as
homework or an in-class activity.
Use Interactive Tutor SelfAssessment Software to review
Section 1.
Section Quiz 7–1
Name
Date
Class
7,
D EMAND
1
SCORE
Matching: Place a letter from column B in the blank in Column A. (10 points each)
A
B
1. demand
2.
supply
3.
market
4.
utility
5. real income effect
a.
ability of any good or service to satisfy consumer
wants
b.
process of freely exchanging goods and services
between buyers and sellers
c.
amount of a good or service that consumers are
able and willing to buy
d.
amount of a good or service that producers are able
and willing to sell
e.
inability to buy the same quantity of a good if prices
rise while income does not
7.3
Multiple Choice: In the blank at the left, write the letter of the choice that best
completes the statement or answers the question. (10 points each)
6. In economic terms, the marketplace
a. exists only at the local level throughout.
c. exists only at the national level.
b. is a place where people buy food.
d. operates through voluntary exchange.
7. Which statement reflects the inverse relationship between quantity demanded and price?
a. As the price goes up, quantity demanded goes up.
b. As the price goes down, quantity demanded goes up.
c. As the supply goes up, the price goes up.
d. As the supply goes up, the demand goes up.
Copyright © by The McGraw-Hill Companies, Inc.
8. Which economic rule states that the additional satisfaction people get from consuming one more unit of a
product will lessen with each additional unit they consume?
a. real income effect
c. law of demand
b. law of diminishing marginal utility
d. substitution effect
9. According to the substitution effect, if two items satisfy the same need and the price of one rises,
a. people will buy the higher priced item.
b. people will buy the lower priced item.
c. the demand will go up.
d. people will buy something else.
10. The amount of goods and services people can actually buy with their money is their
a. voluntary exchange.
b. purchasing power.
c. utility.
d. substitution effect.
Section Quiz
Diminishing Marginal Utility Regardless of how satisfying the first taste
of an item is, satisfaction declines with additional consumption. Assume, for example,
that at a price of $3.25 per hot dog, you have enough after buying three. Thus, the
value you place on additional satisfaction from a fourth hot dog would be less than
$3.25. According to what will give you the most satisfaction, you will save or spend
the $3.25 on something else. Eventually you would receive no additional satisfaction,
even if a vendor offered the product at zero price.
21
marginal utility: an additional
amount of satisfaction
law of diminishing marginal
utility: rule stating that the additional satisfaction a consumer
gets from purchasing one more
unit of a product will lessen with
each additional unit purchased
174
money, you will buy at least one. Will you buy a second one? A
third one? A fifth one? That decision depends on the additional
utility, or satisfaction, you expect to receive from each additional
soft drink. Your total satisfaction will rise with each one bought.
The amount of additional satisfaction, or marginal utility, will
diminish, or lessen, with each additional cup, however. This example illustrates the law of diminishing marginal utility.
CHAPTER 7
Cooperative Learning
Point out to students that businesses sometimes engage in price wars to attract consumers. Then organize students into several groups and ask groups to research recent
price wars in the gasoline or airline industries to discover the impact on demand.
Encourage groups to present their findings in illustrated reports.
ECON: 1B, 2B, 4A-B, 7A, 23A, 23C, 24D
174
CHAPTER 7
At some point, you will stop buying soft drinks. Perhaps you
don’t want to wait in the concession line anymore. Perhaps your
stomach cannot handle another soft drink. Just the thought of
another cola makes you nauseated. At that point, the satisfaction
that you receive from the soft drink is less than the value you
place on the $3 that you must pay. As Figure 7.3 shows, people
stop buying an item when one event occurs—when the satisfaction from the next unit of the same item becomes less than the
price they must pay for it.
What if the price drops? Suppose the owner of the ballpark
decided to sell soft drinks for $2 each after the fifth inning. You
might buy at least one additional soft drink. Why? If you look at
the law of diminishing marginal utility again, the reason becomes
clear. People will buy an item to the point at which the satisfaction from the last unit bought is equal to the price. At that point,
people will stop buying. This concept explains part of the law of
demand. As the price of an item decreases, people will generally
buy more.
SECTION
SECTION 1,
1, Pages
Pages 169–175
169–175
Reteach
Draw a seesaw on the board. Ask
students to write a brief explanation of how a seesaw illustrates the
relationship between price and
quantity demanded.
ECON: 7A, 23A, 23D
Reading Essentials and
Study Guide 7–1
Name
Date
Class
7,
1
For use with textbook pages 169–175
D EMAND
KEY TERMS
demand Amount of a good or service that consumers are able and willing to buy at various possible
prices during a specified time period (page 170)
supply Amount of a good or service that producers are able and willing to sell at various prices during a
specified time period (page 170)
market Process of freely exchanging goods and services between buyers and sellers (page 170)
voluntary exchange Transaction in which a buyer and a seller exercise their economic freedom by
working out their own terms of exchange (page 170)
law of demand Economic rule stating that the quantity demanded and price move in opposite directions
(page 171)
quantity demanded Amount of a good or service that a consumer is willing and able to purchase at a
specific price (page 172)
real income effect Economic rule stating that individuals cannot keep buying the same quantity of a
product if its price rises while their income stays the same (page 172)
substitution effect Economic rule stating that if two items satisfy the same need and the price of one
rises, people will buy the other (page 172)
utility The ability of any good or service to satisfy consumer wants (page 173)
marginal utility An additional amount of satisfaction (page 174)
law of diminishing marginal utility Economic rule stating that the additional satisfaction a consumer
gets from purchasing one more unit of a product will lessen with each additional unit purchased
(page 174)
Practice and assess
key skills with
Skillbuilder Interactive
Workbook, Level 2.
1
DRAWING FROM EXPERIENCE
Understanding Key Terms
Cause
This section focuses on the willingness and ability of people to purchase particular goods and
services—what economists call demand.
Effect on Quantity Demanded
1. Define demand, supply, market, voluntary
exchange, law of demand, quantity demanded,
real income effect, substitution effect, utility, marginal utility, law of diminishing marginal utility.
56
Reviewing Objectives
Applying Economic Concepts
2. How does the principle of voluntary exchange
operate in a market economy?
5. Diminishing Marginal Utility Describe an
instance in your own life when diminishing marginal utility caused you to decrease your quantity demanded of a product or service.
3. What is the law of demand?
4. Graphic Organizer Create a chart like the
one in the next column to show how an
increase and decrease in real income, the price
of substitutes, and utility influence the quantity
demanded for a given product or service.
Critical Thinking Activity
6. Making Predictions Imagine that you sell
popcorn at the local football stadium.
Knowing about diminishing marginal utility,
how would you price your popcorn after
half-time?
Demand and Supply
1. All definitions can be found in the Glossary.
2. Buyers and sellers work out their own terms of
exchange.
3. The law of demand states that there is an
inverse relationship between quantity
demanded and price.
4. increase in real income=increase in quantity
demanded; decrease in real income=decrease
in quantity demanded; price of substitute goes
up=quantity demanded of other item goes up;
Copyright © by The McGraw-Hill Companies, Inc.
Have you ever seen something on the store shelf and thought, “I wonder who would ever buy
that”? Perhaps you did not want it, but someone else did. The greater the number of people who
want an item, the more of such items producers will supply.
Study Guide
Have students write an example
from personal experience of how
price, real income, or the substitution effect changed their decision to
buy a good or service.
ECON: 1B, 4A-B, 7A, 11A, 23A
175
price of substitute goes down=quantity
demanded of other item goes down; utility
increases=quantity demanded increases; utility
decreases=quantity demanded decreases
5. Answers will vary but should indicate that students understand that diminishing marginal utility is the lower level of satisfaction resulting
from additional purchases.
6. Students should suggest that the price of popcorn could be reduced after half-time.
Student Edition TEKS
Page 174: 4A-B, 7A, 24A
Page 175: 4A-B, 7A-B, 11A, 23A-B,
23F, 24A
175
175
SPOTLIGHT
As students read the article, ask
them to think about what makes
Cross’s Hint Mints unique. (The
packaging makes a statement, encourages collecting, makes stores want to
sell it and makes people want to buy
it.) ECON: 23A, 23D
ASK: What other products can
you think of that use packaging as
a selling point?
SPOTLIGHT ON THE ECONOMY
How to Make a Mint
Check It Out! In this chapter you learned how demand
can increase as tastes and preferences change. In the
following article, read to learn how one entrepreneur
created a demand for mints as a “fashion accessory.”
H
To find up-to-date news and
analysis on the economy, business, technology, markets,
entrepreneurs, investments,
and finance, have students
search feature articles and special reports on the Business
Week Web site.
www.businessweek.com
To keep customers interested,
Hint Mint has debuted a limited
edition signed artist series of tins.
The first tin in the series was
designed by Doug Rogers, art
director for the movie Shrek.
arley Cross broke pretty much every rule in
the book that, if it were written, would be
called How Not to Start a Business. He had very little business experience and no formal business
education. When he needed help, he brought in a
longtime friend who also had little experience in
business. He ignored research that showed the
market for his product was saturated. As a
teenager, maybe he was too young to know better.
Today, 18 months after shipping his first order
of smooth round peppermints encased in arty
tins, Cross [now 20] says Hint Mint has racked
up sales of more than $2.5 million….
When he came up with Hint Mint, he never
intended to sell mints—just the name…. Cross
found out names can’t be trademarked if there’s
no product to go with them. So he decided to go
ahead and create the product—“mint as fashion
accessory.” As someone who grew up in show
business, he knew that “if it looks cool, you
want it.”
He had the name, he had the concept, but
what about product development and, ahem, all
the cold calling it would take to put the product
in front of potential customers? Enter longtime
friend Cooper Bates, a screenwriter and shortfilm director….
176
Which brings us … to the
chapter titled “Now Who Will
Buy the Mints?”
Gina Casella, for one.
Casella is product-development manager for Barnes & Noble cafes, where the $2.39
tin of Hint Mints can be found next to treats
made by the likes of Godiva and Starbucks.
“When we tested it, everyone liked the product,” Casella says, adding, “It’s very unique
packaging ... it makes a statement when you
pull out the tin.”
Cross, who ended up putting everything he
had saved from his 15-year acting career—
roughly half a million dollars—into Hint Mint,
says the company is profitable. He expects to
recoup his money by the end of the year. He figures he’ll sell the company for $15 million to
$20 million in about two years, when he
expects to have annual revenue of $6 million.
—Reprinted from July 25, 2001 issue of Business Week by special
permission, copyright © 2001 by The McGraw-Hill Companies, Inc.
Think About It
1. What makes Hint Mint different from other mints?
2. Based on the article, what elements must be considered when developing a new product?
CHAPTER 7
Answers to Think About It
1. Hint Mints stand out from other mints because of the arty tins they are
packaged in.
2. When developing a new product the name, concept, and market research are
elements that must be considered.
176
CHAPTER 7
SECTION
SECTION 2,
2, Pages
Pages 177–185
177–185
2
Overview
Section 2 explains or describes
graphing the demand curve, what
factors determine demand, and
elastic and inelastic demand.
READER’S GUIDE
Terms to Know
America’s biggest export is . . .
its pop culture—movies, TV programs, music, books and computer software.
. . . The McDonald’s restaurants that are opening at a rate of six a
day around the world, the baggy jeans
and baseball caps that have become
a global teenage uniform, the Barbie
dolls and Hot Wheels increasingly
demanded by children, are all seen as part
of the same U.S. invasion.
Motivational Activity
Project Daily Focus
Transparency 10 and have
students answer the questions.
Available as blackline master.
Reading Objectives
Daily Focus Transparency 10
1. What does a demand curve
show?
2. What are the determinants
of demand?
3. How does the elasticity of
demand affect the price of
a given product?
I
Copyright © by The McGraw-Hill Companies, Inc.
n Section 1 you learned that quantity demanded is based on
price. Sometimes, however, more of a particular product is
demanded at almost every possible price. Think about it. If
Hot Wheels toy cars are placed for sale in the international market, more will be demanded at each and every price offered. We
then say that demand for Hot Wheels has increased.
Answers
1. Answers will vary. One conclusion is that consumer tastes change over time.
2. Answers will vary. The photographs show that people have money to spend on
luxuries, an indication of an affluent economy.
THE WASHINGTON POST, NOVEMBER 30, 1998
BELLRINGER
• demand schedule
• demand curve
• complementary good
• elasticity
• price elasticity of demand
• elastic demand
• inelastic demand
10
C
ONSUMER TASTES AFFECT DEMAND
The Image Bank © Wendy Chan.
The Image Bank © Maria Taglienti
1. What conclusion or conclusions about consumer tastes can you
draw from the photographs?
2. How do the photographs indicate a wealthy economy?
Daily Focus Transparencies
Graphing the Demand Curve
READER’S GUIDE
How can you learn to distinguish between quantity demanded
and demand? And how do economists show these relationships
Demand and Supply
177
Answers to the Reading Objectives
questions are on page 185.
Preteaching Vocabulary
Vocabulary PuzzleMaker
SECTION 2
RESOURCE MANAGER
Reproducible Masters
Reproducible Lesson Plan 7–2
Reading Essentials and Study Guide 7–2
Guided Reading Activity 7–2
Section Quiz 7–2
Daily Focus Activity 10
Daily Lecture Notes 7–2
Multimedia
Daily Focus Transparency 10
Vocabulary PuzzleMaker CD-ROM
Interactive Tutor Self-Assessment Software
ExamView® Pro Testmaker
MindJogger Videoquiz
NBR’s Economics & You
Interactive Economics!
Presentation Plus!
Student Edition TEKS
Page 176: 2B, 4A-B, 7A, 23A
Page 177: 4A-B, 7A, 23A, 24A
177
CHAPTER 7
SECTION
SECTION 2,
2, Pages
Pages 177–185
177–185
Guided Practice
L1 Understanding Ideas Reinforce
students’ understanding of the relationship between movement of the
demand curve and changes in
demand by underscoring that a shift
to the left in the demand curve indicates a decrease in demand, while a
shift to the right indicates an
increase. Then call on volunteers to
suggest a phrase or saying that sums
up this relationship.
ECON: 7A-B, 23A
demand schedule: table showing quantities demanded at
different possible prices
FIGURE 7.4
in a visual way? It is said that a picture is worth a thousand
words. For much of economic analysis, the “picture” is a graph
that shows the relationship between two statistics or concepts.
The law of demand can be graphed. As you learned in Section 1,
the relationship between the quantity demanded and price is
inverse—as the price goes up, the quantity demanded goes down.
As the price goes down, the quantity demanded goes up.
Take a look at Parts A, B, and C of Figure 7.4. The series of
three parts shows how the price of goods and services affects the
quantity demanded at each price. Part A is a demand schedule—
a table of prices and quantity demanded. The numbers show that
as the price per CD decreases, the quantity demanded increases.
For example, at a cost of $20 each, 100 million CDs will be
demanded. When the cost decreases to $12 each, 900 million
CDs will be demanded.
Graphing the Demand Curve
Daily Lecture Notes 7–2
Demand Can Be Shown Visually Note
how the three parts use a different format to
show the same thing. Each shows the law of
demand—as price falls, quantity demanded
increases.
Also, note that in Parts B and C we refer to
the quantity of CDs demanded per year. We
could have said one day, one week, one month,
or two years. The longer the time period, the
more likely that factors other than price will
affect the demand for a given product.
7-2
L
ECTURE LAUNCHER
Vending machines of the future will have variable pricing. On a winter day, a soda may cost
only 50 cents, but on a summer day it may cost $1.00. What other variables might increase,
or decrease, the demand for soda?
PAGES 177–179
I. Graphing the Demand Curve
A. A demand schedule is a table of prices and the quantity demanded at each price.
B. Lists quantity demanded at different prices
C. A demand curve graphs the quantity demanded of a good or service at each possible
price.
•
Discussion Question
Why do you think graphing the demand curve would be useful to businesses? (By
having a graph that expresses all the possible prices and quantity demanded, a business can
better predict its financial future.)
PAGE 180
II. Quantity Demanded vs. Demand
A. A change in quantity demanded is caused by a change in the price of a good.
Discussion Question
Copyright © by The McGraw-Hill Companies, Inc.
B. If something other than price causes demand to increase or decrease, this is known as
a change in demand and shifts the demand curve.
•
Think of some factors or events other than price that can cause demand as a whole
to increase or decrease? Give examples of such a factor or event. (Changes in the environment or political climate can cause demand to increase. For example, if there is a blizzard
the overall demand for snow shovels will probably increase. If a large scale war suddenly
ends, the demand for weapons will decrease.)
A Demand Schedule
Price
per CD
Quantity
demanded
(in millions)
Points in
Part B
$20
100
A
$19
200
B
$18
300
C
$17
400
D
$16
500
E
$15
600
F
$14
700
G
$13
800
H
$12
900
I
$11
1,000
J
$10
1,100
K
turn
Daily Lecture Notes
42
Part A Demand Schedule The numbers in
the demand schedule above show that as the
price per CD decreases, the quantity demanded
increases. Note that at $16 each, a quantity of
500 million CDs will be demanded.
Answer to Part C: 900
Meeting Special Needs
Visual Learning Difficulty Students with visual difficulties may find the graphing techniques presented in this section helpful. Encourage students to use graphing as a way of
taking notes and summarizing information throughout the course. You might suggest that
students use rulers or index cards to help them keep track of columns and rows when they
interpret tables and charts. ECON: 23A
Refer to Inclusion for the Social Studies Classroom Strategies and Activities for
students with different learning styles.
178
In Part B, the numbers from the schedule in Part A have been plotted onto a
graph. The bottom (or horizontal) axis
shows the quantity demanded. The side (or
vertical) axis shows the price per CD. Each
Student Web Activity Visit the Economics
pair of price and quantity demanded numToday and Tomorrow Web site at tx.ett.glencoe.com
bers represents a point on the graph. These
and click on Chapter 7— Student Web
points are labeled A through K.
Activities to see how changes in population affect
Now look at Part C of Figure 7.4. When
demand.
the points from Part B are connected with a
line, we end up with the demand curve. A
demand curve shows the quantity demanded
of a good or service at each possible price. Demand curves slope
demand curve: downwardsloping line that shows in graph
downward (fall from left to right). In Part C you can see the inverse
form the quantities demanded at
relationship between price and quantity demanded.
each possible price
B Plotting the Price—Quantity Pairs
$20
C Demand Curve for CDs
A
$20
B
C
$18
Price per CD
Price per CD
$18
D
E
$16
F
G
$14
Demand Curve
$16
$14
H
I
$12
$12
J
K
$10
100
300
500
700
900
1,100
Quantity of CDs Demanded
(millions per year)
Part B Plotting Quantity Demanded Note how the
price and quantity demanded numbers in the demand
schedule (Part A) have been transferred to a graph in
Part B above. Find letter E. It represents a number of
CDs demanded (500 million) at a specific price ($16).
$10
100
300
500
700
900
1,100
Quantity of CDs Demanded
(millions per year)
CHAPTER 7
SECTION
SECTION 2,
2, Pages
Pages 177–185
177–185
See the Web Activity Lesson
tx.ett.glencoe.com for an
Plan at ett.glencoe.com
introduction, lesson description,
and answers to the Student Web
Activity for this chapter.
L2 Explaining Ideas Ask students
to explain what would happen to the
demand for CDs in the following
situations:
1. There is an overall increase in
wages.
2. A chain of appliance stores puts
all CD players on sale.
3. The price of audiocassettes
increases dramatically.
Demand would increase in all situations. Wage increases give consumers
more income to buy more CDs;
demand for CD players and CDs
would increase, as they are complementary goods; demand for CDs
would increase because CDs and
audiocassettes are substitute goods.
Conclude by asking students to
present other situations that might
lead to a rise in demand for CDs.
ECON: 4A-B, 7A, 23A, 23D
Part C Demand Curve The points in Part B have
been connected with a line in Part C above. This line
is the demand curve, which always falls from left to
right. How many CDs will be demanded at a price of
$12 each?
Demand and Supply
179
Free Enterprise Activity
To increase students’ understanding of the effects of a change in demand in a free
enterprise economy, use the following scenario: A disease destroys much of the coffee
crop in South America. How might this affect the price of coffee? The price increases. The
demand for substitute products? Demand for substitute drinks, such as soft drinks and
juices, might increase. The demand for complementary products? Demand for complementary products, such as sugar, might fall. Have students illustrate changes using a
demand schedule or graph. ECON: 4A-B, 5A-B, 7A-B, 10A, 23A-B, 24D
Student Edition TEKS
Page 178: 7A-B, 23A, 23F-G, 24A
Page 179: 7A-B, 23A, 23F-G, 24A
179
CHAPTER 7
Quantity Demanded vs. Demand
SECTION
SECTION 2,
2, Pages
Pages 177–185
177–185
Remember that quantity demanded is a specific point along the
demand curve. A change in quantity demanded is caused by a change
in the price of the good, and is shown as a movement along the
demand curve. Sometimes, however, something other than price
causes demand as a whole to increase or decrease. This is known as
a change in demand and is shown as a shift of the entire demand
curve to the left (decrease in demand) or right (increase in demand).
If demand increases, people will buy more per year at all prices. If
demand decreases, people will buy less
per year at all prices. What causes a
change in demand as a whole?
Guided Reading Activity 7–2
Name
Date
Class
7-2
For use with textbook pages 177–185
T
HE DEMAND CURVE AND THE ELASTICITY
OF DEMAND
RECALLING THE FACTS
Directions: Use the information in your textbook to answer the questions.
1. What is shown on a demand schedule?
2. What is a demand curve?
3. How is a change in quantity demanded similar to and different from a change in demand?
Similar: ____________________________
Different: __________________________
4. What three changes can affect the demand for a specific product?
Change in __________________________
Change in __________________________
Change in __________________________
5. What is a complementary product?
Independent
Practice
L2 Graphing Information Have
students consult with a local merchant to ascertain the demand for a
particular product over a set time
period. Suggest that they present
their findings in graph form. Encourage students to complement their
graphs with a paragraph explaining
what factors most affected demand
for the product. ECON: 7A-B, 23A-C,
23F, 24C-D
Demand for
American TV Shows
Every year, hundreds of television-program buyers
from around the world visit major studios in Los
Angeles. What do they buy? ER, Chicago Hope, and
NYPD Blue are hits in western European countries such
as England, the Netherlands, and Germany. And people
around the world can’t seem to get enough of Buffy
the Vampire Slayer.
Sci-fi is very big. The X-Files airs in 60 countries. In
central Europe, “they want cars to be exploded 14 stories high,” says Klaus Hallig, who buys for Poland,
Hungary, the Czech Republic, Bulgaria, and Romania.
He bought Cannon, Bonanza, Miami Vice, and the
A-Team, as well as Little House on the Prairie and
Highway to Heaven. ■
Hollywood North?
American movies and television
programs are popular in foreign
markets. The bustling “American”
city scenes and wide open landscapes, however, most likely were
filmed in Canada. A favorable
exchange rate for the American
dollar and government tax breaks
make moviemaking much cheaper
in Canada than in the United
States. Today, three of the top
seven movie and television production centers—Vancouver, Toronto,
and Montreal—are in Canada.
Determinants
of Demand
Many factors can affect demand for
a specific product. Among these factors
are changes in population, changes in
income, changes in people’s tastes and
preferences, the existence of substitutes,
and the existence of complementary
goods.
Changes in Population When
population increases, opportunities to
buy and sell increase. Naturally, the
demand for most products increases.
This means that the demand curve for,
say, television sets, shifts to the right.
At each price, more television sets will
be demanded simply because the consumer population increases. Look at
Part A of Figure 7.5 on page 182.
Changes in Income The demand for most goods and services
depends on income. Your demand for CDs would certainly decrease
if your income dropped in half and you expected it to stay there.
You would buy fewer CDs at all possible prices. The demand curve
for CDs would shift to the left as shown in Part B of Figure 7.5 on
page 182. If your income went up, however, you might buy more
CDs even if the price of CDs doubled. Buying more CDs at all possible prices would shift the demand curve to the right.
180
CHAPTER 7
ECON: 13A, 13D
Understanding Shifts in the Demand Curve
Draw the following diagram on the board:
Call on volunteers to come to the
board and draw arrows—indicating the direction of movement of
the demand curve—and the new
demand curve for each of the
following:
180
1. The demand curve for CDs if all wages
increased by 20 percent. Demand curve
shifts to the right.
2. The demand curve for the popular toy
“Winnie Widget” after it is replaced by
another fad. Demand curve shifts to the left.
3. The demand curve for margarine if the price of
butter falls. Demand curve shifts to the left.
CHAPTER 7
Changes in Tastes and Preferences
One of the key factors
that determine demand is people’s tastes and preferences. Tastes
and preferences refer to what people like and prefer to choose.
When an item becomes a fad, more are sold at every possible
price. The demand curve shifts to the right as shown in Part C of
Figure 7.5 on page 183.
SECTION
SECTION 2,
2, Pages
Pages 177–185
177–185
ECONOMICS
& YOU
Substitutes
The existence of substitutes also affects demand.
People often think of butter and margarine as substitutes. Suppose
that the price of butter remains the same and the price of margarine falls. People will buy more margarine and less butter at all
prices of butter. See Part D of Figure 7.5 on page 183.
Demand and Supply
!7it6"
Complementary Goods
When two goods are complementary
products, the decrease in the price of one will increase the demand
for it as well as its complementary good. Cameras and film are
complementary goods. Suppose the price of film remains the same.
If the price of cameras drops, people will probably buy more of
them. They will also probably buy more film to use with the cameras. Therefore, a decrease in the price of cameras leads to an
increase in the demand for its complementary good, film. As a
result, the demand curve for film will shift to the right as shown in
Part E of Figure 7.5 on page 183.
complementary good: a product
often used with another product
The Price Elasticity of Demand
The law of demand is straightforward: The higher the price
charged, the lower the quantity demanded—and vice versa. If you
sold DVDs, how could you use this information? You know that if
you lower prices, consumers will buy more DVDs. By how much
should you lower the cost, however? You cannot really answer this
question unless you know how responsive consumers will be to a
decrease in the price of DVDs. Economists call this price responsiveness elasticity. The measure of the price elasticity of demand
is how much consumers respond to a given change in price.
Chapter 7
Disc 1, Side 1
ASK: How will an increase in
the price of an inelastic good,
such as prescription medicine,
affect the quantity demanded?
In general, most people will be
willing to buy prescription medicine to stay healthy, regardless of
the price. Quantity demanded for
these medicines, therefore, will
not significantly decrease if their
prices rise.
Also available in VHS.
elasticity: economic concept
dealing with consumers’ responsiveness to an increase or
decrease in price of a product
price elasticity of demand:
economic concept that deals with
how much demand varies according to changes in price
Elastic Demand
For some goods, a rise or fall in price greatly
affects the amount people are willing to buy. The demand
for these goods is considered elastic—consumers can
be flexible when buying
or not buying these
items. For example, one
particular brand of coffee
probably has a very
LESSON 3: DEMAND
Have students study the
“Advanced Topics Menu,” which
focuses on determinants of
demand elasticity. After clicking on
the information provided, students
should list the underlying determinants of elasticity on note cards.
Have students quiz each other
with their cards.
Supplied in both CD-ROM and
disk formats.
Cooperative Learning
Organize the class into small groups. Ask group members to hold discussions on the
point at which the real income effect becomes a significant deterrent to buying new items.
Have group members then discuss how they use the substitution effect in their own purchases. Finally, have groups use the information developed during discussions to create a
short report to business on the buying habits and economic decision making of young consumers. Suggest that groups use graphs, charts, and other appropriate visual materials to
BLOCK SCHEDULING ECON: 1B, 4A-B, 5A, 7A, 11A, 23A-C, 23F,
illustrate their booklets.
24B, 24D, 25B
Student Edition TEKS
Page 180: 4A-B, 5A-B, 7A-B, 10A,
11A, 21B, 23A, 23F-G
Page 181: 4A-B, 5A, 7A-B, 10A,
11A, 23A, 23F-G, 24A
181
CHAPTER 7
SECTION
SECTION 2,
2, Pages
Pages 177–185
177–185
FIGURE 7.5
Determinants of Demand
Changes in Demand Many factors can affect demand for a specific product.
When demand changes, the entire demand curve shifts to the left or the right.
L2 Planning a Trip Ask students to
plan for a trip they would like to
take, such as a boating or camping
trip. In their preparation for the trip
they should list all the goods they
will need and the quantities in which
they will need them. Have students
make notations on their lists to indicate the elasticity of each item.
BLOCK SCHEDULING ECON: 7A, 23A
A If Population Increases
$500
Price per TV
Part A Change in Demand if
Population Increases When population increases, opportunities to buy and
sell increase. The demand curve labeled
D1 represents demand for television
sets before the population increased.
The demand curve labeled D2 represents demand after the population
increased.
$400
$300
$200
$100
D1
1,000
2,000
3,000
D2
4,000
5,000
Quantity of TVs Demanded
Part B Change in Demand if Your
Income Decreases The demand curve
D1 represents CD demand before
income decreased. The demand curve
D2 represents CD demand after income
decreased. If your income goes up,
however, you may buy more CDs at all
possible prices, which would shift the
demand curve to the right.
B If Income Decreases
$20
$18
Price per CD
Direct students’ attention to
Part A of Figure 7.5. ASK: What
eventually would happen to the
demand curve for toys if there
were a decline in the birthrate?
Why? The demand curve would
move to the left, because there
would be a decline in demand for
toys at each and every price.
ECON: 7A-B
$16
$14
$12
$10
D2
100
300
500
D1
700
900
Quantity of CDs Demanded
182
CHAPTER 7
Relevant Issues in Economics
Highways Substitute for Railroads In the 1950s, the federal government began construction of the interstate highway system. Partly because taxes helped support the development of highways, shipping goods by truck was less costly than shipping by rail. As a
result, the trucking industry grew, while railroads declined. Today, many nations have more
efficient railroad systems than does the United States. Ask students to discuss the following: Should the federal government also have subsidized railroads in the 1950s? Why or
why not? ECON: 7A, 15A-B, 23A, 23D
182
CHAPTER 7
Part C Change in Demand if an
Item Becomes a Fad When a product
becomes a fad, more of it is demanded
at all prices, and the entire demand
curve shifts to the right. Notice how
D1—representing demand
for Beanie Babies™ before
they became popular—
becomes D2—demand
after they became a fad.
Price per Beanie Baby™
C If Preferences Change
SECTION
SECTION 2,
2, Pages
Pages 177–185
177–185
$9
$8
L2 Developing Visual Materials
Ask students to explore the effect of
recycling on the demand for raw
materials. Have them concentrate on
recyclable materials, such as engine
oil, metals, and wood pulp. Suggest
they present their data in graphs and
charts for use as examples in a class
discussion. ECON: 3A, 7A, 23A-B, 23F,
24C-D
$7
$6
$5
D1
100
200
D2
300
400
500
Quantity of Beanie Babies™ Demanded
Part D Change in Demand for
Substitutes As the price of the substitute (margarine) decreases, the demand
for the item under study (butter) also
decreases. If, in contrast, the price of
the substitute (margarine) increases,
the demand for the item under study
(butter) also increases.
Price of Margarine
$1.50
D If Price of Substitute Decreases
Economic Connection
to... Technology
$1.25
Demand for ice-cold soft drinks
is greater during hot weather than
in the winter months. The management of the Coca-Cola
Company thinks this rather obvious fact should be reflected in
prices charged at vending
machines, and they have developed technology to do just that.
A computer chip in the vending
machine responds to temperature
sensors, and raises the price of
soft drinks as the weather gets
warmer. The company is looking
at other ways to make vendingmachine prices more reflective of
demand. One idea is to link price
to traffic at a machine. If few people buy from the machine, prices
might drop automatically.
$1.00
$.75
$.50
$.25
D2
1
2
3
D1
4
5
6
7
Quantity of Butter Demanded
E If Price of Complement Decreases
$6.00
$5.00
Price of Film
Part E Change in Demand
for Complementary Goods
A decrease in the price of cameras leads
to an increase in the demand for film, its
complementary good. As a result, the
demand curve for film will shift to the
right. The opposite would happen if the
price of cameras increased, thereby
decreasing the demand for the complementary good, film.
$4.00
$3.00
$2.00
ECON: 2B, 4A-B, 7A, 26A, 26D, 27A
$1.00
D1
1
2
3
D2
4
5
6
Quantity of Film Demanded
Demand and Supply
183
Cooperative Learning
Remind students that economists distinguish between needs and wants. Needs are relatively few, while wants are almost limitless. Organize students into small groups. Direct
each group to select a good or service and then write a brief research report on how marketing and advertising may create demand for this good or product by clouding the distinction between needs and wants. Call on a volunteer from each group to present the group’s
findings. ECON: 4A-B, 5A, 11A, 23A, 23C-D, 24B-D
Student Edition TEKS
Page 182: 4A-B, 5A, 7A-B, 10A,
11A, 23A, 23F-G
Page 183: 4A-B, 7A-B, 10A, 11A,
23A, 23F-G
183
CHAPTER 7
SECTION
SECTION 2,
2, Pages
Pages 177–185
177–185
Elastic Versus Inelastic Demand
FIGURE 7.6
$10
Curve A demonstrates a relatively
inelastic demand for a product.
Even if the price dropped from
$10 to $1, the quantity demanded
would not increase very much.
$9
Elasticity of Demand
$8
$7
Price per Unit
Curve A at the price of $5.50
could represent the inelastic
demand for pepper. Even if the
price of pepper dropped dramatically, you would not purchase
much more of it. Curve B at $5.50
could represent the elastic
demand for steaks. If the price
drops just a little, many people
will buy much more steak.
Demand for soft drinks and
T-bone steaks is elastic because
substitutes for these products
exist. Demand for salt and lightbulbs tends to be inelastic because
the percentage of a person’s total
budget devoted to the purchase of
these goods is relatively small.
ECON: 7A
A
B
$6
$5
$4
$3
Curve B demonstrates a
relatively elastic demand
for a product. Note that
when the price drops by
only $1—from $6 to $5—
the quantity demanded
increases dramatically.
$2
$1
Elastic
Demand
Assign Section 2 Assessment as
homework or an in-class activity.
Use Interactive Tutor SelfAssessment Software to review
Section 2.
Class
7,
T
HE DEMAND CURVE AND
ELASTICITY OF DEMAND
B
1. demand schedule
2. demand curve
a.
situation in which the rise or fall of a product’s price
greatly affects the amount people will pay
b.
line that graphically shows the quantities demanded
at each possible price
c.
economic concept dealing with consumers’
responsiveness to an increase or decrease in price
d.
situation in which a product’s price change has little
impact on the quantity demanded by consumers
e.
table showing quantities demanded at different
prices
3. elasticity
4. elastic demand
5. inelastic demand
inelastic demand: situation in
which a product’s price change
has little impact on the quantity
demanded by consumers
Multiple Choice: In the blank at the left, write the letter of the choice that best
completes the statement or answers the question. (10 points each)
6. How does an increase in consumer population affect the demand for most products?
a. demand decreases
b. prices go down
c. demand increases
d. prices go up
7. A shift to the left in the demand curve indicates
a. decrease in price.
c. increase in population.
b. decrease in demand.
d. increase in demand.
5
6
7
8
9
10
Copyright © by The McGraw-Hill Companies, Inc.
9. Which of the following goods has inelastic demand?
a. sugar
b. a particular brand of coffee
c. Diet Coke
d. T-bone steak
10. If two products are complementary goods, how will a decrease in the price of one affect the other?
a. Demand will increase.
b. Price will increase.
c. Demand will decrease.
d. Price will decrease.
Inelastic Demand If a price change does not result in a substantial change in the quantity demanded, that demand is considered inelastic—consumers are usually not flexible and will
purchase some of the item no matter what it costs. Salt, pepper,
sugar, and certain types of medicine normally have inelastic
demand. By using two demand curves in one diagram—as shown
in Figure 7.6—you can compare a relatively inelastic demand
with a relatively elastic demand at a particular price.
Why do
some goods have elastic demand and others have inelastic demand?
184
CHAPTER 7
Section Quiz
Critical Thinking Activity
Classifying Have students work in pairs to compile a list of substitutes for the following
items: wallpaper, grapefruit, belt, chess set, carpet. (Possible answers: paint, orange, suspenders, checkers, tile) Then have students list complementary goods for each of the following items: Ping-Pong table, aquarium, cup, bed, tennis shoes. (Possible answers:
Ping-Pong balls, tropical fish, saucer, pillows, shoelaces) ECON: 4B, 7A, 10A, 23A
184
11
elastic demand. Consumers consider the many competing brands
of coffee to be almost the same. A small rise in the price of one
brand will probably cause many consumers to purchase the
cheaper substitute brands.
What Determines Price Elasticity of Demand?
8. When a product becomes a fad, the demand curve for that product
a. slopes upward.
b. becomes a straight line.
c. shifts to the right.
d. shifts to the left.
22
4
2
SCORE
Matching: Place a letter from Column B in the blank in Column A. (10 points each)
A
3
Inelastic Demand
elastic demand: situation in
which the rise or fall in a product’s
price greatly affects the amount
that people are willing to buy
Section Quiz 7–2
Date
2
Quantity Demanded per Year
Meeting Lesson
Objectives
Name
1
12
CHAPTER 7
SECTION
SECTION 2,
2, Pages
Pages 177–185
177–185
Reteach
Ask students to use the Terms to
Know to write a paragraph summarizing this section. ECON: 23A, 24A
Reading Essentials and
Study Guide 7–2
Name
1. Define demand schedule, demand curve, complementary good, elasticity, price elasticity of
demand, elastic demand, inelastic demand.
Reviewing Objectives
2. What does a demand curve show?
3. Graphic Organizer Create a diagram like the
one below to show the determinants of demand.
T
HE DEMAND CURVE AND THE ELASTICITY
OF DEMAND
demand schedule Table showing quantities that would be demanded at various prices (page 178)
demand curve Downward-sloping line that graphs the quantities demanded at each possible price
(page 179)
complementary good For a product often used with another product; as the price of one product
decreases, the demand for the other increases (page 181)
elasticity Measures consumers’ responsiveness to an increase or decrease in price (page 181)
price elasticity of demand Measures the amount that demand varies according to changes in price
(page 181)
elastic demand The rise or fall in a product’s price greatly affects the amount that people are willing to
buy (page 184)
inelastic demand A product’s price change has little impact on the quantity demanded by consumers
(page184)
Practice and assess
key skills with
Skillbuilder Interactive
Workbook, Level 2.
4. How does the elasticity of demand affect the
price for a given product?
DRAWING FROM EXPERIENCE
If the price of gasoline drops significantly, people travel more. However, if the price of salt drops
sharply, people still buy the same amount of salt.
This section focuses on the measurement of change in buying habits when prices change. It is
called elasticity of demand.
ORGANIZING YOUR THOUGHTS
Use the diagram below to help you remember the summaries that follow.
What Determines Demand?
What Determines Price Elasticity of Demand?
1
1
2
2
3
3
4
5
Study Guide
59
Applying Economic Concepts
5. Demand Elasticity Provide an example of
two products or services for which you have
elastic demand and inelastic demand. Explain
your choices.
6. Making Comparisons Write a paragraph
describing how demand and quantity
demanded are similar, and how they are
different. Use the examples you provided in
question 5 to help make the comparison in
your paragraph.
Demand and Supply
1. All definitions can be found in the Glossary.
2. the number of items that will be demanded at
every given price
3. Determinants of demand: existence of substitutes, prices of complementary goods, changes
in population, income, tastes and preferences
4. A product with elastic demand is likely to be
priced lower because consumers can switch
among the various substitutes.
5. Examples will vary. Students should consider
2
KEY TERMS
Critical Thinking Activity
Demand
Class
7,
2
Understanding Key Terms
Date
For use with textbook pages 177–185
Copyright © by The McGraw-Hill Companies, Inc.
At least three factors determine the price elasticity of demand for a
particular item: the existence of substitutes; the percentage of a
person’s total budget devoted to the purchase of that good; and
the time consumers are given to adjust to a change in price.
Clearly, the more substitutes that exist for a product, the more
responsive consumers will be to a change in the price of that good.
A diabetic needs insulin, which has virtually no substitutes. The
price elasticity of demand for insulin, therefore, is very low—it is
inelastic. The opposite is true for soft drinks. If the price of one
goes up by very much, many consumers may switch to another.
The percentage of your total budget spent on an item will also
determine whether its demand is elastic or inelastic. For example,
the portion of a family’s budget devoted to pepper is very small.
Even if the price of pepper doubles, most people will keep buying
about the same amount. The demand for pepper, then, is relatively
inelastic. Housing demand, in contrast, is relatively elastic because it
represents such a large proportion of a household’s yearly budget.
Finally, people take time to adjust to price changes. If the price of
electricity goes up tomorrow, your demand will be inelastic. The
longer the time allowed to reduce the amount of electricity you use,
however, the greater the price elasticity of demand.
Have students list goods and
services that have elastic, moderately elastic, and inelastic demands
in their household. Have them
create a chart, noting whether the
demand for each item responds to
changes in price, income, quality,
need, available substitutes, time
adjustments, or taste. ECON: 4A-B,
5A, 7A, 23A, 23F-G, 24C-D
185
the factors that cause demand to be elastic or
inelastic.
6. Paragraphs will vary but should note that
demand and quantity demanded both show the
desire, willingness, and ability to buy; and that
quantity demanded changes in response to
price changes of a product, while demand
changes in response to such factors as consumer income, consumer tastes, and prices of
related products.
Student Edition TEKS
Page 184: 4A-B, 7A-B, 10A, 11A,
23F-G, 24A
Page 185: 4A-B, 5A, 7A-B, 10A,
11A, 23A, 23C-D, 23F,
24A
185
185
CHAPTER 7
SECTION
SECTION 3,
3, Pages
Pages 186–192
186–192
3
Overview
Section 3 explains or describes
how the incentive of greater profit—
including the law of diminishing
returns—affects supply, and what
the supply curve shows.
READER’S GUIDE
Terms to Know
BELLRINGER
Motivational Activity
Project Daily Focus
Transparency 13 and have
students answer the questions.
This activity is also available
as a blackline master.
S
Copyright © by The McGraw-Hill Companies, Inc.
2. How does the incentive of
greater profits affect quantity supplied?
THE WASHINGTON POST, JULY 20, 1998
The first billion is always the hardest. It took Jeff
Bezos four years. He made his second over the last few
weeks. Even by the
overheated standards
of the late ’90s, this
is quick.
. . . He owns 19.8
million shares of the
online bookseller
Amazon.com, which he
founded in 1994.
A
s you’ve learned, consumers demand products and
services at the lowest possible prices. In contrast,
suppliers—like Jeff Bezos of the Internet company
Amazon.com—exist to make a profit—hopefully, a big profit.
As you read this section, you’ll learn about the law of supply and how it is geared toward making profits.
QUANTITY SUPPLIED
PRICE
LA
W
O
F
SU
PP
LY
THE LAW OF SUPPLY
The quantities of an economic product offered
for sale vary directly with its price. If prices are
high, suppliers will offer greater quantities for
sale. If prices are low, they will offer smaller
quantities for sale.
SUPPLY
1. What is the law of supply?
4. What are the four determinants of supply?
UPPLY AND PRICES
LAW OF
Reading Objectives
3. What do a supply schedule
and supply curve show?
13
Quantity Supplied
Answers
1. direct 2. Because the producer is receiving payment for his or her products, it
stands to reason that more will be offered at higher prices.
Daily Focus Transparency 13
• law of supply
• quantity supplied
• supply schedule
• supply curve
• technology
• law of diminishing returns
Price
1. According to the Law of Supply, is the relationship between price
and quantity supplied direct or indirect?
2. Explain why producers supply greater quantities of a good or a
service when prices rise.
The Law of Supply
Daily Focus Transparencies
To understand how prices are determined, you have to
look at both demand and supply—the willingness and
READER’S GUIDE
Answers to the Reading Objectives
questions are on page 192.
Preteaching Vocabulary
Refer students to the Terms to
Know. Then call on volunteers to
skim the section to locate these
terms and read them in context.
ECON: 24A
Vocabulary PuzzleMaker
186
186
CHAPTER 7
SECTION 3
RESOURCE MANAGER
Reproducible Masters
Reproducible Lesson Plan 7–3
Reading Essentials and Study Guide 7–3
Guided Reading Activity 7–3
Section Quiz 7–3
Daily Focus Activity 13
Daily Lecture Notes 7–3
Multimedia
Daily Focus Transparency 13
Vocabulary PuzzleMaker CD-ROM
Interactive Tutor Self-Assessment Software
ExamView® Pro Testmaker
MindJogger Videoquiz
NBR’s Economics & You
Interactive Economics!
Presentation Plus!
ability of producers to provide goods and services at different
prices in the marketplace. The law of supply states:
As the price rises for a good, the quantity supplied generally rises.
As the price falls, the quantity supplied also falls.
You may recall that with demand, price and quantity
demanded move in opposite directions. With supply, a direct
relationship exists between the price and quantity supplied. A
direct relationship means that when prices rise, quantity supplied
will rise, too. When prices fall, quantity supplied by sellers will
also fall. Thus, a larger quantity will generally be supplied at
higher prices than at lower prices. A smaller quantity will generally be supplied at lower prices than at higher prices.
CHAPTER 7
law of supply: economic rule
stating that price and quantity
supplied move in the same
direction
quantity supplied: the amount
of a good or service that a producer is willing and able to supply
at a specific price
The Incentive of Greater Profits
The profit incentive is one of the factors that motivates people
in a market economy. In the case of supply, the higher the price
of a good, the greater the incentive is for a producer to produce
more. The higher price not only returns higher profits, but it also
must cover additional costs of producing more.
Suppose you own a company that produces and sells skateboards. Figure 7.7 shows some of your costs of production.
Imagine that the price you charge for your skateboards covers all
of these costs and gives you a small profit. Under what circumstances would you be willing to produce more skateboards?
To take on the expense of expanding production, you would
have to be able to charge a higher price for your skateboards. At a
higher price per skateboard, you would be willing to supply—that is,
SECTION
SECTION 3,
3, Pages
Pages 186–192
186–192
Guided Practice
L1 Applying Ideas Ask students to
give examples of how the incentive
for greater profit might affect a community. Students might mention that
the incentive for greater profit may
bring fancy stores and restaurants to
the community. They might also suggest that the community could benefit
from a sale of overstocked merchandise. ECON: 2B, 4A, 23A, 23D
Daily Lecture Notes 7–3
7-3
L
ECTURE LAUNCHER
In the early days of the telephone, human operators had to physically connect each call. The
phone companies thought that they would always have enough operators to do the job. As
the telephone became increasingly popular, what happened to the cost of labor for operations? About what percentage of your calls involves contact with a telephone operator? Why
were telephone companies willing to supply more automated methods of connecting telephone calls?
PAGES 186–187
I. The Law of Supply
A. Supply is the willingness and ability of producers to provide goods to the consumer.
B. As prices rise, the quantity supplied generally rises.
C. As prices fall, the quantity supplied falls.
D. A direct relationship exists between price and quantity supplied.
7.7
•
Discussion Question
What would happen to the price of computer chips if a company opened anew chip
manufacturing plant that produced billions of chips? (The price of chips would fall
because the supply would exceed demand.)
Production Costs As a skateboard manufacturer, you
II. The Incentive of Greater Profits
A. Increase in price and increase in production leads to an increase in profits.
B. Higher prices encourage more competitors to join the market.
C. Higher prices turn potential suppliers into actual suppliers, adding to the total output.
•
Discussion Question
Why do higher prices encourage more competitors to enter an industry? Explain your
answer in terms of risk and profit. (If the prices go up, possible competitors now see that
there is more money to be made than before. The gain seems more worth the risk than it did
before.)
Copyright © by The McGraw-Hill Companies, Inc.
would have to consider all your costs of production, including
the price of materials: decks, trucks, wheels, risers, bolts, and
bearings. Don’t forget to include the costs of the rent payments
for the buildings in which the skateboards are produced. You
also have employees to whom you must pay wages, as well as
taxes and insurance. What motivates suppliers to take risks
and go into business in the first place?
PAGES 187–188
turn
Daily Lecture Notes
45
Answer: the incentive to make
Demand and Supply
187
greater profits
Meeting Special Needs
Visual Disabilities Point out that it is very important for students to be accurate when
they enter amounts into graphs and charts. Encourage students with visual disabilities to
read numbers aloud to themselves for sense and to read them to a classmate or friend to
check for accuracy. Have students use rulers or index cards to help them keep track of
columns and rows when they interpret tables and charts. ECON: 23A, 23G
Refer to Inclusion for the Social Studies Classroom Strategies and Activities for
students with different learning styles.
Student Edition TEKS
Page 186: 4A-B, 7A, 10A, 19D,
23A, 24A, 26A
Page 187: 4A-B, 7A, 10A, 24A
187
CHAPTER 7
produce and sell—more than you would at the current lower price.
Even though each skateboard will cost more to produce—because of
overtime payments to workers, additional machines, more repairs
on machines, and so on—you could afford to pay the additional cost
of increasing the quantity sold. This fact is the basis of the law of
supply.
SECTION
SECTION 3,
3, Pages
Pages 186–192
186–192
ECONOMICS
& YOU
The Supply Curve
What Is Supply?
!7_j4"
As with the law of demand, special tables and graphs can
show the law of supply. Using the example of CD producers, we
show a visual relationship between the price and the quantity
supplied in Figure 7.8.
Part A is the supply schedule, or table, showing that as the
price per CD increases, the quantity supplied increases. Part B of
Chapter 6
Disc 1, Side 1
ASK: What is the law of supply? The law of supply states
that when prices of a product are
higher, sellers will supply a larger
quantity of the product.
Also available in VHS.
L2 Explaining Ideas Ask students
to explain what would happen to the
supply for high-performance tires in
the following situations:
(1) The cost of rubber—an important
raw material used in the making of
tires—increases. Supply decreases
because the cost of inputs has
increased.
(2) Several new businesses enter the
high-performance tire market. Supply
increases because as more and more
firms enter an industry, greater quantities of the product are supplied at each
and every price.
(3) Government imposes a tax on
automobile parts—including tires.
Supply decreases because taxes cause
the cost of production to rise.
(4) New technology increases efficiency in the tire-making process.
Supply increases because increased efficiency means lower production costs.
ECON: 4A-B, 7A, 15A, 17A, 23A, 26A
supply schedule: table showing
quantities supplied at different
possible prices
FIGURE 7.8
Graphing the Supply Curve
Supply Can Be Shown
Visually Note how the three
A Supply Schedule for CDs
parts use a different format to
show the same thing. Each shows
the law of supply—as price rises,
quantity supplied increases.
Price
per CD
Quantity
supplied
(in millions)
$10
100
L
$11
200
M
$12
300
N
$13
400
O
$14
500
P
$15
600
Q
$16
700
R
$17
800
S
$18
900
T
$19
1,000
U
$20
1,100
V
Points in
Part B
Part A Supply Schedule The numbers
in the supply schedule above show that as
the price per CD increases, the quantity
supplied increases. At $16 each, a quantity
of 700 million CDs will be supplied.
188
CHAPTER 7
Cooperative Learning
Organize students into groups of four
and give each group a sheet of paper with
an enlarged version of the following concept
map on it.
Have a group member write
“Determinants of Supply” in the central
ECON: 7A, 23A, 23F
188
oval. Next, have that same group member
enter one of the determinants of supply in
an outer oval. Then have group members
pass the paper around, with each one
adding another determinant of supply. Have
groups repeat the process, with each member adding an example of a determinant of
supply to the appropriate outer oval.
CHAPTER 7
Figure 7.8 is a graph plotting the price and quantity supplied
SECTION
SECTION 3,
3, Pages
Pages 186–192
186–192
pairs from the supply schedule. Note that the bottom axis shows
the quantity supplied. The side axis shows the price per CD.
Each intersection of price and quantity supplied represents a
point on the graph. We label these points L through V.
When we connect the points from Part B with a line, we end up
with the supply curve, as shown in Part C. A supply curve shows
the quantities supplied at each possible price. It slopes upward
from left to right. You can see that the relationship between price
and quantity supplied is direct—or moving in the same direction.
Guided Reading Activity 7–3
Name
Date
Class
7-3
supply curve: upward-sloping
line that shows in graph form the
quantities supplied at each possible price
For use with textbook pages 186–192
T
HE LAW OF SUPPLY AND THE SUPPLY CURVE
OUTLINING
Directions: Locate the heading in your textbook. Then use the information under the heading to help you
write each answer.
I. The Law of Supply
A. Introduction—What is the law of supply?
Quantity Supplied vs. Supply
II. The Incentive of Greater Profits
A. Introduction—In the case of supply, what does a higher price do for a producer?
B. You Must Charge a Higher Price—How is the price of a product affected if production is expanded?
Each point on a supply curve signifies that a producer will supply a certain quantity at each particular price. If the price increases
C. Higher Prices Attract More Producers––How do higher prices attract more producers into an industry?
III. The Supply Curve––What does a supply curve show?
IV. Quantity Supplied versus Supply
Copyright © by The McGraw-Hill Companies, Inc.
A. What causes a change in the quantity supplied?
B. Why would the entire supply curve move?
V. The Determinants of Supply
A. The Price of Inputs—How does the supply curve shift, if the price of inputs drops?
B. The Number of Firms in the Industry—If more firms enter an industry, what happens to supply?
C. Technology––How does an improvement in technology affect supply?
VI. The Law of Diminishing Returns––What is the law of diminishing returns?
B Plotting the Price –Quantity Pairs
$20
C Supply Curve for CDs
V
Guided Reading Activities
23
$20
U
T
$18
S
$16
Price per CD
Price per CD
$18
R
Q
$14
P
O
N
$12
$16
Have students compare
Figure 7.8 with Figure 7.4.
Answer to Part C: 500
Supply Curve
$14
$12
M
$10
0
L
100
$10
300
500
700
900
1,100
Quantity of CDs Supplied (in millions)
Part B Plotting Quantity Supplied Note how the
price and quantity supplied numbers in the supply
schedule (Part A) have been transferred to a graph in
Part B above. Find letter R. It represents a number of
CDs supplied (700 million) at a specific price ($16).
0
100
300
500
700
900
1,100
Quantity of CDs Supplied (in millions)
Part C Supply Curve The points in Part B have
been connected with a line in Part C above. This
line is the supply curve, which always rises from
left to right. How many CDs will be supplied at a
price of $14 each?
Demand and Supply
189
LESSON 4: SUPPLY
Have students click on “Supply
Schedules and Curves.” Then
have students write a paragraph
explaining why the concept of supply involves a direct relationship
rather than an inverse relationship
between prices and quantity.
Supplied in both CD-ROM and
disk formats.
Cooperative Learning
Organize students into groups and ask groups to conduct interviews with 5 to 10 classmates or friends. Have groups ask interviewees the following questions: Would you be
willing to wash the family car for $2? For $4? For $6? For $8? For $10? Have each group
collate responses and then use the responses to create a labor supply schedule and
curve. Encourage groups to display their graphic materials around the classroom.
ECON: 7A-B, 23A-C, 23F-G, 24C-D
Student Edition TEKS
Page 188: 4A-B, 7A-B, 10A, 23A,
23F-G, 24A
Page 189: 4A-B, 7A-B, 10A, 23A,
23F-G, 24A
189
CHAPTER 7
or decreases, the quantity supplied also increases or decreases.
A change in quantity supplied is caused by a change in price and
is shown as a movement along the supply curve.
Sometimes, however, producers will supply more goods or
fewer goods at every possible price. This is shown as a movement
of the entire supply curve and is known as a change in supply. A
change in price does not cause this movement. What does cause
the entire supply curve to shift to the right (increase in supply) or
the left (decrease in supply)?
SECTION
SECTION 3,
3, Pages
Pages 186–192
186–192
Independent
Practice
L2 Writing Newspaper Articles
Have students conduct research into
an actual situation where a change in
a determinant of supply caused a
change in supply. Have them use
their findings to write a newspaper
article on how supply is affected by
input prices, technology, the number
of firms, or taxes. Encourage students to illustrate their articles with
supply schedules and curves.
BLOCK SCHEDULING ECON: 4A-B,
7A-B, 15A-B, 17A, 23A-C, 23F-G, 24D,
26A, 26D
The Determinants of Supply
Four of the major determinants of supply (not quantity supplied)
are the price of inputs, the number of firms in the industry, taxes,
and technology.
Price of Inputs
If the price of inputs—raw materials, wages,
and so on—drops, a producer can supply more at a lower production cost. This causes the supply curve to shift to the right. This situation occurred, for example, when the price of memory chips fell
during the 1980s and 1990s. More computers were supplied at any
given price than before. See Part A of Figure 7.9. In contrast, if the
cost of inputs increases, suppliers will offer fewer goods for sale at
every possible price.
A natural disaster in one part of
the world may have an impact on
supply elsewhere. An earthquake
that hit Taiwan in September 1999
severely disrupted that country’s
computer chip industry. The
resulting shortage led to increases
in chip prices—as much as 25 percent for some types of memory
chips. Almost immediately, several
American computer makers said
that the price increases would
have a negative effect on “product
availability”—or supply.
ECON: 5A-B, 7A, 12B, 13C
Number of Firms in the Industry As more firms enter an
industry, greater quantities are supplied at every price, and the supply curve shifts to the right. Consider the number of video rentals.
As more video rental stores pop up, the supply curve for video
rentals shifts to the right. See Part B of Figure 7.9.
Taxes
If the government imposes more taxes, businesses will
not be willing to supply as much as before because the cost of
production will rise. The supply curve for products will shift to
the left, indicating a decrease in supply. For example, if taxes on
silk increased, silk businesses would sell fewer quantities at each
and every price. The supply curve would shift to the left, as
shown in Part C of Figure 7.9.
technology: any use of land,
labor, and capital that produces
goods and services more
efficiently
190
Technology The use of science to develop new products and
new methods for producing and distributing goods and services
is called technology. Any improvement in technology will increase
supply, as shown in Part D. Why? New technology usually reduces
the cost of production. See Figure 7.10 on page 192.
CHAPTER 7
Understanding Shifts in the Supply Curve
Reproduce the following diagram and distribute copies to students. On each diagram, have
students draw arrows—indicating the direction of movement
of the supply curve—and the
new supply curve for each of
the following:
190
1. The supply curve for CDs if the price for raw
materials used in making CDs falls.
2. The supply curve for the “Winnie Widget”
toy after its producers introduce a new
assembly-line system.
3. The supply curve for CDs after the government cuts taxes on sales of CDs. In all
cases, supply curve shifts to the right.
CHAPTER 7
Determinants of Supply
FIGURE 7.9
SECTION
SECTION 3,
3, Pages
Pages 186–192
186–192
Changes in Supply Four major factors affect the
Price per Computer
A If Inputs Become Cheaper
$2,000
$1,500
$3.00
$2.50
$2.00
$1.50
S1
$1.00
$1,000
$500
1
S2
2
3
4
5
6
Quantity of Video Rentals Supplied
S1
S2
100
200
300
400
500
Quantity of Computers Supplied
C If Taxes Increase
$120
$90
$60
$30
S2
Part B Change in Supply if Number of Firms
Increases Overall supply will increase if the number of
firms in an industry grows. As profits from movie and
game rentals increased, for example, the number of video
stores supplying these items increased. With more video
stores, the supply curve for video rentals increased from
S1 to S2.
Price per Automobile (in $1,000s)
Part A Change in Supply if Price of Inputs Drops
Line S1 shows the supply of computers before the price of
memory chips fell. Line S2 shows the increased supply of
computers after the price of memory chips fell.
Price per Scarf
B If Number of Firms Increases
$3.50
Price per Video Rental
supply for a specific product. When supply changes, the
entire supply curve shifts to the left or the right.
S1
$35
D If Technology Improves Production
$30
$25
Have students compare Figure
7.9 with Part C of Figure 7.8.
ASK: How does the graphic representation of a change in supply
differ from the graphic representation of a change in the quantity supplied? A change in supply
is shown by a shift in the supply
curve, while a change in the quantity supplied is shown as movement
along the supply curve.
ECON: 7A-B, 23A, 23F
Meeting Lesson
Objectives
Assign Section 3 Assessment as
homework or an in-class activity.
Use Interactive Tutor SelfAssessment Software to review
Section 3.
$20
Section Quiz 7–3
Name
$15
$10
S1
T HE LAW OF SUPPLY AND THE
S2
300
1
400
500
Quantity of Scarves Supplied
Part C Change in Supply if Taxes Increase Line S1
indicates the supply of silk scarves before the government
raised taxes on this business. Line S2 equals the supply
after the government raised taxes.
3
SCORE
SUPPLY CURVE
Matching: Place a letter from Column B in the blank in Column A. (10 points each)
2
3
4
5
6
A
7
B
1. law of supply
2. quantity supplied
4. supply curve
Part D Change in Supply if Technology Reduces
Costs of Production Any improvement in technology
will increase supply—or move the supply curve to the
right from S1 to S2. Technology reduces the costs of
production, allowing suppliers to make more goods for
a lower cost.
Extending the Content
Productivity The productivity of the factors of production also can have an impact on
the supply of goods and services. For example, a motivated, well-trained workforce will
tend to be more productive. This would mean that more goods and services would be produced more efficiently. And this, in turn, would increase the supply of goods and services
in the market. On the other hand, an unmotivated and poorly trained workforce would be
less productive, causing a decrease in supply. ECON: 2B, 4B, 5A-B, 7A, 21A-B
a.
line that graphically shows the quantities supplied at
each possible price
b.
any use of land, labor, and capital that produces
goods and services more efficiently
c.
economic rule stating that price and quantity
supplied move in the same direction
d.
amount of a good or service that a producer is
willing and able to supply at a specified price
e.
table showing quantities supplied at different prices
3. supply schedule
5. technology
Multiple Choice: In the blank at the left, write the letter of the choice that best
completes the statement or answers the question. (10 points each)
6. According to the law of supply, as the price rises for a good,
a. quantity supplied decreases.
b. consumers stop buying it.
c. quantity supplied increases.
d. manufacturers stop producing it.
7. Prices on goods and services are determined
a. only by demand.
c. both by demand and supply.
Copyright © by The McGraw-Hill Companies, Inc.
200
Class
7,
Quantity of Autos Supplied (in 1,000s)
100
Date
b. only by supply.
d. neither by demand nor supply.
8. The relationship between price and quantity supplied is
a. a direct one.
b. an indirect one.
c. an inverse one.
d. nonexistent.
9. The law of diminishing returns results in
a. lower costs for expanding production.
b. additional workers increasing the total
output of goods.
c. higher costs for decreasing production.
d. higher costs for increasing production.
10. The use of technology to produce and distribute goods will
a. not affect supply.
b. increase supply.
c. decrease supply.
d. move the supply curve to the left.
Section Quiz
23
Student Edition TEKS
Page 190: 4A-B, 5A-B, 7A-B, 10A,
15A-B, 17A, 23F-G, 24A,
26A, 26D
Page 191: 4A-B, 5A-B, 7A-B, 10A,
15A-B, 17A, 23F-G, 24A,
26A, 26D
191
CHAPTER 7
The Law of Diminishing Returns
SECTION
SECTION 3,
3, Pages
Pages 186–192
186–192
Reteach
Encourage students to write a
poem or a riddle that illustrates
the relationship between price and
supply. ECON: 7A, 23A
You want to expand production. Assume you have 10 machines
and employ 10 workers. You hire an eleventh worker. CD production increases by 1,000 per week. When you hire the twelfth
worker, CD production might increase by only 900 per week.
There are not enough machines to go around, and perhaps workers are getting in each other’s way.
This example illustrates the law of diminishing returns.
According to this law, adding units of one factor of production
to all the other factors of production increases total output. After
a certain point, however, the extra output for each additional
unit hired will begin to decrease.
law of diminishing returns:
economic rule that says as more
units of a factor of production
(such as labor) are added to other
factors of production (such as
equipment), after some point total
output continues to increase but
at a diminishing rate
Reading Essentials and
Study Guide 7–3
Name
Date
Class
7,
3
For use with textbook pages 186–192
T
7.10
HE LAW OF SUPPLY AND THE SUPPLY CURVE
KEY TERMS
law of supply Economic rule that price and quantity supplied move in the same direction
quantity supplied The amount of a good or service that a producer will supply at a specific price
supply schedule Table showing quantities supplied at different possible prices
supply curve Upward-sloping line on graph that shows the quantities supplied at each possible price
technology Any use of land, labor, and capital that produces goods and services more efficiently
law of diminishing returns economic rule that says as more units of production (such as labor) are
added, total output increases at a diminishing rate
Technology In the early 1900s, improved technology for making automobiles drastically reduced the amount of time and other resources it took
to make many new automobiles.
Therefore, a larger supply of autos
was offered for sale at every price.
Practice and assess
DRAWING FROM EXPERIENCE
How many apple pies could you produce in your kitchen in two hours? The answer depends on
the size of your oven, among other things. If you had two ovens, you might double production,
but that would require more cooks. Increasing production always requires additional inputs.
Businesses increase production only when they foresee additional profits.
key skills with
Skillbuilder Interactive
Workbook, Level 2.
This section focuses on the law of supply and how it is affected by profits.
ORGANIZING YOUR THOUGHTS
Use the cause-and-effect diagram below to help you take notes as you read the summaries that
follow. Think about how the supply curve is affected by the following determinants of supply.
Copyright © by The McGraw-Hill Companies, Inc.
Cause
Effect
Price of inputs goes down
Number of firms in the industry increases
Taxes go up
Technology improves
3
READ TO LEARN
•
Introduction (page 186)
While consumers demand products at the lowest possible prices, producers seek the highest possible profits.
Study Guide
63
Understanding Key Terms
1. Define law of supply, quantity supplied, supply
schedule, supply curve, technology, law of
diminishing returns.
Discuss with students how supply helps to shape profits and
employment in a market economy.
ECON: 4A-B, 7A, 10A, 23A, 23D
Reviewing Objectives
Applying Economic Concepts
2. What does the law of supply state?
6. Supply List at least 10 costs of production if
you were to produce and distribute baseball
caps to local stores.
3. How does the incentive of greater profits affect
supply?
4. What do a supply schedule and a supply curve
show?
5. Graphic Organizer Create a diagram like the
one in the next column to explain the four determinants of supply.
192
Critical Thinking Activity
7. Synthesizing Information Assume that
you are a successful baseball cap maker.
Draw a graph that shows the various prices
and quantities supplied for your caps.
CHAPTER 7
1. All definitions can be found in the Glossary.
2. As the price of a product rises, the quantity
supplied rises. As the price falls, the quantity
supplied also falls.
3. Higher profits cause suppliers to produce more.
4. the direct relationship between price and supply
5. Four determinants of supply: price of inputs,
number of firms, taxes, and technology
192
Supply
6. Costs of production may include: price of
machines to make baseball caps, price of
materials used in baseball caps, price of packaging materials, price of transportation to distribute baseball caps, rent payments for offices
and factories, advertising costs, employee
wages, taxes, insurance.
7. Graphs will vary.
Critical
Thinking Skills
Critical Thinking Skills
Understanding Cause
and Effect
Understanding Cause
and Effect
Understanding cause and effect involves considering why an event occurred. A cause is the action or
situation that produces an event. What happens as a result of a cause is an effect.
• 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.”
• 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.
Learning the Skill
To identify cause-and-effect relationships, follow the
steps listed on the left.
Practicing the Skill
The classic cause-and-effect relationship in economics is between price and quantity demanded/quantity
supplied. As the price for a good rises, the quantity
demanded goes down and the quantity supplied rises.
1. Look at Figure A. What caused the big sale? What
is the effect on consumers?
2. Look at the demand curve for DVD systems in
Figure B. If the price is $5,000, how many will be
demanded per year? If the price drops to $1,000,
how many will be demanded per year?
Figure A
BIG SALE!
PRICES
SLASHED!
needs
Huge inventory
ake
m
to
to be sold
xt
ne
r
room fo
year’s model.
Practice and assess
key skills with
Skillbuilder Interactive
Workbook, Level 2.
Figure B
Price (in $1,000s)
• Identify two or more
events or developments.
Reinforcing Economic Skills 10
Name
Date
Class
10
U NDERSTANDING CAUSE AND EFFECT
Understanding cause and effect involves considering why an event occurred. A cause is the
action or situation that produces an event or outcome. What happens as a result of a cause is
an effect.
5
4
3
2
1
0
Use the following activity to guide
students in determining whether a
cause-and-effect relationship exists.
Ask students to imagine that a person sits on a certain park bench
each day for an hour and that a
squirrel approaches him or her. Ask
students to explain why the relationship they have pictured is coincidental rather than cause-and-effect.
Then ask them to suggest additional
information or events that might
establish a cause-effect relationship.
Students might suggest seeing the person feed the squirrel or seeing crumbs
drop from the person’s lunch bag.
ECON: 23A
Directions: Read the following passage, look for logical relationships between events, and answer the
questions that follow.
Following the stock market crash of 1929, consumer spending fell dramatically in the United States. Products sat unsold
on store shelves. Demand diminished and factories found themselves without orders. In response, manufacturers cut
back production, and were forced to layoff many workers in the process. As more and more workers lost their jobs,
consumer spending fell significantly. Economic conditions all over the country worsened as millions of men and women
lost their jobs.
Decisive action was needed, but President Herbert Hoover’s actions were insufficient to fix the situation. In 1932, an
election year, voters decided they wanted to give another person a chance and elected Hoover’s opponent, Franklin D.
Roosevelt.
Roosevelt immediately took drastic action. He created the Civil Works Administration (CWA), which put four million
Americans back to work in public works projects. During his administration, Congress also passed the Social Security
Act and increased taxes on the rich.
List five effects mentioned in this excerpt. Then list the cause of each.
Cause
1 2 3 4 5
Quantity demanded
(in millions)
Effects
1.
2
Application Activity
In your local newspaper, read an article describing a
current event. Determine at least one cause and one
effect of that event.
Demand and Supply
Glencoe Skillbuilder
Interactive Workbook,
Level 2
193
Answers to Practicing the Skill
1. The store is carrying a large inventory and needs to get rid of it to make way for next
year’s models. Effect on consumers is that they pay lower prices.
2. 1 million; 5 million
Application Activity Encourage students to share and discuss their cause-effect
charts.
Student Edition TEKS
Page 192: 2A, 4A-B, 7A-B, 10A,
12A-B, 23A-B, 23F-G,
24A, 26D
Page 193: 4A-B, 7A-B, 10A, 23A,
23F-G
193
CHAPTER 7
SECTION
SECTION 4,
4, Pages
Pages 194–199
194–199
4
Overview
Section 4 explains or describes
equilibrium price, shifts in equilibrium price, and how surpluses and
shortages affect price.
BELLRINGER
Motivational Activity
Project Daily Focus
Transparency 14 and have
students answer the questions.
This activity is also available
as a blackline master.
Copyright © by The McGraw-Hill Companies, Inc.
Answers
1. the point where supply and demand curves intersect 2. Despite its simplification,
it does an excellent job of representing complex, real-world behaviors.
Daily Focus Transparency 14
14
C
HANGES IN SUPPLY AND EQUILIBRIUM
“Rather amazingly, equilibrium is reached through
thousands of individual decisions. It is the price and
quantity levels to which the forces of the market
naturally gravitate. No one tells anyone else what
to do….
READER’S GUIDE
Terms to Know
• equilibrium price
• shortage
• surplus
• price ceiling
• rationing
• black market
• price floor
Reading Objectives
1. How is the equilibrium price
determined?
2. How do shifts in equilibrium
price occur?
3. How do shortages and surpluses affect price?
4. How do price ceilings and
price floors restrict the free
exchange of prices?
The bottom line is that we have to ask what
difference all of this makes since
[the supply-demand model]
obviously is a vast versimplification of our economic
behavior. The answer is
that the tendencies
[that] the graphs and
schedules portray really
are typical behaviors.”
KIPLINGER’S PERSONAL FINANCE MAGAZINE, NOVEMBER 2000
Whatever toy becomes this season’s Furby
will probably be in skimpy supply, thanks
to an industrywide shortage of the
electronic guts so vital to today’s playthings. So if you think your kids will be
clamoring for any of the potential hot
toys..., be sure to shop now (and find a
sneaky hiding place until December)....
...[As for] PlayStation 2, Sony’s
update of its popular video-game
console, ... “Shoppers shouldn’t wait
until Thanksgiving,” says Toy Wishes’ Jim Silver,
“given the huge shortage we’re expecting.”
W
hat do Furbys™, Beanie Babies™, Tickle Me Elmo™,
and Cabbage Patch Kids™ all have in common? At
one point in time, they all were in short supply—and
usually right before the Christmas holiday season. As you will
read, shortages occur when the quantity demanded is larger than
the quantity supplied at the current price.
— Elaine Schwartz, economist
1. In the supply-demand model, how is equilibrium indicated?
2. If the economic model of supply and demand is “a vast
oversimplification,” why do economists use it?
Equilibrium Price
Daily Focus Transparencies
In the real world, demand and supply operate together. As the
price of a good goes down, the quantity demanded rises and the
READER’S GUIDE
Answers to the Reading Objectives
questions are on page 199.
Preteaching Vocabulary
Have students write each of the
Terms to Know on one side of an
index card and the definitions on
the other. Then pair students and
have partners use their index
cards to quiz each other on the
meaning of the key terms.
ECON: 24A
Vocabulary PuzzleMaker
194
194
CHAPTER 7
SECTION 4
RESOURCE MANAGER
Reproducible Masters
Reproducible Lesson Plan 7–4
Reading Essentials and Study Guide 7–4
Guided Reading Activity 7–4
Section Quiz 7–4
Daily Focus Activity 14
Daily Lecture Notes 7–4
Multimedia
Daily Focus Transparency 14
Economic Concepts Transparency 8
Vocabulary PuzzleMaker CD-ROM
Interactive Tutor Self-Assessment Software
ExamView® Pro Testmaker
MindJogger Videoquiz
NBR’s Economics & You
Interactive Economics!
CHAPTER 7
Graphing the Equilibrium Price
$20
FIGURE 7.11
$18
Price per CD
Equilibrium Price In a
market economy, the forces
underlying demand and supply have a push-pull relationship that ultimately leads to
an equilibrium price. In our
particular example, this is $15
per CD. If the price were to
go above $15, the quantity
demanded would be less than
the quantity supplied. If the
price fell below $15 per CD,
the quantity demanded would
exceed the quantity supplied.
SECTION
SECTION 4,
4, Pages
Pages 194–199
194–199
$16
Guided Practice
Equilibrium Price
$14
$12
$10
S
100
D
300
500
700
900
1,100
Quantity of CDs (millions per year)
quantity supplied falls. As the price goes up, the quantity demanded
falls and the quantity supplied rises.
Is there a price at which the quantity demanded and the quantity supplied meet? Yes. This level is called the equilibrium price.
At this price, the quantity supplied by sellers is the same as the
quantity demanded by buyers. One way to visualize equilibrium
price is to put supply and demand curves on one graph, as shown
in Figure 7.11. Where the two curves intersect is the equilibrium
price. At that price, shown in the graph above, the quantity of CDs
that consumers are willing and able to purchase is 600 million per
year. And suppliers are willing to supply exactly that same amount.
L2 Analyzing Ideas Write the following list of items on the board:
wheat, calculators, gasoline, tickets
to concert. Have students work in
small groups to brainstorm reasons
why one of the items on the list
might experience changes in price
equilibrium. Ask group representatives to discuss these reasons.
Encourage them to illustrate their
discussions with drawings of supply
and demand curves. ECON: 7A-B,
10A, 23A-B, 23F, 24D
Daily Lecture Notes 7–4
equilibrium price: the price at
which the amount producers are
willing to supply is equal to the
amount consumers are willing
to buy
7-4
L
ECTURE LAUNCHER
Toy manufacturers rarely charge the equilibrium price for the season’s hottest toy. What is the
short-term result when demand exceeds supply?
PAGES 189–190
I. Equilibrium Price
A. In the real world, demand and supply work together.
B. The price at which the supply meets the demand—where the two curves intersect—is
the equilibrium price.
•
Discussion Question
What is the equilibrium price and why is it important? (The price at which supply and
demand meet; because it shows how the market works to establish prices.)
PAGE 195
II. Shifts in Equilibrium Price
A. If the demand curve shifts due to something other than price, the equilibrium price will
change.
B. If the supply curve shifts due to something other than price, the equilibrium price will
change.
Shifts in Equilibrium Price
•
What happens when there is an increase in the demand for CDs?
Assume that scientists prove that listening to more music increases
life span. This discovery will cause the entire demand curve to shift
outward to the right, as shown in Figure 7.12 on page 196.
What about changes in supply? You can show these in a similar
fashion. Assume that there is a major breakthrough in the technology of producing CDs. The supply curve shifts outward to the
right. The new equilibrium price will fall, and both the quantity
supplied and the quantity demanded will increase.
Demand and Supply
195
Meeting Special Needs
Speech Disabilities Have students research to find historic examples of how shortages
put pressure on prices to rise. Then have them deliver short speeches about their findings.
Students with speech disabilities may want to develop their speeches as a written assignment or have a classmate deliver the speeches they write. Encourage speechwriters to
direct their presenters so that their speeches are delivered in the way they wish them to
be heard. ECON: 4B, 5A, 7A, 10A, 23A, 23C, 24C-D
Refer to Inclusion for the Social Studies Classroom Strategies and Activities for
students with different learning styles.
Di
i
Q
ti
As students are studying
Figure 7.11, point out that economists say that the price system
acts as a form of communication
between consumers and producers. ASK: How does this communication take place? Most students
will suggest that if consumers
demand less than is supplied at a
particular price, then producers
know that they have to adjust prices.
ECON: 1B, 4B, 7A, 10A
Student Edition TEKS
Page 194: 3B, 5A, 7A, 10A, 15A,
21B, 23A, 24A
Page 195: 1B, 2B, 4A-B, 7A-B, 10A,
23A, 23F-G, 24A, 26A,
26D
195
Changes in Equilibrium Price
CHAPTER 7
SECTION
SECTION 4,
4, Pages
Pages 194–199
194–199
$20
FIGURE 7.12
$18
Date
When the supply or demand curves
shift, the equilibrium price also
changes. Note that the old equilibrium price was $15. But now the
new demand curve intersects the
supply curve at a higher price—$17.
What could happen if, instead,
scientists proved that listening to
music decreases life span?
Class
7-4
For use with textbook pages 194–199
P
UTTING DEMAND AND SUPPLY TOGETHER
RECALLING THE FACTS
Directions: Use the information in your textbook to answer the questions.
1. What happens as the price of a good decreases?
2. What is the equilibrium price?
3. How can economists visualize equilibrium price?
$16
Price per CD
Guided Reading Activity 7–4
Name
New
Equilibrium
Price
Change in Equilibrium Price
Old
Equilibrium
Price
$14
D2
$12
$10
4. How do prices serve as signals to producers and consumers?
Producers:
S
Consumers:
D1
5. When do a shortage or surplus of products occur?
Shortage:
Surplus:
6. How does the government control prices?
100
300
500
700
900
Quantity of CDs (millions per year)
ECONOMICS
& YOU
Prices Serve as Signals
Demand and Supply
!7it6"
In the United States and other countries with mainly free enterprise systems, prices serve as signals to producers and consumers.
Rising prices signal producers to produce more and consumers to
purchase less. Falling prices signal producers to produce less and
consumers to purchase more.
Chapter 7
Disc 1, Side 1
ASK: As the price of vacation
homes increases, what will
happen to the supply of and
demand for such properties?
The supply of homes will rise,
and the demand for such properties will fall.
shortage: situation in which the
quantity demanded is greater
than the quantity supplied at the
current price
Also available in VHS.
surplus: situation in which quantity supplied is greater than quantity demanded at the current price
Answer: Quantity demanded and
supplied would decrease, and the
price would fall.
196
Shortages
A shortage occurs when, at the current price, the
quantity demanded is greater than the quantity supplied. If the
market is left alone—without government regulations or other
restrictions—shortages put pressure on prices to rise. At a higher
price, consumers reduce their purchases, whereas suppliers
increase the quantity they supply.
Surpluses At prices above the equilibrium price, suppliers produce more than consumers want to purchase in the marketplace.
Suppliers end up with surpluses—large inventories
of goods—and this and other forces put pressure on
the price to drop to the equilibrium price. If the price
falls, suppliers have less incentive to supply as much
as before, whereas consumers begin to purchase a
greater quantity. The decrease in price toward the
equilibrium price, therefore, eliminates the surplus.
Shortage of Games
CHAPTER 7
Project Economic Concepts
Transparency 8 and have students
discuss the accompanying questions.
Cooperative Learning
Have students work in small groups to create a board game called “Supply and
Demand.” Give students the following directions: Choose six items you would like to sell in
a discount store. Write the name and a different quantity (1–10) of each item on the back of
index cards. Label five spaces on the game board to indicate determinants of increasing
demand. Label another five spaces to indicate decreasing demand. Stacks of cards can
indicate determinants that increase and decrease supply. Create rules to support the object
BLOCK SCHEDULING
of the game: to achieve the highest sales possible.
ECON: 7A
196
1,100
CHAPTER 7
Market Forces
One of the benefits of the market economy is
that when it operates without restriction, it eliminates shortages
and surpluses. Whenever shortages occur, the market ends up taking care of itself—the price goes up to eliminate the shortage.
Whenever surpluses occur, the market again ends up taking care of
itself—the price falls to eliminate the surplus. Let’s take a look at
what happens to the availability of goods and services when the
government—not market forces—becomes involved in setting prices.
SECTION
SECTION 4,
4, Pages
Pages 194–199
194–199
Independent
Practice
Price Controls
Why would the government get involved in setting prices? One
reason is that in some instances it believes the market forces of supply and demand are unfair, and it is trying to protect consumers
and suppliers. Another reason is that special interest groups use
pressure on elected officials to protect certain industries.
Price Ceilings
A price ceiling is a government-set maximum
price that can be charged for goods and services. Imagine trying
to bring a 12-foot tree into your house that has 8-foot ceilings.
The ceiling prevents the top of the tree from going up. Similarly, a
price ceiling prevents prices from going above a specified amount.
For example, city officials might set a price ceiling on what landlords can charge for rent. As Part A of Figure 7.13 on page 198
shows, when a price ceiling is set below the equilibrium price, a
shortage occurs.
Effective price ceilings—and resulting shortages—often lead to
nonmarket ways of distributing goods and services. The government may resort to rationing, or limiting, items that are in short
supply. A policy of rationing is expensive, however. Taxpayers
must pay the cost of printing ration coupons, setting up offices
to distribute the coupons, and maintaining the bureaucracy
involved in enforcing who gets how much of the rationed goods.
Shortages also may lead to a black market, in which illegally
high prices are charged for items that are in short supply. As
Figure 7.14 on page 199 shows, items often sold on the black
market include tickets to sporting events.
price ceiling: a legal maximum
price that may be charged for a
particular good or service
rationing: the distribution of
goods and services based on
something other than price
black market: “underground” or
illegal market in which goods are
traded at prices above their legal
maximum prices or in which illegal goods are sold
Ration Coupons
Surplus Cheese
L2 Writing Editorials ASK: Should
the prices of any goods and services
be fixed in a market economy? Give
the students a set period of time to
organize their ideas on this subject.
Then ask them to write a newspaper
editorial supporting or opposing
fixed prices. Call on volunteers to
read their editorials to the class.
ECON: 3B, 4A-B, 7A, 10A, 15A-B, 23A,
23C-D, 24D
Economic Connection
to... History
Wage and Price Controls
In the early 1970s, stagflation
wracked the American economy.
To combat this economic slowdown accompanied by high inflation, President Richard Nixon
imposed a 90-day wage and price
freeze. At the end of this period,
he set ceilings on annual wage
and price increases—5.5 percent
for wages and 2.5 percent for
prices. These measures helped to
stabilize the economy. However,
when the ceilings were lifted in
1973, prices rose sharply. As a
result, President Nixon imposed
new wage and price controls.
These controls, in one form or
another, remained in place until
1981, when President Ronald
Reagan repealed them.
ECON: 3B, 7A, 10A, 15A-B, 19C, 21A-B
Critical Thinking Activity
Cause and Effect Shortages and surpluses are signals that the market sends to producers of goods and services. A shortage or surplus can be viewed as the initial event in a
series of cause-effect relationships that result in a change in supply. Ask students to detail
the cause-effect events of a shortage. Shortage occurs, retailers attempt to obtain more
product from wholesalers, wholesalers seek producers to supply additional product, new
producers enter the market offering additional product at higher price. Higher price is
passed on to consumer. ECON: 1B, 2B, 4B, 7A, 10A, 23A, 23D
Student Edition TEKS
Page 196: 1B, 2B, 4A-B, 5A, 7A,
10A, 23A, 23F-G, 24A
Page 197: 3B, 4A-B, 7A, 10A,
15A-B, 24A
197
CHAPTER 7
SECTION
SECTION 4,
4, Pages
Pages 194–199
194–199
Price Floors
A price floor, in contrast, is a government-set
minimum price that can be charged for goods and services. Price
floors—more common than price ceilings—prevent prices from
dropping too low. When are low prices a problem? Assume that
about 30 of your classmates all want jobs after school. The local
fast-food restaurant can hire 30 students at $4.15 an hour, but the
government has set a minimum wage—a price floor—of $5.15 an
hour. Some of you will get hired, and you’ll happily earn $5.15 an
hour. Not all of you will get hired at that wage, however, which
leads to a surplus of unemployed workers as shown in Part B of
Figure 7.13. If the market were left on its own, the equilibrium
price of $4.15 per hour would have all of you employed.
Besides affecting the minimum wage, price floors have been
used to support agricultural prices. If the nation’s farmers have a
bumper crop of wheat, for example, the country has a huge surplus of wheat. The market, if left alone, would take care of the
price floor: a legal minimum
price below which a good or service may not be sold
LESSON 5:
PRICE DETERMINATION
Have students click on “Prices
as Signals.” Then have them quiz
a partner on the way prices act
as signals to consumers and
producers.
Supplied in both CD-ROM and
disk formats.
FIGURE 7.13
Answer to Part B: 2 million
Price Ceilings and Price Floors
A Price Ceiling on Rent
$1,000
workers
B Price Floor on Wages
D
$7.15
S
Meeting Lesson
Objectives
UTTING DEMAND AND
SUPPLY TOGETHER
Price Ceiling
Shortage
Quantity Demanded
= 2 million
$5.15
Quantity Supplied
= 2 million
Quantity Demanded
= 4 million
Quantity Supplied
= 4 million
Surplus
Price Floor
$4.15
$3.15
Equilibrium Price
$2.15
S
1
Class
7,
P
$700
$500
Section Quiz 7–4
Date
Equilibrium Price
$800
$600
Assign Section 4 Assessment as
homework or an in-class activity.
Use Interactive Tutor SelfAssessment Software to review
Section 4.
Name
$6.15
Hourly Wage
Monthly Rent
$900
4
SCORE
2
3
4
5
6
D
1
2
3
4
5
Quantity of Workers (in millions)
Part A Price Ceiling More people would
like to rent at the government-controlled
price, but apartment owners are unwilling
to build more rental units if they cannot
charge higher rent. This results in a shortage
of apartments to rent.
Part B Price Floor The fast-food restaurant
business wants to hire students at $4.15 an
hour, but the government has set a minimum
wage—a price floor—of $5.15 an hour. What
is the surplus of workers with a price
floor of $5.15 per hourly wage?
Matching: Place a letter from Column B in the blank in Column A. (10 points each)
A
198
B
1. equilibrium price
2. shortage
a.
situation in which the quantity supplied is greater
than the quantity demanded
b.
distribution of goods and services based on
something other than price
c.
price at which the amount producers are willing to
supply is equal to the amount consumers are willing
to buy
d.
illegal market in which goods are traded at prices
above their legal maximum prices
e.
situation in which the quantity demanded is greater
than the quantity supplied
3. surplus
4. rationing
5. black market
Multiple Choice: In the blank at the left, write the letter of the choice that best
completes the statement or answers the question. (10 points each)
6. When quantity supplied and quantity demanded increase due to improved technology,
a. manufacturers will stop making the product.
b. prices will increase.
c. consumers will stop buying the product.
d. prices will decrease.
7. A decrease in the demand for a good together with an increase in supply would cause
198
6
Quantity of Apartments (in millions)
CHAPTER 7
Free Enterprise Activity
Encourage students to bring to class items—such as books, CDs, and audiocassettes—that they would like to sell. (If students would prefer not to sell items, they might
trade them and then return them at the end of the activity.) Have students “set up shop”
with one or more partners to offer their goods for sale. Have partners set initial prices on
their goods and try to sell them. After a set period of “selling time,” have partners review
their sales and, if necessary, adjust their prices. Hold a second period of selling time.
Once again, have partners review their sales and prices. In a follow-up discussion, have
partners talk about how they came to their pricing decisions. ECON: 4A-B, 7A, 23A, 25B
CHAPTER 7
7.14
SECTION
SECTION 4,
4, Pages
Pages 194–199
194–199
Black Market Scalpers selling highpriced, limited tickets—such as these tickets to a World Cup Soccer match—are part
of the black market. How do price ceilings on tickets to sporting events lead
to shortages?
surplus by having the price drop. As prices decrease, remember,
quantity supplied decreases and quantity demanded increases. But
the nation’s farmers might not earn enough to make a profit or
even pay their bills if the price drops too much. So the government
sometimes sets a price floor for wheat, which stops the price per
bushel from dropping below a certain level. The farmers know
this, so instead of reducing their acreage of wheat—which would
reduce the surplus—they keep producing more wheat.
Answer: Because price ceilings pre-
vent prices from going too high, producers do not want to supply large
amounts of goods or services on
which they can gain few profits. A
reduced supply leads to a shortage.
Reteach
Practice and assess
key skills with
Skillbuilder Interactive
Workbook, Level 2.
Have students use the Terms to
Know to write a paragraph explaining how equilibrium price is
attained.
ECON: 4A-B, 7A, 10A, 23A, 24D
Reading Essentials and
Study Guide 7–4
4
Name
Date
Class
7,
4
For use with textbook pages 194–199
Understanding Key Terms
Applying Economic Concepts
1. Define equilibrium price, shortage, surplus,
price ceiling, rationing, black market, price floor.
6. Shortages Explain how a shortage of professional sports tickets determines the general
price of those tickets.
P
KEY TERMS
equilibrium price the price at which quantity demanded and quantity supplied meet (page 195)
shortage condition that occurs when quantity demanded is greater than quantity supplied (page 196)
surplus condition that occurs when quantity demanded is less than quantity supplied (page 196)
price ceiling a government-set maximum price (page 197)
rationing limiting distribution of items that are in short supply (page 197)
black market an illegal market in which high prices are charged for items in short supply (page 197)
price floor government-set minimum price (page 198)
Reviewing Objectives
2. How is the equilibrium price determined?
3. How do shifts in equilibrium price occur?
4. Graphic Organizer Create a diagram like the
one below to show how shortages and surpluses affect prices.
Shortage
Impact
on Prices
Supply
5. How do price ceilings and price floors restrict
the free exchange of prices?
Critical Thinking Activity
1. All definitions can be found in the Glossary.
2. Equilibrium price is located where demand and
supply curves intersect.
3. Equilibrium price changes occur when supply
or demand curves shift.
4. Shortages cause prices to rise, surpluses
cause prices to fall.
5. They prevent prices from finding an equilibrium
between the quantity demanded and supplied.
DRAWING FROM EXPERIENCE
7. Understanding Cause and Effect Draw
a series of three graphs.
• The first graph should show an equilibrium
price for sunglasses.
• The second graph should show the shift
that would occur if research proved wearing
sunglasses increased I.Q.
• The third graph should show the shift that
would occur if research proved that wearing
sunglasses caused acne. For help in using
graphs, see page xv in the Economic
Handbook.
Demand and Supply
UTTING SUPPLY AND DEMAND TOGETHER
199
6. Shortages cause prices to rise; therefore, a
shortage of sports tickets will cause their price
to rise.
7. First graph should be a standard equilibrium
price graph. Second graph should show an
increase in equilibrium price; third graph should
show a decrease.
How much would you expect to pay for a banana? One cent? One dollar? You realize that one
cent is too low and one dollar is too high. Why do bananas and other goods sell within a narrow
range of prices? The forces of demand and supply tend to create an equilibrium price.
ORGANIZING YOUR THOUGHTS
Use this graph to plot quantities demanded and supplied of a product of your choice in a range
of prices. Then label the equilibrium price.
Have students create a visual representation that illustrates equilibrium. You might suggest a set of
scales in balance—with “supply”
written in one scale and “demand”
written in the other—as an example.
ELL ECON: 4A-B, 7A, 10A, 23A, 24D
Student Edition TEKS
Page 198: 3B, 7A-B, 10A, 15A-B,
21A-B, 23A, 23F-G, 24A
Page 199: 3B, 4A-B, 7A-B, 10A,
15A-B, 21A-B, 23A-B,
23F, 24A
199
Background
Alfred Marshall was the most
influential economist of his time. In
developing the theory of supply
and demand, he reconciled classical
economists, who believed that production controlled price, and contemporary economists, who
claimed that demand set prices.
Marshall believed that free competition and private enterprise would
lead to better social conditions and
full employment. ECON: 4A-B, 7A, 19A
Have volunteers read aloud paragraphs of the quoted excerpts from
Marshall’s Elements of Economics.
Then have students paraphrase the
paragraphs by writing a topic sentence for each. Finally, direct students to answer the questions in
Checking for Understanding.
You might have students read
additional chapters in Elements of
Economics and report on Marshall’s
theory of welfare economics.
ECON: 23A
Alfred Marshall
ECONOMIST (1842–1924)
A
■
Began career as a
mathematician
■
Chaired political
economy at
Cambridge
University, England
■
Developed supply
and demand
analysis
■
Published Principles
of Economics (1890)
and Elements of
Economics (1892)
lfred Marshall is known
for introducing the concept
of supply and demand analysis
to economics. The following
excerpt from Elements of Economics explains the concept of
equilibrium:
“
The simplest case of balance,
or equilibrium, between desire and
effort is found when a person satisfies one of his wants by his own
direct work. When a boy picks
blackberries for his own eating, the
action of picking may itself be
pleasurable for a while. . . .
Equilibrium is reached, when at
last his eagerness to play and his
disinclination for the work of picking counterbalance the desire for
eating. The satisfaction which he
can get from picking fruit has
arrived at its maximum. . . .
”
Marshall also explained how
equilibrium is established in a
local market. Buyers and sellers,
having perfect knowledge of the
market, freely compete for their
own best interests. In so doing
they arrive at a price that exactly
equates supply and demand.
“
. . . [A price may be] called
the true equilibrium price: because
if it were fixed on at the beginning,
and adhered to throughout, it
would exactly equate demand and
supply. (i.e. the amount which buyers were willing to purchase at that
price would be just equal to that
for which sellers were willing to
take that price). . . .
In our typical market then we
assume that the forces of demand
and supply have free play; that
there is no combination among
dealers on either side; but each acts
for himself, and there is much free
competition; that is, buyers generally compete freely with buyers, and
sellers compete freely with sellers.
”
Checking for Understanding
1. What does Marshall mean by “equilibrium between desire and effort”?
2. What is an equilibrium price?
200
Answers to Checking for Understanding
1. Answers will vary but should indicate the point at which satisfaction created by effort
has arrived at its maximum. Students should note that at this point, additional effort
takes away from the pleasure of attaining the desire.
2. An equilibrium price is a price that is fixed at the beginning and adhered to throughout marketing. It equates supply and demand.
200
CHAPTER
CHAPTER 7
7
•
Chapter Overview Visit the Economics
Today and Tomorrow Web site at tx.ett.glencoe.com
and click on Chapter 7— Chapter Overviews to
review chapter information.
SECTION 1
Demand
•
Demand represents a consumer’s willingness and
ability to pay.
•
The law of demand states as price goes up, quantity demanded goes down. As price goes down,
quantity demanded goes up.
•
Factors explaining the inverse relationship between
quantity demanded and price include the real
income effect, the substitution effect, and
diminishing marginal utility—or how one’s additional satisfaction for a product lessens with each
additional purchase of it.
SECTION 2
The Demand Curve and
Elasticity of Demand
If a price change does not result in much of a
change in the quantity demanded, that demand
is considered inelastic.
SECTION 3
•
ECONOMICS
& YOU
Demand and Supply
!7it6"
The Law of Supply and
the Supply Curve
Also available in VHS.
The law of supply states as the price rises for a
good, the quantity supplied also rises. As the price
falls, the quantity supplied falls.
•
The upward-sloping supply curve shows this direct
relationship between quantity supplied and price.
•
Four factors determine supply in a market economy. These include the price of inputs, the number
of firms in the industry, taxes, and technology.
SECTION 4
Putting Supply and
Demand Together
•
In free enterprise systems, prices serve as signals
to producers and consumers.
•
The point at which the quantity demanded and the
quantity supplied meet is called the equilibrium
price.
•
A shortage causes prices to rise, signaling producers to produce more and consumers to purchase
less.
•
The downward-sloping demand curve signifies that
as the price falls, the quantity demanded increases.
•
Changes in population, income, tastes and preferences, and the existence of substitutes, or complementary goods, affect demand.
•
A surplus causes prices to drop, signaling producers to produce less and consumers to purchase
more.
•
The price elasticity of demand is a measure of
how much consumers respond to a price change.
•
•
If a small change in price causes a large change in
quantity demanded, the demand for that good is
said to be elastic.
A price ceiling, which prevents prices from going
above a specified amount, often leads to shortages
and black market activities.
•
A price floor prevents prices such as a minimum
wage from dropping too low.
Demand and Supply
Chapter 7
Disc 1, Side 1
201
Use the Chapter 7 Summary to
preview, review, condense, or
reteach the chapter.
Preview/Review
Vocabulary PuzzleMaker
CD-ROM reinforces the key terms
used in Chapter 7.
Interactive Tutor Self-Assessment Software allows students to
review Chapter 7 content.
Condense
Have students listen to the
Chapter 7 Audio Program (also
available in Spanish) in the TCR.
Assign the Chapter 7 Audio Program
Activity and give students the Chapter 7 Audio Program Test.
Reteach
Have students complete Reteaching Activity 7 in the
TCR (Spanish Reteaching Activities
are also available).
Economics Journal
Voluntary Exchange In American retail stores, consumers may either accept the posted
price or decide to shop for a better price elsewhere. However, in certain markets—used
cars for example—buyer and seller usually must agree on the price. Have students keep
journal entries of the various advertised prices of a few selected makes and model years
of used cars over a period of two weeks. Ask students to write a few lines in answer to the
following: What risks do buyer and seller each assume when the buyer must “make an
offer”? ECON: 1B, 4A-B, 10A, 23A, 23D
Student Edition TEKS
Page 200: 7A, 10A, 19A, 23A
Page 201: 1B, 2B, 3B, 4A-B, 5A-B,
7A, 10A, 15A-B, 21A-B,
24A, 26A, 26D
201
CHAPTER 7
7
Assessment and Activities
Have students visit the
Economics Today and Tomorrow
tx.ett.glencoe.com to
Web site at ett.glencoe.com
review Chapter 7 and take the
Self-Check Quiz.
Self-Check Quiz Visit the Economics
Today and Tomorrow Web site at tx.ett.glencoe.com
and click on Chapter 7— Self-Check Quizzes to
prepare for the Chapter Test.
MindJogger Videoquiz
Use MindJogger to review
Chapter 7 content.
Identifying Key Terms
Write a short paragraph about demand using
all of the following terms.
law of demand
quantity demanded
■ law of diminishing marginal utility
■ real income effect
■ substitution effect
■ demand curve
■ price elasticity of demand
■
■
Identifying Key
Terms
1. Paragraphs will vary.
2. Paragraphs will vary.
Recalling Facts
and Ideas
1. voluntary exchange
2. quantity demanded falls
3. real income effect; substitution
effect
4. The demand curve moves to the
right.
5. Elastic demand means consumers are more responsive to
price changes. Inelastic means
they are less responsive.
6. Demand curves shift to the
right.
7. more, to take advantage of
increased profits
8. Supply curve would shift to the
left.
9. There is a surplus.
10. There is a shortage.
202
Write a short paragraph about supply using all
of the following terms.
law of supply
law of diminishing returns
■ supply curve
■ shortage
■ equilibrium price
■ surplus
2. What generally happens to quantity
demanded when the price of a good goes
up (and other prices stay the same)?
3. When the price of a good changes, what
effects tend to create the law of demand?
Section 2
4. How do we show in a graph an increase
in the demand for a good?
5. What is the distinction between elastic
and inelastic demand?
6. If income and population increase, what
tends to happen to demand curves?
Section 3
7. Do suppliers tend to produce less or
more when the price goes up? Why?
8. What would an increase in taxes do to
the position of the supply curve?
Section 4
9. If the price of a product is above its equilibrium price, what is the result?
10. If the price of a product is below its equilibrium price, what is the result?
■
■
Recalling Facts and Ideas
Section 1
1. What is the basis of most activity in a market economy?
202
CHAPTER 7
Thinking Critically
1. Answers will vary. Students should offer
reasons in support of their answers.
2. Demand for CDs, a luxury, is elastic.
Demand for insulin, a necessity for diabetics, is inelastic.
3. Predictions will vary.
Thinking Critically
1. Making Generalizations To what extent do
you think the law of demand applies in
the world around you? Are there any
goods or services that you think do not
follow the law of demand? Explain.
2. Making Comparisons If you had to guess
the relative price elasticities of demand for
CDs compared to that of insulin needed
by diabetics, what would you state?
3. Making Predictions Technology has
decreased the cost of producing goods
and services. Create a chart like the one
below and list four goods or services that
you think will be changed by technology
in your lifetime. Explain how you think
each change will affect your life.
Technological Change
habits? (c) Was the change caused by a
change in income, a change in tastes and
preferences, or a change in the price of substitutes or complements? Summarize the
information you obtained by placing it in
a spreadsheet.
Reviewing Skills
Effect on My Life
Understanding Cause and Effect Look at the
graph below, then answer the questions that
follow.
1. How many pounds of beef are supplied at
$1.89 per pound?
2. How many pounds are supplied at $2.69
per pound?
3. What can you infer as the cause-and-effect
relationship here?
1.
2.
3.
4.
Applying
Economic Concepts
Cooperative
Learning Project
Working in groups of four, each group
will interview a local merchant. Ask the following questions and others you think are
relevant: What determines the prices you
charge? What determines when you change
prices? Are there any costs to you of changing
prices (such as reprinting price lists)? One
person in each group should write a summary of the interview. Then compare these
summaries.
Technology
Activity
Using a Spreadsheet Interview 10 students
in the school, asking the following questions: (a) What three purchases have you
made recently? (b) Do any of these purchases represent a change in your buying
$2.70
Beef Price (per pound)
Supply and Demand Some prices change in
our economy very seldom, whereas others
change all the time, even daily. Make a list
of products whose prices change slowly,
if at all. Make another list of products
whose prices you think change quickly.
$ 2.69
$2.60
CHAPTER 7
Assessment and Activities
Technology Activity
Encourage students to compare
their spreadsheets.
Reviewing Skills
1. 1,000,000 pounds
2. 6,000,000 pounds
3. Rising prices cause producers to
supply more beef.
Analyzing the
Global Economy
Students might combine their
articles in a class scrapbook.
$2.50
$2.40
Chapter Bonus
Test Question
$ 2.39
$2.30
$2.20
$2.10
$ 2.09
$2.00
$ 1.89
1,000
$ 1.99
2,500
3,500
4,000
6,000
Quantity Supplied (thousands of pounds)
ASK: In the American economy,
what forces other than supply
and demand help to set prices?
government regulations, such as
price ceilings and floors
ECON: 3B, 15A-B
Clip articles from newspapers or magazines that show the laws of supply and/or
demand operating in other parts of the
world. Possibilities would be weather damages to crops and economic conditions affecting housing starts, and so on.
Demand and Supply
203
Applying Economic
Concepts
Cooperative Learning
Project
Answers will vary, but students may note
that the price of housing usually changes
slowly, whereas the prices of other countries’
currencies change every day and, in fact,
change every second.
Students might present their summaries in
the form of a feature article about the merchant and his or her business.
Student Edition TEKS
Page 202: 4A-B, 7A-B, 10A, 15A-B,
17A, 23A, 23D, 24A-B
Page 203: 2B, 4A-B, 7A-B, 10A-B,
11A, 12B, 23A, 23C-D,
23F-G, 24A-D, 26A-B,
26D
203
Demand for Oil
Tell students that the Middle
East contains more than half of the
world’s known oil reserves. (In contrast, the United States has only
2 percent of the world’s supplies.)
However, the region accounts for
only about one-third of the world’s
oil production. This is because the
Organization of Petroleum
Exporting Countries (OPEC)—the
oil cartel—exercises considerable
control over production in the
region. ECON: 7A, 12A-B
Americans demand oil for many purposes, but mostly as a fuel
for their automobiles. About 193 million vehicles burn 122 billion gallons of gasoline a year. Domestic
supplies meet about half of the demand for oil. The map below shows where we get the rest.
Canada supplies
13 percent
Direct students to study the map
annotations and to note the sources
of the oil consumed in the United
States. Then discuss the significance of U.S. dependence on foreign oil. ASK: What events could
obstruct the flow of foreign oil to
the United States? How would that
affect the American economy?
Students may suggest that political
unrest, wars, terrorism, and changing
trade relations all might interrupt the
flow of imported oil. This could disrupt activity in the United States
economy, because nearly half of the
country’s oil consumption is met by
foreign sources. ECON: 7A, 12B, 13C,
21A
Mexico supplies
11 percent
Caribbean Nations
supply 4 percent
(Leading Sources: Virgin
Islands, Trinidad and Tobago,
Netherlands Antilles)
South America
supplies 24 percent
(Leading Sources: Venezuela,
Colombia, Argentina)
On average, a barrel holding 42 gallons of
crude oil produces 21 gallons of gasoline.
204
Teacher’s Notes
204
Have students answer the
Thinking Globally questions.
Have students assume that they
are experts assigned to study the
United States’s dependence on foreign oil. Ask them what recommendations they might make to the
government to protect the country
from oil shortages due to a disruption of the flow of foreign oil.
ECON: 7A, 12B, 15A, 23A, 23D
Europe supplies
7 percent
(Leading Sources: Great
Britain, Norway, Belgium)
Persian Gulf Region
supplies 23 percent
(Leading Sources: Saudi
Arabia, Iraq, Kuwait)
Asia and Oceania
supply 3 percent
(Leading Sources: Australia,
Indonesia, Brunei)
The United States accounts
for only about 5 percent of the
world’s population. However, it
consumes close to 25 percent of
the world’s oil.
Africa supplies
15 percent
(Leading Sources: Nigeria,
Angola, Algeria)
Thinking Globally
1. Which region of the world is the largest source for American oil imports?
2. What percentage of American oil imports do Canada and Mexico provide?
205
Answers to Thinking Globally
1. South America
2. 24 percent
Student Edition TEKS
Page 204: 7A, 12B, 13C, 23A,
23F-G
Page 205: 7A, 12B, 13C, 23A,
23F-G
205