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Prices and Markets
Chapter 4 Demand
Chapter 4: Demand
Chapter Overviews
Section 1: What Is Demand?
Demand is easy to understand because it involves only two variables—the price and quantity of a specific product at a given point in time. Demand does not always stay the same and can be determined by a demand schedule, which shows the various quantities demanded of a particular product at all prices that might prevail in the market at a given time. The demand schedule displays individual demand curves and market demand curves.
Section 2:Factors Affecting Demand
Only a change in price can cause a change in quantity demanded. When the price goes up, less is demanded; when the price goes down, more is demanded. The following factors affect demand: the income effect and the substitution effect. Furthermore, demand can change because of changes in the determinants of demand: consumer income, consumer tastes, the price of related goods, expectations, and the number of consumers.
Section 3: Elasticity of Demand
Elasticity is a general measure of responsiveness— an important cause-and-effect relationship in economics. There are three different forms of elasticity: elastic demand, inelastic demand, and unit elastic. 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. The answers to three questions help determine a product's demand elasticity. Can the purchase be delayed? Are adequate substitutes available? Does the purchase use a large portion of income?
(Supply and) Demand
In-class assignment: in your own words, summarize and explain supply and demand. Draw an individual (each student) sample Supply and Demand Curve as it is described in the video. What is the relationship between prices and quantity demanded? What does it mean in Economics to move towards equilibrium? What is the consumer surplus? What is a producer surplus?
Supply and Demand Screen shot 1
Section 1 What is Demand?
Deriving the Demand Curve
In-class assignment: if asked to explain to a friend who knew nothing about the demand curve, how would you explain it? Where does the demand curve come from?
The Law of Demand
Demand refers to the amount of a good or service that people are willing and able to buy at a specified price.
| Best Selling Christmas Items | |
|---|---|
| 2009 | Nook eReader (Barnes & Noble) |
| 2008 | Elmo Live (Fisher Price) |
| 2007 | iTouch (Apple) |
| 2006 | Playstation 3 (Sony) |
| 2005 | Xbox 360 (Microsoft) |
| 2004 | RoboSapiens (WowWee) |
| 2002-3 | Beyblades (Hasbro) |
| 2001 | Bratz Dolls (MGA Entertainment) |
| 2000 | Razor Scooters (Razor USA) |
Diminishing Marginal Utility
In-class assignment: define diminishing marginal utility based on the video and its explanation.
What makes us happy? Is Jim happy? Is there a difference if Jim is hungry, or not? Is there a difference between cookie #1 and cookie #2, and thereafter etc.? What happens as he eats cookies? What do we discover according to this experiment? What is the Law of Diminishing Marginal Utility? Is there a point Jim should have stopped eating cookies?
Equilibrium Price
An Introduction to Demand
Interpreting
How do you react to a change in the price of an item? How does this illustrate the concept of demand?
The Law of Demand
Reading Check
Explaining
How does the market demand curve reflect the Law of Demand?
Demand and Marginal Utility
Reading Check
Describing
In-class assignment: working with a partner, and using the graphic organizer, explain how a change in price changes the quantity demanded of an item.
How does the principle of diminishing marginal utility explain the price we pay for another unit of a good or service?
Ch. 4 Sec. 2 Reading Strategy Determinants Of Demand
In-class assignment:
Working with a partner, and using the graphic organizer, explain how a change in price changes the quantity demanded of an item.
Change in Demand vs Change in Quantity Demanded
In-class assignment
What happens to demand? Is there anything that could alter the underlying demand? What does a shift to the left indicate? What happens when apartment rent increases? Is a house a substitute? What is the difference between change in demand vs change in quantity demanded?
Income and Substitution Effects
In-class assignment:
We want to consider Jimmy. What are Income and Substitution Effects? How do they work? How do they add up to the total price effect? What is the substitution effect? What is the income effect?
Factors that Decrease Demand, Shifting Curve to the Left
Why It Matters Today
substitutes
complements
Complementary goods
| Top 10 Hot Dog Baseball Stadiums for 2005 | ||
|---|---|---|
| Stadium | Hot Dogs Sold | |
| 1 | Dodger Stadium (Los Angeles) | 1,674,400 |
| 2 | Coors Field (Colorado) | 1,545,000 |
| 3 | Wrigley Field (Chicago) | 1,543,500 |
| 4 | Yankee Stadium (New York) | 1,365,000 |
| 5 | Minute Maid Park (Houston) | 1,248,000 |
| 6 | Edison Field (Anaheim) | 1,133,000 |
| 7 | HHH Metrodome (Minnesota) | 850,000 |
| 8 | Citizens Bank Park (Philadelphia) | 800,000 |
| 9 | Shea Stadium (New York) | 745,000 |
| 10 | U.S. Cellular Field (Chicago) | 495,000 |
Academic Vocabulary
principle
illustrated
Reading Strategy
Companies in the News
McMakeover Deluxe
Change in the Quantity Demanded
The Income Effect
The Substitution Effect
Reading Check
Describing
How is a change in the quantity demanded illustrated on the demand curve?
Figure 4.4 Change in Demand, p. 99
In-Motion Animations
Change in Demand
Cf. http://glencoe.com/sites/common_assets/socialstudies/in_motion_08/epp/EPP_p99.swf
Figure 4.4 Change In Demand
Consumer Income
The Global Economy and You
Digital Demand in South Korea
Consumer Tastes
Substitutes
Complements
Expectations
Number of Consumers
Reading Check
Explaining
How do changes in consumer income and tastes affect the demand curve?
Ch. 4 Sec. 2 Section Review Determinants Of Market Demand
In-class assignment:
With a partner, and using the graphic organizer, describe the determinants of market demand.
Main Idea
Reading Strategy
Key Terms
elasticity
demand elasticity
elastic
inelastic
unit elastic
Elasticity Economics
Outline
How sensitive are consumers to a change in price?
How much less will they buy if prices are raised?
How much more will they buy if prices are lowered?
WHEN PRICES CHANGE
How much does quantity change?
How elastic is demand?
WHAT IMPACTS DEMAND
Availability of Substitutes
Percent of Consumers Budget
Time Period of Adjustment
INELASTIC
Rigid
Not flexible
Limited Choices
ELASTIC
Flexibility
Can easily change
A lot of choices
In-class assignment: with a partner, while screening the video, answer the following.
Is the demand for gasoline inelastic?
What happens to revenue if prices are changed?
Explain inelastic demand.
Explain elastic demand.
What examples would illustrate inelastic and elastic?
Objectives
Applying Economic Concepts
Demand Elasticity
Demand Elasticity, 4:08
Walmart War - If you SEE SOMETHING SAY SOMETHING, :40
The Global Economy
Trading Gold for Salt
Elastic Demand
Inelastic Demand
Unit Elastic Demand
The Total Expenditures Test
Determining Total Expenditures
Cybernomics Spotlight
Revolution in e-Commerce
Amazon's Strategy
Jeff Bezos: Founder and CEO, Amazon, 4:04
As the founder and chief executive officer of Amazon.com, Jeff Bezos 86 has revolutionized commerce and pioneered a wide range of online innovations, from user reviews to one-click shopping.
Bezos graduated summa cum laude and Phi Beta Kappa from Princeton with a degree in electrical engineering and computer science. Before heading to Seattle to found Amazon, Bezos helped D. E. Shaw & Co build one of the most technically sophisticated quantitative hedge funds on Wall Street.
In-class assignment: answer the questions listed below.
Should you fail in order to be a success?
What advice does he offer for undergraduates?
What should you take pride in?
Do you need to be passionate about learning something?
What is his latest project? How does he explain his latest project?
Three Results
Elasticity and Profits
Determinants of Demand Elasticity
Can the purchase be Delayed?
Are Adequate Substitutes Available?
Does the Purchase Use a Large Portion of Income?
Reading Check
Identifying
Can you think of other goods with inelastic demand? Why is the demand for those goods inelastic?
iPod, p. 110, 5:50
In-class assignment: you may work with a partner to answer.
Consider the five economic principles that are illustrated by the iPod.
Describe the relationship between prices and the iPod.
1. What are the trade-offs for the iPod?
2. What are its opportunity costs?
3. What are its marginal benefits?
4. What are the trades?
5. What are the market outcomes?
In which direction does the demand curve shift?
China's Thirst for Gas, pp. 114-15
In-class assignment:
China's Growing Energy Use, 8:52
In-class assignment: working with a partner, what do these experts suggest and recommend?
Rob Sobhani, CEO of Caspian Energy Consulting, says we should be concerned about energy policy here in the United States instead of worrying about China, and that politicians need to wake up and allow markets to create energy innovations. He says that by developing resources here in the U.S., including shale oil, Americans can control their own energy destiny, and Chinese policies won't affect us. He also believes that solar energy is more easily developed than many people think, making it a viable part of the future energy mix. Roger Ballentine, President of Green Strategies Inc., believes the benefits of domestic oil production are a misconception to Americans because we cannot impact global oil prices through expanded domestic drilling. He says if Americans put the same energy and resources they put into developing domestic fossil fuels into developing alternative energy, we can be immune to the global energy market and its price fluctuations. He believes extensive supplies of natural gas will spur generators to convert their coal-fired plants to combined-cycle plants that burn natural gas. Elliot Gue, Editor of The Energy Letter and The Energy Strategist, predicts an increase in Chinese oil consumption means higher prices for the entire world because fossil fuels will be the bedrock of world energy for the next three or four decades. He says alternatives will remain a very small part of the world energy mix. While India is building new coal-fired power plants, they are still cleaner than plants still in use in the U.S. after 30 or 40 years. He says a plentiful supply of natural gas will make it more difficult to develop renewables because suppliers will elect to use gas rather than switch to alternatives.
In-class assignment
Working with a partner, as you have read about price elasticity, complete the web diagram to describe what effect a change in price has on quantity demanded if the demand curve is elastic, inelastic, or unit elastic.
In-class assignment
Working with a partner, use the graphic organizer to describe the three determinants of demand elasticity.
Preview
Ch. 5
Supply
Section 1 What is Supply?
Section Preview
Content Vocabulary
supply
Law of supply
Law of Supply, 2:20
supply schedule
supply curve
Supply curve video, 6:51
market supply curve
Long Run Supply Curve, 3:38
In the short run, a supply curve from the firm's marginal cost curve can be demonstrated but this video shows what happens to the supply curve when the firm is making a profit or loss, i.e., the long run or market supply curve.
quantity supplied
change in quantity supplied
change in supply
Changes in Supply, 4:39
subsidy
supply elasticity
Gas Prices, Gas Gouging, Peak Oil, Elasticity, Supply Demand, 1:17
Gasoline gas prices are based on oil prices. Oil prices are determined by the oil supply and oil demand. Right now, both oil supply and oil demand are almost inelastic. As gasoline gas and oil prices go up, the demand stays almost the same. As the oil supply reaches peak oil or maximum production or extraction, the demand curve becomes vertical, or inelastic. The inelasticity of the oil supply and oil demand set things up for price volatility of both oil and gasoline. The seasonal changes in gas and oil prices we've seen in the last three years is probably due to reaching peak oil. This short screencast shows an inelastic oil supply curve, as well as an inelastic oil demand curve, and what happens to prices as the oil supply or oil demand change.
Academic Vocabulary
Chapter 3 Prep
Chapter 3: Business Organizations
Cf. http://glencoe.mcgraw-hill.com/sites/007879997x/student_view0/unit1/chapter3/self-check_quizzes.html
Crossword Puzzle
Cf. http://www.glencoe.com/olc_games/game_engine/content/gln_ss/epp_08/ch03/index.html
Vocabulary eFlashcards
Cf. http://www.glencoe.com/qe/efcsec.php?qi=21820
John Lee Hooker - Blues For Christmas, 3:31
Email (or hand in hard copy) to gmsmith@shanahan.org.
Monday HW
1. p. 95, #8
2. p. 96, 1-2
