Presentation Plus! Economics: Principles and Practices
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CHAPTER INTRODUCTION
SECTION 1 What Is Demand?
SECTION 2 Factors Affecting Demand
SECTION 3 Elasticity of Demand
CHAPTER SUMMARY
CHAPTER ASSESSMENT
3
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Economics and You
In Chapter 4, you will learn that demand
is more than a desire to buy something: it
is the ability and willingness to actually
buy it.
Click the Speaker button
to listen to Economics
and You.
4
Study Guide
Main Idea
Demand is a willingness to buy a product at a
particular price. 
Reading Strategy
Graphic Organizer As you read this section,
use a graphic organizer like the one found on
page 89 of your textbook to note characteristics
of demand.
5
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information. Section 1 begins on page 89 of your textbook.
Study Guide (cont.)
Key Terms
– demand 
– microeconomics 
– demand schedule 
– demand curve 
– Law of Demand 
– marginal utility 
– diminishing marginal
utility
6
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information. Section 1 begins on page 89 of your textbook.
Study Guide (cont.)
Objectives
After studying this section, you will be able to: 
– Describe and illustrate the concept of
demand. 
– Explain how demand and utility are related.
Click the Speaker button to
listen to the Cover Story.
7
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information. Section 1 begins on page 89 of your textbook.
Introduction
• Only those people with demand – the
desire, ability, and willingness to buy a
product – can compete with others who
have similar demands. 
• Demand is a microeconomic concept. 
• Microeconomics is the area of economics
that deals with behavior and decision
making by small units, such as individuals
and firms.
8
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An Introduction to Demand
• In a market economy people and firms
act in their own best interests to answer
the WHAT, HOW, and FOR WHOM
questions. 
• Knowledge of demand is important for
sound business planning. 
• How much people are willing to pay
for a product is determined by
demand.
9
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The Individual Demand Schedule
4.1
• A demand schedule Figure
The Demand for Compact Discs
is a listing that
shows the various
quantities demanded
of a particular
product at all prices
that might prevail in
the market at a given
time.
10
The Individual Demand Curve
• The information found in a demand
schedule can also be shown graphically
as a downward-sloping line on a graph. 
• Transfer the price-quantity observations
in the demand schedule to a graph, and
then connect the points to form the curve.
11
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The Individual Demand Curve (cont.)
• Economists call this
the demand curve,
a graph showing
the quantity
demanded at each
and every price that
might prevail in the
market.
12
Figure 4.1
The Demand for Compact Discs
The Law of Demand
• The Law of Demand states that the
quantity demanded of a good or service
varies inversely with its price. 
– When the price goes up, quantity demanded
goes down. 
– When the price goes down, quantity demanded
goes up.
•Notice that we are speaking about how
price affects demand; not how demand
affects price.
13
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Demand and Marginal Utility
• Economists use the term utility to describe
the amount of usefulness or satisfaction
that someone gets from the use of a
product. 
• Marginal utility is the extra usefulness or
satisfaction a person gets from acquiring
or using one more unit of a product. 
• The reason we buy something in the first
place is because we feel the product is
useful and that it will give us satisfaction.
14
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Demand and Marginal Utility (cont.)
• As we use more and more of a product,
we encounter the principle of
diminishing marginal utility. 
• This is the idea that the extra
satisfaction we get from using additional
quantities of the product decreases. 
• Because of our diminishing satisfaction,
we are not willing to pay as much for the
second, third, fourth, and so on, as we did
the first.
15
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POP
QUIZ !
16
Section Assessment (cont.)
Describe the relationship between the
demand schedule and demand curve.
Both provide information about
demand–the schedule in the form of
a table and the curve in the form of a
graph.
17
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Section Assessment (cont.)
Match the following words to their
corresponding meaning:
Diminishing
Extra
Marginal
Decreasing
Utility
Satisfaction
Diminishing = Decreasing
Marginal = Extra
Utility = Satisfaction
18
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Study Guide (cont.)
Key Terms
– change in demand 
– substitutes 
– complements
20
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information. Section 2 begins on page 95 of your textbook.
Study Guide (cont.)
Objectives
After studying this section, you will be able to: 
– Explain what causes a change in quantity
demanded. 
– Describe the factors that could cause a
change in demand.
Click the Speaker button to
listen to the Cover Story.
21
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information. Section 2 begins on page 95 of your textbook.
Change in Demand
• Sometimes something happens to cause
the demand curve to shift. 
• This is known as a change in demand
because people are now willing to buy
different amounts of the product at the
same prices. 
• As a result, the entire demand curve
shifts– to the right to show an increase in
demand or to the left to show a decrease
in demand for the product.
22
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Change in Demand (cont.)
• Therefore, a change in demand results in
an entirely new curve. 
• When the demand curve changes, a new
schedule or curve must be constructed to
reflect the new demand at all possible
prices. 
23
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Figure 4.4
A Change in Demand
Consumer Income
• Change in consumer income can cause
a change in demand. 
• When your income goes up, you can
afford to buy more goods and services. 
• As incomes rise, consumers are able to
buy more products at each and every
price. 
• When this happens, the demand curve
shifts to the….
•RIGHT
25
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Consumer Income (cont.)
• Exactly the opposite could happen if
there was a decrease in income. 
• The demand curve then shifts to the left,
showing a decrease in demand.
26
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Consumer Tastes
• Consumers do not always want the same
things. 
• Advertising, news reports, fashion trends,
the introduction of new products, and
even changes in the season are things
that can affect consumer tastes. 
• If consumers want more of an item, they
would buy more of it at each and every
price. 
• As a result, the demand curve shifts to the
right.
27
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Consumer Tastes (cont.)
• If people get tired of a product, they will
buy less at each and every price, causing
the demand curve to shift to the left. 
28
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Substitutes
• A change in the price of related products
can cause a change in demand. 
• Some products are known as substitutes
because they can be used in place of
other products. 
• In general, the demand for a product
tends to •Increase
_________ if the price of its
substitute goes up. 
• The demand for a product tends to
decrease if the price of its substitute goes
down.
29
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Complements
• Other related goods are known as
complements, because the use of one
increases the use of the other. 
• Personal computers and _______
software are two
complementary goods. 
•TV’s and _____________
remote controls
30
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Change in Expectations
• “Expectations” refers to the way people
think about the future. 
• For example, suppose that a leading
maker of audio products announces a
technological breakthrough that would
allow more music to be recorded on a
smaller disk at a lower cost than before. 
• Even if the new product might not be
available for another year, some
consumers might decide to buy fewer
music CDs today simply because they
want to wait for a better product.
31
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Change in Expectations (cont.)
• Purchasing less at each and every price
would cause demand to decline, which is
illustrated by a shift of the demand curve to
the left. 
• If future shortages of a product are
predicted, what would happen to
demand?
This might cause demand to increase,
which is demonstrated by a shift of the
demand curve to the right.
32
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Section Assessment (cont.)
Explain how a change in price
affects the demand for a product’s
substitute(s).
The demand for a product tends to
increase if the price of its substitutes
goes up, and vice versa.
33
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Section Assessment (cont.)
Change in Demand Name a product
that you recently purchased because it
was on sale. Identify one substitute
and one complement for that product.
34
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Section Assessment (cont.)
Understanding Cause and Effect
What happens to the price and the
quantity of goods and services sold
when a store runs a sale? How do
these factors relate to the downwardsloping curve?
A reduction in prices during a sale
leads to an increase in quantity of
products sold. The downward slope
of the demand curve reflects these
trends as prices decrease and
quantity increases.
35
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Section 1: What Is Demand?
• Microeconomics is the area of economic study
that deals with individual units in an economy,
such as households, business firms, labor unions,
and workers. 
• You express demand for a product when you are
both willing and able to purchase it. 
• Demand can be summarized in a demand
schedule, which shows the various quantities that
would be purchased at all possible prices that
might prevail in the market. 
• Demand can also be shown graphically as a
downward sloping demand curve.
37
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Section 1: What Is Demand? (cont.)
• The Law of Demand refers to the inverse
relationship between price and quantity
demanded. 
• Individual demand curves for a particular product
can be added up to get the market demand
curve. 
• Marginal utility is the amount of satisfaction an
individual receives from consuming one
additional unit of a particular good or service. 
• Diminishing marginal utility means that with
each succeeding unit, satisfaction decreases.
38
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Section 2: Factors Affecting Demand
• Demand can change in two ways–a change in
quantity demanded or a change in demand. 
• A change in quantity demanded means people
buy a different quantity of a product if that
product’s price changes, appearing as a
movement along the demand curve. 
• A change in demand means that people have
changed their minds about the amount they would
buy at each and every price. It is represented as a
shift of the demand curve to the right or left. 
• A change in consumer incomes, tastes and
expectations, and the price of related goods
causes a change in demand.
39
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Section 2: Factors Affecting Demand
(cont.)
• Related goods include substitutes and
complements. A substitute is a product that is
interchangeable in use with another product. A
complement is a product that is used in
conjunction with another product. 
• The market demand curve changes whenever
consumers enter or leave the market, or
whenever an individual’s demand curve
changes.
40
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Section 3: Elasticity of Demand
• Elasticity is a general measure of responsiveness
that relates changes of a dependent variable such
as quantity to changes in an independent variable
such as price. 
• Demand elasticity relates changes in the
quantity demanded to changes in price. 
• If a change in price causes a relatively larger
change in the quantity demanded, demand is
elastic. 
• If a change in price causes a relatively smaller
change in the quantity demanded, demand is
inelastic.
41
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Section 3: Elasticity of Demand (cont.)
• When demand is elastic, it stretches as price
changes. Inelastic demand means that price
changes have little impact on quantity
demanded. 
• Demand is unit elastic if a change in price causes
a proportional change in quantity demanded. 
• The total expenditures test can be used to
estimate demand elasticity. 
• Demand elasticity is influenced by the ability to
postpone a purchase, by the substitutes available,
and by the proportion of income required for the
purchase.
42
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Identifying Key Terms
Match the letter of the term best described by each statement.
___
B the desire, ability, and willingness to buy a product
___
F a movement along the demand curve showing
that a different quantity is purchased in response to
a change in price
___
G a statement that more will be demanded at lower
prices and less at higher prices
A. demand schedule
B. demand
C. microeconomics
D. change in demand
44
E. demand curve
F. change in quantity demanded
G. Law of Demand
H. elastic demand
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answer. The Chapter Assessment is on pages 110–111.
Identifying Key Terms (cont.)
Match the letter of the term best described by each statement.
___
A a listing in a table that shows the quantity
demanded at all possible prices in the market at a
given time
___
D a principle illustrating that consumers demand
different amounts at every price, causing the
demand curve to shift to the left or the right
___
C the field of economics that deals with behavior and
decision making by individuals and firms
A. demand schedule
B. demand
C. microeconomics
D. change in demand
45
E. demand curve
F. change in quantity demanded
G. Law of Demand
H. elastic demand
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Identifying Key Terms (cont.)
Match the letter of the term best described by each statement.
___
H a principle illustrating that a relatively small change
in price causes a relatively large change in the
quantity demanded
___
E a graph that shows the quantity demanded at all
possible prices in the market at a given time
A. demand schedule
B. demand
C. microeconomics
D. change in demand
46
E. demand curve
F. change in quantity demanded
G. Law of Demand
H. elastic demand
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Reviewing the Facts
Describe a demand schedule and a
demand curve. How are they alike?
A demand schedule is a list that
shows the quantities demanded for a
product at all prices that prevail in the
market. A demand curve shows the
same data in graphic form.
47
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to display the answer.
Reviewing the Facts (cont.)
Explain how the principle of
diminishing marginal utility is
related to the downward-sloping
demand curve.
Diminishing marginal utility states that
as we use more of a product, we are
not willing to pay as much for it.
People will not pay as much for the
second and third product as they did
for the first, therefore the demand is
downward sloping.
48
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Reviewing the Facts (cont.)
Describe the difference between the
income effect and the substitution
effect.
The income effect is the change in
quantity demanded due to a change
in price that alters consumers’ real
income. The substitution effect is the
change in quantity demanded due to
the change in the relative price of the
product.
49
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Reviewing the Facts (cont.)
Identify the five factors that can
cause a change in market demand.
The five factors that can cause a
change in market demand are:
–
–
–
–
–
50
consumer income
consumer tastes
substitutes and complements
change in expectations
number of consumers
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Reviewing the Facts (cont.)
Describe the difference between
elastic demand and inelastic
demand.
When demand is elastic, there is a
relatively large change in quantity
demanded when the price changes,
giving the demand curve a flat slope.
The change in quantity demanded is
much smaller for inelastic demand,
making the slope of the demand curve
steeper.
51
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Reviewing the Facts (cont.)
Explain how the total expenditures
test can be used to determine
demand elasticity.
By observing the change in total
expenditures when the price changes,
you can determine demand elasticity.
If expenditures and price move in
opposite directions, demand is elastic,
If they move in the same direction,
demand is inelastic. If expenditures
do not change, demand is unit elastic.
52
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Thinking Critically
Making Generalizations Do you
think the Law of Demand accurately
reflects most people’s behavior
regarding certain purchases?
Explain.
Answers will vary, but most will note
that when prices fall, consumers tend
to demand more of a product.
53
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Thinking Critically (cont.)
Drawing Conclusions What would
normally happen to a product’s
market demand curve in a growing
and prosperous community if
consumer tastes, expectations, and
the prices of related products
remained unchanged?
An increase in the number of
consumers would shift the market
demand curve to the right.
54
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Applying Economic Skills
Demand Why do you think a
knowledge of demand would be
useful to an individual like yourself?
To a businessperson like Keith
Clinkscales (cover story, page 89)?
Knowledge of demand will help an
individual make more informed
decisions as a consumer. Business
people need such knowledge in order
to run their businesses effectively.
55
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Applying Economic Skills (cont.)
Demand How do you think the market
demand curve for pizza would be affected
by (1) an increase in everyone’s pay, (2) a
successful pizza advertising campaign, (3)
a decrease in the price of hamburgers, and
(4) new people moving into the
community? Explain your answers.
(1) Demand would increase since more
people could afford to buy pizza. (2)
Demand would increase as more people
became aware of pizza. (3) Demand would
decrease since people would buy more
hamburgers. (4) Demand would increase as
more consumers would buy pizza.
56
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Applying Economic Skills (cont.)
Demand Elasticity How would you,
as a business owner, use your
knowledge of demand elasticity to
determine the price of your product?
If demand is elastic, lower the price to
increase total business revenues. If
demand is inelastic, raise the price to
increase business revenues.
57
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How would a successful advertising
campaign affect the elasticity of
demand for the advertised product?
Explain.
It would make demand more inelastic.
Some people would be influenced by
the advertising and would demand the
advertised product rather than buy a
substitute.
58
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to display the answer.
Click the mouse button to return to the Contents slide.
Research and write a report about a product or
service for which you believe there will be a high
demand in the twenty-first century.
– Explain why you think such a high demand will
exist.
– Use the Internet and financial magazines to make
predictions about the product or service’s potential
growth.
– Create charts and graphs to support your position.
Explore online information about the
topics introduced in this chapter.
Click on the Connect button to launch your browser and go to the
Economics: Principles and Practices Web site. At this site, you
will find interactive activities, current events information, and Web
sites correlated with the chapters and units in the textbook.
When you finish exploring, exit the browser program to return to
this presentation. If you experience difficulty connecting to the
Web site, manually launch your Web browser and go to
http://epp.glencoe.com
Explore online information about the
topics introduced in this chapter.
Click on the Connect button to launch your browser and go to the
BusinessWeek Web site. At this site, you will find up-to-date
information dealing with all aspects of economics. When you
finish exploring, exit the browser program to return to this
presentation. If you experience difficulty connecting to the Web
site, manually launch your Web browser and go to
http://www.businessweek.com
Housing Starts The number of housing starts
shows the demand for new homes. Economists
forecast housing starts by using the current
month’s permits as a predictor. Building permits
tend to move in tandem with starts on a monthto-month basis. They are also considered to be
a leading indicator of the economy in general.
Increases in building permits and starts are
common during periods following a drop in
mortgage rates.
Finland is becoming the leader in cell-phone
technology. Some 58 percent of all Finns own a
cell phone; by the year 2004, the devices will
outnumber Finland’s population of five million
people.
Trading Gold for Salt Just as gold and salt
were necessary trading commodities in some
parts of Africa, so are oil and iron ore in some
regions of the world today. The Japanese, for
example, produce automobiles. They must
trade with other countries, however, to obtain
the raw materials needed to produce those
automobiles.
The demand for some products has become
more elastic because of technological
innovations. VCRs, for example, have allowed
consumers to substitute home viewing of
movies for going to a movie theater. As a result,
demand for tickets to movie theaters has
become more elastic.
College Textbooks
Online Shopping
Click on a hyperlink to choose that topic.
Companies now sell college textbooks over the
Internet. Universities enroll online and provide
the required reading lists for their classes.
Students can buy new and used textbooks from
these lists, saving up to 40 percent on the cost
of books. There is an economic incentive for
colleges to use these Internet companies: the
colleges receive a share in the revenue.
More About … Online Shopping E-commerce
is finally becoming a popular method of
shopping. Although there has been no
significant change in the technology, sales over
the Internet are increasing due to the
confidence level of the consumer. In 1998, more
than half of Web users had been online for over
a year. More people are comfortable with
navigating the Internet and using it for
information.
Continued on next slide.
Other factors have led to increased usage of the
Web for shopping. Safety features have
improved, so there is diminishing fear of
hackers stealing credit card numbers. Web sites
are better, too, and are often interactive,
colorful, and informative. Many people find that
the Internet allows them to save money
because it is convenient for quick price
comparisons.
Holding the Fries
“At the Border”
McDonald’s opened its first restaurant in Des
Plaines, Illinois, in 1955. In 1967 McDonald’s
opened its first restaurants in cities in other
countries. Today, the company operates nearly
25,000 McDonald’s restaurants in 115 countries
on six continents.
Read the BusinessWeek Newsclip article on
page 100 of your textbook. Learn how and why
McDonald’s has adapted its menu in Indonesia.
Continued on next slide.
This feature is found on page 100 of your textbook. Click
the Speaker button to listen to an audio introduction.
Holding the Fries
“At the Border”
Understanding Cause and Effect
Why did McDonald’s change its
menu in Indonesia?
The collapse of the rupiah made the cost
of imports such as potatoes quintuple in
price. Since people could not afford to pay
for potatoes, McDonald’s was forced to
find a substitute product, rice, which could
be used instead.
Continued on next slide.
Click the mouse button or press the Space Bar to display the
answer. This feature is found on page 100 of your textbook.
Holding the Fries
“At the Border”
Synthesizing Information Did
McDonald’s introduce rice to its
Indonesian menu in response to a
change in consumer tastes? Explain
your reasoning.
Answers will vary but should reflect
knowledge of consumer tastes and
substitutes.
Continued on next slide.
Click the mouse button or press the Space Bar to display the
answer. This feature is found on page 100 of your textbook.
Holding the Fries
“At the Border”
Making Predictions What will happen
if the change in the menu increases
demand? Explain your answer.
If the change in menu increases demand,
more rice will be produced, stimulating the
Indonesian economy. Prices might
increase as well.
Click the mouse button or press the Space Bar to display the
answer. This feature is found on page 100 of your textbook.
Continued on next slide.
Continued on next slide.
Continued on next slide.
Economics and You
Video 5: What Is Demand?
After viewing What Is Demand?, you should
be able to: 
• Explain the Law of Demand. 
• Differentiate between elastic and inelastic
demand.
Continued on next slide.
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to display the information.
Economics and You
Video 5: What Is Demand?
Side 1
Disc 1
Chapter 5
Click the Videodisc button
anytime throughout this
section to play the complete
video if you have a videodisc
player attached to your
computer.
Click inside this box to play the preview.
Click the Forward button to
view the discussion questions
and other related slides.
Continued on next slide.
Economics and You
Video 5: What Is Demand?
How does inelastic demand differ
from elastic demand?
When demand for a product or
service does not change in
reaction to price changes, the
demand is inelastic.
Side 1
Disc 1
Chapter 5
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answer.
Understanding Cause
and Effect
Understanding cause and effect involves
considering why an event took place. A cause
is the action or situation that produces an
event. What happens as a result of a cause is
an effect.
Continued on next slide.
This feature is found on page 108 of your textbook.
Understanding Cause
and Effect
Learning the Skill
– Identify two or more events or developments. 
– Decide whether one event caused the other. Look for
“clue words” such as because, led to, brought about,
produced, as a result of, so that, since, and
therefore. 
– Look for logical relationships between events, such
as “She overslept, and then she missed her bus.”
Continued on next slide.
Click the mouse button or press the Space Bar to display the
information. This feature is found on page 108 of your textbook.
Understanding Cause
and Effect
Learning the Skill (cont.)
– Identify the outcomes of events. Remember that
some effects have more than one cause, and some
causes lead to more than one effect. Also, an effect
can become the cause of yet another effect.
Continued on next slide.
This feature is found on page 108 of your textbook.
Understanding Cause
and Effect
Practicing the Skill
Analyze the following statements. Then, identify the causes and effects found in
each statement.
1. Historically, prices have shown their greatest
fluctuations in times of war.
cause: war; effect: greater price fluctuation
2. The government also is confronted with scarcity, and
must make choices.
cause: scarcity; effect: government must make choices
Continued on next slide.
Click the mouse button or press the Space Bar to display the
answers. This feature is found on page 108 of your textbook.
Understanding Cause
and Effect
Practicing the Skill
Analyze the following statements. Then, identify the causes and effects found in
each statement.
3. Because of scarcity, people, businesses, and the
government must all make trade-offs in choosing the
products they want the most.
cause: scarcity; effect: trade-offs
4. When a choice is made, an opportunity cost is paid.
cause: making a choice
effect: paying an opportunity cost
Continued on next slide.
Click the mouse button or press the Space Bar to display the
answers. This feature is found on page 108 of your textbook.
Understanding Cause
and Effect
Practicing the Skill
Analyze the following statements. Then, identify the causes and effects found in
each statement.
5. It is impossible for us to produce all the products we
would like to have because the factors of production
exist in limited quantities.
cause: limited factors of production
effect: impossible to produce all wanted products
Continued on next slide.
Click the mouse button or press the Space Bar to display the
answers. This feature is found on page 108 of your textbook.
Understanding Cause
and Effect
Practicing the Skill
Analyze the following statements. Then, identify the causes and effects found in
each statement.
6. Because consumers don’t always want the same
things, items that are popular now may not sell in the
future.
cause: consumers’ changing wants
effect: popular items may not sell in the future
7. If income increases, people can afford to buy more
products.
cause: income increases
effect: people can buy more products
Continued on next slide.
Click the mouse button or press the Space Bar to display the
answers. This feature is found on page 108 of your textbook.
Understanding Cause
and Effect
Practicing the Skill
Analyze the following statements. Then, identify the causes and effects found in
each statement.
8. If the price of butter goes up, more people would buy
margarine instead.
cause: price of butter goes up
effect: demand for margarine goes up
Click the mouse button or press the Space Bar to display the
answers. This feature is found on page 108 of your textbook.
Wealth and Influence:
Oprah Winfrey
(1954–)
Click the picture to learn
more about Oprah Winfrey.
Be prepared to answer
the questions that
appear on the next
two slides.
Continued on next slide.
This feature is found on page 94 of your textbook.
Wealth and Influence:
Oprah Winfrey
(1954–)
Drawing Conclusions Why is Oprah
Winfrey considered one of the most
powerful women in America?
You might equate power with influence.
Winfrey’s influence stems from the
popularity of her television show, her
wealth (and what she has done with it),
and the programs in which she has
participated.
Continued on next slide.
Click the mouse button or press the Space Bar to display the
answer. This feature is found on page 94 of your textbook.
Wealth and Influence:
Oprah Winfrey
(1954–)
For Further Research Make an
annotated time line of Winfrey’s career,
highlighting her major achievements.
1971
1973
1976
1984
1986
became newscaster at WVOL
became reporter/anchor at WTVF
became co-host of People Are Talking
became host of AM Chicago
The Oprah Winfrey Show went into
national syndication
Click the mouse button or press the Space Bar to display the
answer. This feature is found on page 94 of your textbook.
End of Custom Shows
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