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Splash Screen. Chapter Introduction Section 1: Demand Section 2: The Demand Curve and Elasticity of Demand Section 3: The Law of Supply and the Supply Curve Section 4: Putting Supply and Demand Together Visual Summary. Chapter Menu.

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  1. Splash Screen

  2. Chapter Introduction Section 1:Demand Section 2:The Demand Curve and Elasticity of Demand Section 3:The Law of Supply and the Supply Curve Section 4:Putting Supply and Demand Together Visual Summary Chapter Menu

  3. Scarcity is the basic economicproblem that requires people tomake choices about how touse limited resources. • 2. Buyers and sellers voluntarilyinteract in markets, and marketprices are set by the interactionof demand and supply. Chapter Intro 1

  4. In this chapter, read to learn about how the relationship between supply and demand sets the prices you pay for goods and services. Chapter Intro 2

  5. Chapter Preview-End

  6. Section Preview In this section, you will learn about the law of demand and how it affects choices you make. Section 1-Main Idea

  7. Content Vocabulary • demand • supply • market • voluntary exchange • law of demand • quantity demanded • real income effect • substitution effect • utility • marginal utility • law of diminishing marginal utility Section 1-Key Terms

  8. Academic Vocabulary • analysis • alternate Section 1-Key Terms

  9. A B Can you define the word demand? A.Yes B.No Section 1-Polling Question

  10. The Marketplace In a market economy, buyers and sellers set prices. Section 1

  11. The Marketplace (cont.) • In a market economy, consumers collectively have a great deal of influence on prices of all goods and services. • The demand of a good or service creates supply. • A market represents the freely chosen actions between buyers and sellers. Section 1

  12. The Marketplace (cont.) • Name some examples of markets (any place where buyers and sellers come together: • Stores—IGA, Walmart, etc. • Service Businesses—beauty shop, insurance agency, etc. • Entertainment—movie theater, concerts, ball games Section 1

  13. The Marketplace (cont.) • A market economy is based on the principle ofvoluntary exchange. • Supply and demand analysis is a model of how buyers and sellers operate in the marketplace. Section 1

  14. A B C D Which type of market do you feel you use the most? A.Stores B.Services C.Entertainment D.Internet shopping Section 1

  15. The Law of Demand The law of demand states that as price goes up, quantity demanded goes down, and vice versa. Section 1

  16. The Law of Demand (cont.) • Thelaw of demandexplains consumer reactions to changing prices in terms of the quantities demanded of a good or service. There is an inverse or opposite relationship between quantity demanded and price. View:The Law of Demand Section 1

  17. The Law of Demand (cont.) • Several factors explain the inverse relation between price andquantity demanded, or how much people will buy of any item at a particular price. • Factors include: • Real income effect • Substitution effect Section 1

  18. The Law of Demand (cont.) • Diminishing marginal utility: • Utility • Marginal utility • Law of diminishing marginal utility Section 1

  19. A B C Do you feel that the law of demand benefits you as a shopper? A.Always B.Sometimes C.Never Section 1

  20. Section 1-End

  21. Section Preview In this section, you will learn more about the relationship between price and demand. Section 2-Main Idea

  22. Content Vocabulary • demand schedule • demand curve • complementary good • elasticity • price elasticity of demand • elastic demand • inelastic demand Section 2-Key Terms

  23. Academic Vocabulary • visual • concept • specific Section 2-Objectives

  24. A B C Do you feel that a demand for certain items changes quickly? A.Always B.Sometimes C.Never Section 2-Polling Question

  25. Graphing the Demand Curve A demand curve is a graph that shows the relationship between the price of an item and the quantity demanded. Section 2

  26. Graphing the Demand Curve (cont.) • Economist can show the relationship between a change in quantity demanded and a change in demand using a demand curve. View:Graphing the Demand Curve Section 2

  27. Graphing the Demand Curve (cont.) • A demand schedule is a table reflecting quantities demanded at different possibleprices. • A demand curveshows the quantitydemanded of a good or service at each possible price. Demand curves slope downward, clearly showing the inverse relationship. Section 2

  28. A B C Does looking at a table or graph help you understand the law of demand? A.Definitely B.Somewhat C.Not at all Section 2

  29. Scenario—Adisease has destroyed much of the coffee crop in South America. • How would this scenario affect the price of coffee? • How might it affect the demand for substitute drinks? • How might if affect the demand for complementary products, such as cream and sugar? Section 2

  30. Determinates of Demand A change in the demand for a particular item shifts the entire demand curve to the left or right. Section 2

  31. Determinates of Demand (cont.) • Factors that can affect demand for a specific product or service: • Changes in population • Changes in income • Changes in people’s tastes and preferences View:If Population Increases View:If Income Decreases View:If Preferences Change Section 2

  32. Determinates of Demand (cont.) • The availability and price of substitutes • The price of complementary goods • The decrease in the price of one good will increase the demand for its complementary. View:If Price of Substitute Decreases View:If Price of Complement Decreases Section 2

  33. A B C D A change in the demand of a product shifts the demand curve which way? A.Up and down B.Horizontally C.Left and Right D.Vertically Section 2

  34. The Price Elasticity of Demand Elasticity of demand measures how much the quantity demanded changes when price goes up or down. Section 2

  35. The Price Elasticity of Demand (cont.) • For some goods, a rise or fall in price greatly affects the amount people are willing to buy.This economic concept is referred to aselasticity. • The measure of how much consumers respond to a given change in price is referred to as price elasticity of demand. View:Demand vs. Quantity Demanded View:Goods with… Section 2

  36. The Price Elasticity of Demand (cont.) • Luxury items, vacations, high-end electronics, even coffee are examples of elastic goods/services and have a very elastic demand. • Staple foods, medicine, spices have aninelastic demand. A price change has little impact on the quantity demanded by consumers. View:Elasticity of Demand Section 2

  37. The Price Elasticity of Demand (cont.) • Three factors determine the price elasticity of demand for an item: • The existence of substitutes • The percentage of a person’s total budget devoted to the purchase of that good • The time consumers are given to adjust to a change in price View:What Affects Demand Elasticity? Section 2

  38. A B A vacation to Australia is an example of which type of demand? A.Elastic B.Inelastic Section 2

  39. Section 2-End

  40. Section Preview In this section, you will learn more about the relationship between price and supply. Section 3-Main Idea

  41. Content Vocabulary • law of supply • quantity supplied • supply schedule • supply curve • technology • law of diminishing returns Section 3-Key Terms

  42. Academic Vocabulary • incentive • impose Section 3-Objectives

  43. A B C Can you explain the law of supply? A.Yes B.Somewhat C.Not at all Section 3-Polling Question

  44. Profits and the Law of Supply The law of supply states that as price goes up, quantity supplied goes up, and vice versa. Section 3

  45. Profits and the Law of Supply (cont.) • To understand pricing, you must look at both demand and supply. • The law of supply states that as the price of a good rises, the quantity suppliedalso rises. As the price falls, the quantity supplied also falls. • The higher the price of a good, the greater the incentive is for a producer to produce more. Section 3

  46. A B C D E A higher price on an item serves what type of purpose for the producer? A.It returns higher revenues from sales. B.It covers the costs of producing more. C.It allows them to save money for the next product. D. A & B E. A & C Section 3

  47. The Supply Curve A supply curve is a graph that shows the relationship between price and quantity supplied. Section 3

  48. The Supply Curve (cont.) • A supply schedule is a table showing quantities supplied at different possible prices. • The supply curve is an upward-sloping line that shows in graph form the quantities producers are willing to supply at each possible price. Section 3

  49. The Supply Curve (cont.) • The law of supply can also be shown visually using a supply schedule and a supply curve. View:Graphing the Supply Curve Section 3

  50. A B According to the supply curve, what is the relationship between price and quantity supplied? A.Direct B.Inverse Section 3

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