Understanding Markets: Demand and Consumer Behavior

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Unit 2 – Understanding
Markets
 
CHAPTERS 4, 5, & 6
 
honors
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Demand
 
CHAPTER 4
 
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What is Demand?
 
LESSON 1
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Discussion Question
Think about something you have been wanting to
buy. What is its price? At what price would you be
willing to buy the item?
Pg.102
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An Introduction to Demand
 
A. Demand
 is the desire, ability, and willingness to buy a product.
 
B. 
An 
individual demand curve
 illustrates how the quantity that a
person will demand varies depending on the price of a good or
service.
 
C. 
Economists analyze demand by listing prices and desired quantities
in a 
demand schedule
 (chart). When the demand data is graphed, it
forms a demand curve with a downward slope.
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u
r
n
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The Law of Demand
 
A. 
The 
Law of Demand
 states that the quantity demanded of a good
or service varies inversely with its price. When
price goes up, the quantity demanded goes down; when
price goes down, the quantity demanded goes up.
 
B. 
A 
market demand curve
 illustrates how the quantity that all
interested persons 
(the market) 
will demand varies depending on the
price of a good or service.
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Discussion Question
What could be a consumer’s obstacle to buying?
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Demand and Marginal Utility
 
A. Marginal utility
 is the extra usefulness or satisfaction a person
receives from getting or using one more unit of a
product.
 
B. 
The principle of 
diminishing marginal utility
 states that the
satisfaction we gain from buying a product lessens as we
buy more of the same product.
 
Fear of Buying
 
 
1.  How does an individual's income affect his or her
spending habits?
 
2.  What can retailers do to increase demand when people
are spending less?
 
3. Given consumers' mood during the recession in the
United States, what can be done to give consumers
confidence and/or decrease their fear of buying?
 
 
 
Demand
 
Make a Demand Curve
 
 
Pg.107 1&2
 
Market Demand Curve
 
Firm A
 
Firm B
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Factors Affecting
Demand
 
LESSON 2
PG.108
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Discussion Question
 
Imagine you have a weekly budget for groceries. When you
shop one week, certain items you needed were on sale,
and after you paid the cashier, you had $20 left. What
would you do with the extra money?
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Change in the Quantity Demanded
 
A. 
The 
change in quantity demanded
 shows a change in the amount of
a product purchased when there is a change
in price. pg. 109
 
B. 
The 
income effect
 means that as prices drop, consumers are left
with extra real income.
 
C. 
The 
substitution effect
 means that price can cause consumers to
substitute one product with another similar but
cheaper item.
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Change in Demand
 
 
A. 
A 
change in demand
 is when people 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.  Therefore, a change in demand results in an
entirely new curve.
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B. A change in demand can be caused by a change in
income, tastes, a price change in a related product
(either because it is a substitute or complement),
consumer expectations, and the number of buyers.
pg.110
 
Global Demand Impact on Food Prices
 
 
1.  How does global demand for more food affect the price of corn
and soybeans?
 
2.  How do bad weather and higher fuel prices affect the price of
food?
 
3.  Food prices continue to climb, and consumer wages remain flat.
What affect does this have on food purchases?
 
Effects on Demand
 
What is a new product or service that has gained popularity
in the past few years? (one or multiple) Why is it in high
demand? Do you think the demand for this product or
service will last? For how long? What do you think will be in
high demand in the future? (let’s say approx. 20 years from
now)
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Elasticity of Demand
 
LESSON 3
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Demand Elasticity
A. Elasticity
 measures how sensitive consumers are to price changes.
 
B. Demand is elastic
 when a change in price causes a large change in
demand. (luxury)
 
C. Demand is inelastic
 when a change in price causes a small change
in demand. (necessary)
 
D. 
Demand is 
unit elastic
 when a change in price causes a
proportional change in demand.
pg. 116 & 117
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The Total Expenditures Test
 
A. 
Price times quantity demanded equals 
total expenditures
.
Price of product x Quantity = total expenditures
 
B. 
Changes in expenditures depend on the elasticity of a demand
curve—if the change in price and expenditures move
in opposite directions on the curve, the demand is elastic; if
they move in the same direction, the demand is inelastic; if
there is no change in expenditures, demand is unit elastic.
 
C. 
Understanding the relationship between elasticity and profits can
help producers effectively price their products.
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Determinants of Demand Elasticity
Demand is elastic if the answer to the following questions are
“yes.”
 
A. Can the purchase be delayed
? Some purchases cannot be delayed, regardless of
price changes.
 
B. Are adequate substitutions available
? Price changes can cause consumers to
substitute one product for a similar
product.
 
C. Does the purchase use a large portion of income
? Demand elasticity can
increase when a product commands a large portion of a consumer’s income.
 
Total Expenditures Practice
 
 
Amazon shows that for every e-book sold at $14.99, it would sell
1.74 copies if priced at $9.99. For 100,000 units offered,
therefore, the haul would be $1.5 million at $14.99 and $1.74
million at $9.99.
Is this elastic, inelastic, or unit elastic?
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A concert venue can sell either 800 tickets
for $15 or 600 tickets for $20.  What type of
elasticity is this?  Is it better to sell them for
$15 or $20?
 
Determinants of Elasticity Chart
 
 
1.
Do you think it should be illegal to raise the price
on certain inelastic goods? Like what and why?
2.
Give me an example of an elastic item you have
bought in the past week. How much would you be
willing to pay for that item if it kept getting more
expensive? What about the same for an inelastic
item?
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Complete Demand activity and turn in for a grade
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Explore the concepts of demand, consumer behavior, and the factors influencing purchasing decisions in markets. Covering topics such as the law of demand, individual demand curves, marginal utility, and overcoming obstacles to buying, this educational material delves into the intricacies of supply and demand dynamics. Understand how prices, consumer preferences, and income levels shape market behaviors and decision-making processes.


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  1. Unit 2 Understanding Markets CHAPTERS 4, 5, & 6 honors

  2. Demand CHAPTER 4

  3. What is Demand? LESSON 1

  4. Discussion Question Think about something you have been wanting to buy. What is its price? At what price would you be willing to buy the item? Pg.102

  5. An Introduction to Demand A. Demand is the desire, ability, and willingness to buy a product. B. An individual demand curve illustrates how the quantity that a person will demand varies depending on the price of a good or service. C. Economists analyze demand by listing prices and desired quantities in a demand schedule (chart). When the demand data is graphed, it forms a demand curve with a downward slope. turn

  6. The Law of Demand A. The Law of Demand states that the quantity demanded of a good or service varies inversely with its price. When price goes up, the quantity demanded goes down; when price goes down, the quantity demanded goes up. B. A market demand curve illustrates how the quantity that all interested persons (the market) will demand varies depending on the price of a good or service.

  7. Discussion Question What could be a consumer s obstacle to buying?

  8. Demand and Marginal Utility A. Marginal utility is the extra usefulness or satisfaction a person receives from getting or using one more unit of a product. B. The principle of diminishing marginal utility states that the satisfaction we gain from buying a product lessens as we buy more of the same product.

  9. Fear of Buying 1. How does an individual's income affect his or her spending habits? 2. What can retailers do to increase demand when people are spending less? 3. Given consumers' mood during the recession in the United States, what can be done to give consumers confidence and/or decrease their fear of buying?

  10. Demand Price Quantity Demanded Make a Demand Curve 30 0 25 0 Pg.107 1&2 20 1 15 3 10 5 5 8

  11. Market Demand Curve Firm A Firm B Price Quantity Demanded Price Quantity Demanded 30 0 30 0 25 0 25 1 20 1 20 2 15 3 15 3 10 5 10 5 5 8 5 7

  12. Factors Affecting Demand LESSON 2 PG.108

  13. Discussion Question Imagine you have a weekly budget for groceries. When you shop one week, certain items you needed were on sale, and after you paid the cashier, you had $20 left. What would you do with the extra money?

  14. Change in the Quantity Demanded A. The change in quantity demanded shows a change in the amount of a product purchased when there is a change in price. pg. 109 B. The income effect means that as prices drop, consumers are left with extra real income. C. The substitution effect means that price can cause consumers to substitute one product with another similar but cheaper item.

  15. Change in Demand A. A change in demand is when people 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. Therefore, a change in demand results in an entirely new curve.

  16. B. A change in demand can be caused by a change in income, tastes, a price change in a related product (either because it is a substitute or complement), consumer expectations, and the number of buyers. pg.110

  17. Global Demand Impact on Food Prices 1. How does global demand for more food affect the price of corn and soybeans? 2. How do bad weather and higher fuel prices affect the price of food? 3. Food prices continue to climb, and consumer wages remain flat. What affect does this have on food purchases?

  18. Effects on Demand What is a new product or service that has gained popularity in the past few years? (one or multiple) Why is it in high demand? Do you think the demand for this product or service will last? For how long? What do you think will be in high demand in the future? (let s say approx. 20 years from now)

  19. Elasticity of Demand LESSON 3

  20. Demand Elasticity A. Elasticity measures how sensitive consumers are to price changes. B. Demand is elastic when a change in price causes a large change in demand. (luxury) C. Demand is inelastic when a change in price causes a small change in demand. (necessary) D. Demand is unit elastic when a change in price causes a proportional change in demand. pg. 116 & 117

  21. The Total Expenditures Test A. Price times quantity demanded equals total expenditures. Price of product x Quantity = total expenditures B. Changes in expenditures depend on the elasticity of a demand curve if the change in price and expenditures move in opposite directions on the curve, the demand is elastic; if they move in the same direction, the demand is inelastic; if there is no change in expenditures, demand is unit elastic. C. Understanding the relationship between elasticity and profits can help producers effectively price their products.

  22. Determinants of Demand Elasticity Demand is elastic if the answer to the following questions are yes. A. Can the purchase be delayed? Some purchases cannot be delayed, regardless of price changes. B. Are adequate substitutions available? Price changes can cause consumers to substitute one product for a similar product. C. Does the purchase use a large portion of income? Demand elasticity can increase when a product commands a large portion of a consumer s income.

  23. Total Expenditures Practice Amazon shows that for every e-book sold at $14.99, it would sell 1.74 copies if priced at $9.99. For 100,000 units offered, therefore, the haul would be $1.5 million at $14.99 and $1.74 million at $9.99. Is this elastic, inelastic, or unit elastic?

  24. A concert venue can sell either 800 tickets for $15 or 600 tickets for $20. What type of elasticity is this? Is it better to sell them for $15 or $20?

  25. Determinants of Elasticity Chart Consumer Good or Service Can the purchase be delayed? Are there adequate substitutes? Does the purchase use a large portion of income? Type of elasticity? Quart of milk Fix broken AC Unit McDonalds Homecoming Ticket Gas for car Taxes/Bills Souvenir at a theme park

  26. 1. Do you think it should be illegal to raise the price on certain inelastic goods? Like what and why? 2. Give me an example of an elastic item you have bought in the past week. How much would you be willing to pay for that item if it kept getting more expensive? What about the same for an inelastic item?

  27. Complete Demand activity and turn in for a grade

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