ECONOMICS TOPIC 3 LESSON 1

ECONOMICS TOPIC 3 LESSON 1

Fundementals of demand

ESSENTIAL QUESTION

How do we affect the economy?

Demand

Demand is the desire to own something and the ability to pay for it. To have demand for a good or service, both of these conditions must be present.

The Law of Demand

The law of demand says that when a good’s price is lower, the quantity demanded, or the amount people are willing to buy, is greater. When the price is higher, the quantity demanded is lower. All of us act out this law of demand in our everyday purchasing decisions. 

Open Ended

The law of demand explains consumer reaction to price increases and decreases. Paraphrase Restate the law of demand in your own words.

The Substitution Effect

The substitution effect takes place when a consumer reacts to a rise in the price of one good by consuming less of that good and more of a substitute good.

Open Ended

The substitution effect has an impact when prices go up or down. Apply Concepts Based on the substitution effect, give an example of how people might respond to a rise in gas prices.

The Income Effect

If you buy fewer slices of pizza without increasing your purchases of other foods, that is the income effect.

Open Ended

When price changes, the substitution and income effects influence demand in different ways. Analyze Charts In what circumstance do the income and substitution effects lead to the same result?

Multiple Choice

Almond Pest Destroys t0 Percent of Crop Prices Expected to Double

For a consumer who loves almonds but has a limited budget, what is this new headline likely to trigger?

• supply shock leading to higher consumption of almonds

• income effect leading to lower demand for several goods

• law of demand leading to lower price for all goods

• market equilibrium leading to stable prices for almonds

The Demand Schedule

A demand schedule is a table that lists the quantity of a good that a person will purchase at various prices in a market.

Understanding Demand

To have demand for a good, you must be willing and able to buy it at the specified price. In other words, demand means that you want the good and can afford to buy it. 

Fill in the Blanks

Both individual and market demand schedules record how changing prices affect quantity demanded. Analyze Data In these schedules, how much pizza does the market demand at $3 a slice?

Market Demand Schedules

A market demand schedule shows the quantities demanded at various prices by all consumers in the market. A market demand schedule for pizza would allow a restaurant owner to predict the total sales of pizza at several different prices.

Multiple Choice

Define The owner of a sandwich shop surveyed her customers on how often they came in, which sandwiches they preferred, and what quantity of sandwiches they ordered. She then added up the quantities demanded by all her consumers at each price. What did she create?

• demand for sandwiches

• a market demand schedule

• the substitution effect

• an individual demand schedule

The Demand Graph

A demand curve is a graphic representation of a demand schedule.

Reading a Demand Curve

the graph shows only the relationship between the price of this good and the quantity that Ashley will purchase. It assumes that all other factors that would affect Ashley’s demand for pizza—like the price of other goods, her income, and the quality of the pizza—are held constant.

Limits of a Demand Curve

The market demand curve in Figure 3.2 can predict how people will change their buying habits when the price of a good rises or falls. For example, if the price of pizza is $3 a slice, the pizzeria will sell 200 slices a day.

This market demand curve is only accurate for one very specific set of market conditions. It cannot predict changing market conditions.

Fill in the Blanks

These graphs use the data from the individual and market demand schedules to show demand graphically. Analyze Graphs How much pizza does Ashley demand at $5 a slice?

Multiple Choice

Distinguish The difference between a market demand curve and an individual demand curve is that the market demand curve

• provides data about only one consumer.

• is curved and not straight.

• provides data about many consumers.

• is usually much shorter than an individual demand curve

Open Ended

How do we affect the economy?