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
Chapter Objectives
Section 1: What Is Demand?
• Describe and illustrate the concept of
demand. 
• Explain how demand and utility are
related.
5
Chapter Objectives
Section 2: Factors Affecting Demand
• Explain what causes a change in quantity
demanded. 
• Describe the factors that could cause a
change in demand.
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Chapter Objectives
Section 3: Elasticity of Demand
• Explain why elasticity is a measure of
responsiveness. 
• Analyze the elasticity of demand for a
product. 
• Understand the factors that determine
demand.
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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.
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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 
– market demand curve 
– marginal utility 
– diminishing marginal
utility
10
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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. 
Applying Economic Concepts
Demand You express your demand for a
product when you are willing and able to
purchase it. Read to find out how demand is
measured.
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listen to the Cover Story.
11
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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.
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Introduction (cont.)
• Collectively, these concepts of
microeconomics help explain how prices
are determined and how individual
economic decisions are made.
13
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.
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Demand Illustrated
• To illustrate how demand affects business
planning, imagine you are opening a
store. 
• Before you begin, you need to know where
the demand is.
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Demand Illustrated (cont.)
• How do you measure the demand for
your services? 
– You may visit other shops and gauge the
reactions of consumers to different prices. 
– You may poll consumers about prices and
determine demand from this data. 
– You could study data compiled over past years,
which would show consumer reactions to
higher and lower prices. 
• All of these methods would give you a
general idea as to the desire, willingness,
and ability of people to pay.
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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.
17
The Individual Demand Curve
• The information found in a demand
schedule can also be shown graphically
as a downward-sloping line on a graph. 
• Transfer the price-quantity observations
in the demand schedule to the graph, and
then connect the points to form the curve.
18
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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.
19
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.
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Foundations for the Law of Demand
• Price is an obstacle which discourages
consumers from buying. 
• The higher this obstacle, the less of a
product they will buy; the lower the
obstacle, the more they will buy. 
• Common sense and simple observation
are consistent with the Law of Demand.
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The Market Demand Curve
• A market demand curve shows the
quantities demanded by everyone who is
interested in purchasing the product. 
• To get the market demand curve we add
together the number of items that everyone
would purchase at every possible price,
and then plot them on a separate graph. 
• The only real difference between the
individual demand curve and the market
demand curve is that the market demand
curve shows the demand for everyone that
is interested in buying the product.
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Figure 4.2
Individual and Market Demand Curves
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.
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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 states that the extra satisfaction we
get from using additional quantities of the
product begins to diminish. 
• Because of our diminishing satisfaction,
we are not willing to pay as much for the
second, third, fourth, and so on, as we did
the first.
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Demand and Marginal Utility (cont.)
• Diminishing marginal utility is why our
demand curve is downward-sloping. 
• When you reach the point where the
marginal utility is less than the price, you
stop buying.
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Section Assessment
Main Idea Using your notes from the
graphic organizer activity on page 89,
write a definition of demand in your
own words.
Answers should include the desire,
ability, and willingness to buy a
product.
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Section Assessment (cont.)
Describe the relationship between the
demand schedule and demand curve.
Both provide information about
demand–the schedule in the form of
a table and the curve in the form of a
graph.
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Section Assessment (cont.)
Describe how the slope of the demand
curve can be explained by the principle
of diminishing marginal utility.
Diminishing marginal utility says that
as we use more of a product, we are
not willing to pay as much for it.
Therefore, the demand curve is
downward sloping. People will not
pay as much for the second and third
product as they will for the first.
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Section Assessment (cont.)
Demand Record the names and
approximate prices of the last two
items you purchased. In general,
would you have spent your money
differently if the price of each item was
twice as high? Would you have spent
your money differently if each of the
items cost half as much as it did?
Explain your responses.
Answers should reflect an
understanding of the economic
concepts studied in the section.
30
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Section Assessment (cont.)
Using Graphs Create your own
demand schedule for an item you
currently purchase. Next, plot your
demand schedule on a demand curve.
Be sure to include correct labels.
Answers should reflect an
understanding of demand schedules
and curves.
31
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Section Assessment (cont.)
Analyzing Information Analyze
several magazine or newspaper ads to
determine how the ads reflect or use
the law of diminishing marginal utility.
Answers should show an
understanding of the law of
diminishing marginal utility.
32
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Section Close
Choose an item that you buy
regularly, for example a food item or
jeans, and create a simple demand
schedule and curve for that item.
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Study Guide
Main Idea
There are a number of factors that will cause
demand to either increase or decrease. 
Reading Strategy
Graphic Organizer As you read about the
determinants of demand, list each on a table
similar to the one on page 95 of your textbook
and provide an example of each.
35
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information. Section 2 begins on page 95 of your textbook.
Study Guide (cont.)
Key Terms
– change in quantity demanded 
– income effect 
– substitution effect 
– change in demand 
– substitutes 
– complements
36
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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. 
Applying Economic Concepts
Change in Demand Would you buy more
clothes if your employer doubled your salary?
Read to find out what causes a change in
demand.
Click the Speaker button to
listen to the Cover Story.
37
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information. Section 2 begins on page 95 of your textbook.
Introduction
• The demand curve is a graphical
representation of the quantities that people
are willing to purchase at all possible prices
that might prevail in the market. 
• Occasionally something happens to
change people’s willingness and ability to
buy. 
• These changes are usually of two types: a
change in the quantity demanded, and a
change in demand.
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Change in Quantity Demanded
• A change in quantity demanded is
movement along the demand curve that
shows a change in the quantity of the
product purchased in response to a
change in price. 
• Like the principle of diminishing marginal
utility, the income and substitution effects
can add to our understanding of demand.
39
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Figure 4.3
A Change in Quantity Demanded
The Income Effect
• When prices drop, consumers pay less
for the product and, as a result, have
some extra real income to spend. 
• The increase in spending is due to
consumers feeling richer. 
• If the price goes up, the opposite would
happen and consumers would feel
poorer. 
• This illustrates the income effect, the
change in quantity demanded because of a
change in price that alters consumers’ real
income.
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The Substitution Effect
• A lower price also means that the product
would be relatively less expensive than
other similar goods and services. 
• As a result, consumers will have a
tendency to replace a more costly item
with a less costly one. 
• The substitution effect is the change in
quantity demanded because of the
change in the relative price of the product.
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The Substitution Effect (cont.)
• Note that whenever a change in price
causes a change in quantity demanded,
the change appears graphically as a
movement along the demand curve. 
• The change in quantity demanded can be
either an increase or a decrease–but in
either case the demand curve itself does
not shift.
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Change in Demand
• Sometimes something happens to cause
the demand curve itself to shift. 
• This is known as a change in demand
because people are now willing to buy
different amounts of the product at the
same prices. 
• As a result, the entire demand curve
shifts–to the right to show an increase in
demand or to the left to show a decrease
in demand for the product.
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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. 
• Individual demand, and therefore market
demand, is affected by four principal
factors. 
• A fifth factor affects only the market
demand curve.
45
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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.
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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.
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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 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.
49
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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. 
• The development of new products can
also have an effect on consumer tastes.
50
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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.
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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. 
• When the price of computers decreases,
consumers buy more computers and
more software. 
• If the price of computers rises, consumers
would buy fewer computers and less
software.
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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.
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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, this might cause demand to
increase, which is demonstrated by a shift
of the demand curve to the right.
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Number of Consumers
• A change in income, tastes, and prices of
related products affects individual
demand schedules and curves. 
• This in turn affects the market demand
curve, which is the sum of all individual
demand curves. 
• An increase or decrease in the number of
consumers can cause the market demand
curve to shift.
55
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Section Assessment
Main Idea How does the income
effect explain the change in quantity
demanded that takes place when the
price goes down?
Because of the decrease in price,
consumers have more real income,
leading to an increase in the quantity
demanded of a product.
56
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Section Assessment
Describe the difference between a
change in quantity demanded and a
change in demand.
A change in quantity demanded
reflects a change in the quantity of
the product purchased in response to
a change in price. A change in
demand reflects a willingness to buy
different amounts of the product at
the same price.
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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.
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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.
What happened to your demand for
the substitute good when the item you
bought went on sale? What happened
to your demand for the complementary
good when that item went on sale?
Answers should reflect an
understanding of the economic
concepts studied in this section.
59
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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.
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Section Close
Write a paragraph explaining all of
the factors that can lead to a change
in individual demand.
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Study Guide
Main Idea
Consumers react differently to price changes
depending on whether the good is a necessity
or a luxury. 
Reading Strategy
Graphic Organizer As you read about price
elasticity, complete a web like the one on page
101 of your textbook to illustrate what effect a
change in price has on products that are elastic,
inelastic, or unit elastic.
63
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information. Section 3 begins on page 101 of your textbook.
Study Guide (cont.)
Key Terms
– elasticity 
– inelastic 
– demand elasticity 
– unit elastic 
– elastic 
Objectives
After studying this section, you will be able to: 
– Explain why elasticity is a measure of
responsiveness. 
– Analyze the elasticity of demand for a
product. 
– Understand the factors that determine demand
elasticity.
64
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information. Section 3 begins on page 101 of your textbook.
Study Guide (cont.)
Applying Economic Concepts
Elasticity of Demand What are you willing to pay
to see a popular movie? Read to find out about
the elasticity of demand for a product and what
factors influence your willingness and ability to pay
for a product.
Click the Speaker button to
listen to the Cover Story.
Section 3 begins on page 101 of your textbook.
65
Introduction
• Cause-and-effect relationships are
important in the study of economics. 
• An important cause-and-effect
relationship in economics is elasticity. 
• Elasticity is a measure of responsiveness
that tells us how a dependent variable
such as quantity responds to a change in
an independent variable such as price. 
• Elasticity is also a very general concept
that can be applied to income, the
quantity of a product supplied by a firm,
or to demand.
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Demand Elasticity
• Demand elasticity is the extent to which
a change in price causes a change in the
quantity demanded. 
• The demand for most products is such
that consumers do care about changes in
prices. 
• The concept of elasticity tells us just how
sensitive consumers are to these
changes.
67
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Elastic Demand
• Economists say that demand is elastic
when a given change in price causes a
relatively larger change in quantity
demanded. 
• This type of elasticity is typical of the
demand for products like fresh garden
vegetables. 
– Because prices are lower in the summer,
consumers increase the amount they
purchase. 
– When prices are higher in the winter consumers
normally buy fewer fresh vegetables and use
canned products instead.
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Inelastic Demand
• Inelastic demand means that a given
change in price causes a relatively smaller
change in the quantity demanded. 
• This is typical of the demand elasticity for
a product like table salt. 
– If the price of salt was cut in half, the quantity
demanded would not increase by much because
people can consume only so much salt. 
– If the price doubled, we would expect
consumers to demand about the same amount
because the portion of a person’s budget that is
spent on salt is so small.
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Unit Elastic Demand
• Sometimes demand for a product or
service falls midway between elastic and
inelastic. 
• When this happens, demand is unit
elastic. 
• This means that a given change in price
causes a proportional change in quantity
demanded. 
• When demand is unit elastic, the percent
change in quantity roughly equals the
percent change in price.
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The Total Expenditures Test
• To estimate elasticity, it is useful to look at
the impact of a price change on total
expenditures, or the amount that
consumers spend on a product at a
particular price. 
• This is sometimes called the total
expenditures test.
71
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Figure 4.5
The Total Expenditures Test for Demand Elasticity
Determining Total Expenditures
• Total expenditures are found by
multiplying the price of a product by the
quantity demanded for any point along
the demand curve. 
• By observing the change in total
expenditures when the price changes,
we can test for elasticity.
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Three Results
• The relationship between the change in
price and total expenditures for the
elastic demand curve is described as
“inverse.” 
• In other words, when the price goes down,
total expenditures go up. 
• For inelastic demand, total expenditures
decline when the price declines. 
• For unit elastic demand, total expenditures
remain unchanged when the price
decreases.
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Three Results (cont.)
• If the changes in price and expenditures
move in opposite directions, demand is
elastic. 
• If they move in the same direction,
demand is inelastic. 
• If there is no change in expenditure,
demand is unit elastic. 
• The results would be the same if the
prices went up instead of down.
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Elasticity and Profits
• Knowledge of demand elasticity is
extremely important to businesses. 
• If you are in business and you want to do
something that will raise your profits, you
might be tempted to raise the price of your
product in order to increase total revenue
from sales. 
• If your product has an elastic demand
your total revenue–which is the same
thing as consumer expenditures–will go
down instead of up.
76
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Determinants of Demand Elasticity
• There are three questions we can ask
about a product to determine whether the
demand is elastic or inelastic. 
– Can the purchase be delayed? 
– Are adequate substitutes available?

– Does the purchase use a large portion of
income?
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Can the Purchase Be Delayed?
• A consumer’s need for a product is
sometimes urgent and cannot be put off. 
• Whenever this happens, demand tends to
be inelastic, meaning that the quantity of
the product demanded is not especially
sensitive to changes in price. 
• Being able to delay or postpone the
purchase of a product is a characteristic
of elastic demand.
78
Figure 4.6
Estimating the Elasticity of Demand
Are Adequate Substitutes Available?
• If adequate substitutes are available,
consumers can switch back and forth
between a product and its substitute to
take advantage of the best price. 
• With enough substitutes, even small
changes in the price of a product will
cause people to switch, making the
demand for the product elastic. 
• The fewer substitutes available for a
product, the more inelastic the demand.
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Are Adequate Substitutes Available?
• The availability of substitutes also
depends on the extent of the market. 
(cont.)
• The demand for gasoline from a particular
station tends to be elastic because the
consumer can buy gas at another station. 
• Demand for gasoline in general, however,
is much more inelastic because there are
few adequate substitutes for gasoline.
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Does the Purchase Use a Large
Portion of Income?
• The third determinant is the amount of
income required to make the purchase. 
• Whenever the answer to the question
“Does the purchase use a large portion of
income?” is yes, then demand tends to be
elastic. 
• Demand tends to be inelastic whenever
the answer to this question is no.
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Section Assessment
Main Idea What luxuries do you think
would have a higher price elasticity
than others? Give three examples and
explain why you think they would have
an exceptionally high elasticity.
Answers will vary but should reflect
an understanding of price elasticity.
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Section Assessment
Describe the three determinants of
demand elasticity.
Can the purchase be delayed? Are
adequate substitutes available? Does
the purchase use a large portion of
income?
84
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Section Assessment (cont.)
Explain why the demand for insulin is
inelastic.
There is a lack of adequate
substitutes for insulin.
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Section Assessment (cont.)
Elasticity of Demand Why are airlines
reluctant to offer reduced round-trip
airfares during holidays such as
Christmas, Easter, and Thanksgiving?
Refer to the three determinants of
demand elasticity in your answer.
Demand tends to be inelastic because
the purchase of tickets cannot be
delayed since holiday travel is time
specific; there are few adequate
substitutes for air travel; the ticket price
would not represent a large portion of
income for many people.
86
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Section Assessment (cont.)
Understanding Cause and Effect A
hamburger stand raised the price of its
hamburgers from $2.00 to $2.50. As a
result, its sales of hamburgers fell from
200 per day to 180 per day. Was the
demand for its hamburgers elastic or
inelastic? How can you tell?
The demand is inelastic because a 25
percent increase in price resulted in a
10 percent decrease in units sold.
87
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Section Close
Draw graphs representing the
various types of elasticity. Be
prepared to explain how each type
works.
88
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Click the mouse button to return to the Contents slide.
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.
90
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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.
91
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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.
92
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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.
93
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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.
94
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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.
95
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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
97
E. demand curve
F. change in quantity demanded
G. Law of Demand
H. elastic demand
Click the mouse button or press the Space Bar to display the
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
98
E. demand curve
F. change in quantity demanded
G. Law of Demand
H. elastic demand
Click the mouse button or press the Space Bar
to display the answer.
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
99
E. demand curve
F. change in quantity demanded
G. Law of Demand
H. elastic demand
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to display the answer.
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.
100
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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.
101
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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.
102
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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:
–
–
–
–
–
103
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.
104
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to display the answer.
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.
105
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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.
106
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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.
107
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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.
108
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to display the answer.
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.
109
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to display the answer.
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.
110
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to display the answer.
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.
111
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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.
Click the mouse button or press the Space Bar
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
Click the mouse button or press the Space Bar to display the
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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shows and return to the main presentation.
Click the mouse button to return to the Contents slide.