Brief Response
• Why do businesses merge? (2)
• By becoming larger and more efficient,
they want to increase or ensure their
profits.
• Mergers usually attract investors, stock
prices go up.
Microeconomics
Chapter 4 Demand
Section 1 p. Terms:
• Demand
• 89 the desire, ability, and willingness to
have/buy a product.
• People compete with each other to purchase
products
• handout
Microeconomics
• 89 the area of economics that deals with small units,
such as
– Individuals
– firms
• Behavior
• Decision making
• Helps explain how prices are determined
• How individual economic decisions are made.
Demand schedule
• 90 a list that shows
• Various quantities demanded
• Various market prices for each quantity at a
given time.
Demand curve
• 91 a graphic organizer showing the data on
the demand schedule.
• Usually a line graph
– Joins various price/quantity points
• Upper left to lower right
Law of Demand
• 91 set phenomenon where the quantity
demanded of a good or service varies with its
price….
– Price goes up, quantity demand goes down
– Price goes down, quantity demand goes up
Market demand curve
• 91 shows the quantities demanded by
EVERYONE who is interested in purchasing the
product
Marginal utility
• 93 the extra USEFULNESS or SATISFACTION a
person gets from acquiring or using ONE more
unit of a product.
– Explains why demand
• Slows
• Stops
Diminishing marginal utility
• 93 states that the extra satisfaction we get
from using additional quantities of a product
begins to disappear.
– Don’t need it
– Can’t use it
– Can’t handle it.
Section 2 p. 95 Terms:
• Change in quantity demanded
• 95 a movement along the demand curve
• Shows a change in the quantity of the product
the market will purchase
– Responding to a change in price.
Income effect
• 96 a change in quantity demanded because of
a change in price that alters (changes)
consumer’s real income
– Price goes up
– Income does not go up
– = consumers buy less
Substitution effect
• 96 change in quantity demanded because of
the change in the relative price of the product
– Price goes up/down in a small way, probably no
change in quantity demanded
– Price goes up/down in a large way, probably a
change in quantity demanded
Change in demand
• 96 happens when people are willing to buy
different amounts of a product AT THE SAME
PRICE.
• The entire curve shifts to the right.
Substitutes
• 98 products that can be used in place of other
products
– Margarine instead of butter
• Consumers will use substitutes if it satisfies
their needs
– At a lower price
Complements
• 98 The use of one product increases the use of
another
– Butter, jelly, bread are complements
– Computers, software, and other hardware are
complements
• People will buy complements to improve their
satisfaction with a product.
Hwk Assessments, Class Work,
to Know
Assessments: Checking for Understanding
CH 4, S1
•
•
•
•
1.
Desire
Ability
willingness
CH 4, S1
•
•
•
•
3
Both provide information about demand
The schedule in the form of a table
The curve in the form of a graph that shows
the trend
CH 4, S1
• 4
• Diminishing marginal utility
• As we use more of a product, we are not
willing to pay as much for it.
– The demand curve is downward sloping
– People will not pay as much for the second or
third product as they will the first.
Assessments: Checking for Understanding
CH 4, S2
•
•
•
•
1
Because of decrease in price
Consumers have more real income
Leading to an increase in the quantity
demanded of a product
CH 4, S2
• 3
• A change in quantity demanded reflects a
– Change in the quantity of the product purchased
– In response to a change in price
• A change in demand reflects a willingness to
– Buy different amounts of a product at the same
price
CH 4, S2
• 4
• The demand for a product tends to increase
– If the price of its substitute goes up
Image, p. 92
• Question
• + who is EVERYONE in the example?
• Answer:
• The curve will begin to level off as the extra
satisfaction from using additional CDs begins to
diminish.
• Larry and Curly.
• Are markets usually that small?
– No, so why do they use just two people?
– To keep it easy.
Image, copy questions. (on a separate
sheet of paper, use your old one if space.)
• What does this graph show?
• How much revenue would be made at the
price of $2
• Is that the best price for the company to ask?
Explain completely.
Image, answer using this chart
Image
•
•
•
•
•
•
•
What does this image show?
Demand curve for widgets at various prices
How much revenue would be made at the price of $2
$4,000
Is that the best price for the company to ask? Explain
No, more revenue could be made at other prices.
Example: the price of $4.50 would yield a revenue of $4,500
– Increasing revenue by $500 over the $2 price.
Image, p. 96
• Question
• a change in price alters consumers’ real
income
• Consumers tend to substitute
• Quantity moves in the opposite direction
Image, p. 98
•
•
•
•
•
•
•
Question (6 possible answers)
Income effect
Consumer taste
Substitutes
Complements
Change in expectations
Number of consumers
Scarcity and Demand
• People compete with each other to
have/purchase products they need or want.
• handout
Scarcity and Demand: Answers
• EC: What does the random pilot flying over
the people in our scene represent in
economics?
– "The Invisible Hand" described by Adam Smith. A
new event changes the economic and social
relations of the people in the economy.
Scarcity and Demand: Answers
• 1. What type of economy is this group of
people living in?
– traditional
• 2. What is the item that everybody wants?
– A glass Coke bottle
• 3. Why is it so desirable?
– It is harder, heavier, and smoother than materials
they have available for production; it has many
uses.
Scarcity and Demand
• 4. List three uses people have for it?
–
–
–
–
a. grind grain
b. make patterns for cloth
c. masher
Also: curing snakeskin, making music, poker
• 5. When does scarcity begin to have it's effect?
– when there is only one and many people want it;
cannot share it.
• 6. What is the effect?
– People begin to argue and physically fight over it.
Scarcity and Demand
• 7. What do the people decide to do with the item?
– they get rid of it (bury it);
• EC: Does anyone in class actually know what they do with
it (the rest of the story)?
– Our hero is sent to throw it off the end of the world.
• 8. Why is that a good solution for their economic level?
– It would change their society in a bad way.
– Traditional societies do not allow change.
• 9. How would a free market economy (mixed economy)
solve the problem?
– The person with the most wealth would buy and own it. The
owner would control how it was used. They might rent it to
others for a profit.
Brief Response
• Do you think the Coke bottle in the previous
exercise had elastic demand or inelastic
demand? Explain.