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Why It Matters Understanding Demand The Economics ATE_Ch04.qxd 1/4/06 10:43 AM Page 88 This chapter introduces and discusses a very important concept in economics: demand. This is the first of three chap- ters in which students learn about demand, supply, and the ways demand and supply work together in markets. The following statements provide brief Why It Matters descriptions of the major concepts cov- ered in each section of this chapter. ertain people and institutions play impor- Ctant roles in your life. For example, your parents, teachers, and friends are impor- Understanding tant. Government is an institution that also plays an Demand important part in your life. It determines such things as when you can get a driver’s license, the amount of taxes Section 1 discusses the basic concepts of you must pay, and when you will be able to vote. the law of demand. It also introduces the Markets also have a major impact on your life. A mar- elements of the demand curve. ket is any place where people come together to buy and sell goods or services. Markets determine what The Demand Curve prices you pay for computers, cars, television sets, Shifts books, and clothes. Markets also determine what peo- ple earn as teachers, truck Section 2 explores the factors that cause drivers, television and movie the demand curve to shift. These factors stars, baseball players, and include income, preferences, prices of nurses. How much money related goods, number of buyers, and you earn in the future will buyers’ expectations of future price. Sec- depend on markets. Shopping for a more pow- tion 2 also explains the difference If you are interested in the erful computer and the lat- prices you pay for the goods between a change in demand and a est software program can change in quantity demanded. and services you buy, or in be fun. Whether or not why some people earn these shoppers decide to higher salaries than others, make a purchase will then you will be interested in Elasticity of Demand depend on their willing- learning how markets work. ness and ability to buy, conditions you will learn The first step is to learn about Section 3 covers the relationship more about in this chapter. demand, the subject of this between the percentage change in quan- chapter. tity demanded and the percentage change in price. This is the elasticity of demand. 88 Teaching Suggestions from the Author This is the first chapter of the book that begins to use they understand the numbers in a demand schedule, diagrams in a big way. Most students will be unaccus- but when it comes to understanding what a demand tomed to translating what they know into diagrams. For curve says, they initially go blank. example, in this chapter we discuss the law of demand I know of no better way of getting students to and a demand schedule, and then translate each into a understand a diagram than to have them repeatedly demand curve. Students seem to have little trouble put into their own words what the diagram says. What understanding what the law of demand states, and does a demand curve say? What does a movement 88 Chapter 4 Demand Economics ATE_Ch04.qxd 5/9/06 11:12 AM Page 89 Introducing the Chapter You might want to open the chapter by telling students that many objects, such as buildings and computers, are com- The following events occurred one day posed of separate parts or building in June. blocks. Ask them to provide examples of objects and their component parts. Then 9:03 A.M. Sam is a student at a technical college in New tell them that a subject like economics is York City. He is currently working on one of the computers in the like those objects, and that a major school library. He’s not doing any research right now; instead, building block of economics is demand. he’s online checking the prices of various stocks. He recently You may also want to mention that inherited some money and is thinking of investing it in the stock another key component of economics is market. He checks the share price of various stocks: Georgia Pacific, General Motors, Microsoft, and Dell. He is thinking supply, which students will learn about about buying 100 shares of Dell, current price $39.35. He is in the next chapter. Write the definition about to place his order online with his online broker, when of demand (see page 90) on the board, he has second thoughts. A friend of his told him that the stressing the two parts of that defini- price of tech stocks, including Dell, would probably be tion—“willingness” and “ability.” going down this week. Maybe, Sam thinks, I should wait until later to buy this stock. Teaching with Visuals • What does the (expected) future price of a share of stock have to do with buying stock today? Demand is a concept with which stu- dents are familiar, even though the term 10:41 A.M. A U.S. senator is in his office talking with his staff. He is concerned about teenage demand may be new to them. Have them smoking in America. He wonders whether he, as a look at the photo on this spread and U.S. senator, can do anything to reduce the amount explain how demand is at work in it. of teenage smoking. One member of his staff says Students will probably say that the buy- that the federal government should increase the tax ers want the goods they are buying. An on a pack of cigarettes. “That way,” he says, “a lot of economist would say that the buyers are these kids will stop smoking.” “How so?” asks the expressing their demand for the goods— senator. “The tax will push up the overall price of their willingness and ability to purchase cigarettes,” the staffer says, “and that will lead to the goods. teens buying fewer cigarettes.” Another staffer enters the conversation. “I am not so sure many teens will stop smoking,” she says. “If they are really hooked on cigarettes, I think they may keep Economics in Action: on buying just as many cigarettes, even at the Student CD higher price.” • Will higher taxes on cigarettes cut down on Chapter Review the number of packs of cigarettes teens pur- After you have finished this chapter, chase? Will higher taxes cut down on the amount before you assign the Chapter Assess- of money teens spend on cigarettes? ment, you might want to suggest that 11:35 P.M. Evan is sitting up in bed reading a students use the activities and quizzes on magazine. He turns the page of the magazine and looks the Economics in Action: Student CD to at an ad about a hotel in Dallas. Under the name of the review the chapter content. Point out hotel are the words “The greatest hotel in the world.” that the quizzes may be taken in Review Evan reads the magazine for a few more minutes, then turns out the light in his bedroom, and goes to sleep. mode or in Practice Test mode. If you • What is the purpose of the Dallas hotel calling itself would like students to report their scores “the greatest hotel in the world”? to you, request that they use the Practice Test mode. 89 from one point on a demand curve to another point on demand curve says, “Buyers are willing and able to buy the same demand curve say? What does a shift right- more units of the good or service at each and every ward in the demand curve say? What does a shift left- price.” One shift in a curve as opposed to 19 words. ward say? Only by repeatedly going from the diagram Must be that economists use diagrams because they to their own words, will students come to understand like to economize. that a diagram is no more than a form of shorthand. For example, simply drawing a rightward shift in a Chapter 4 Demand 89 Economics ATE_Ch04.qxd 1/4/06 10:43 AM Page 90 Focus Questions ᮣ What is demand? ᮣ What is the difference between demand and quantity demanded? Understanding ᮣ Why do price and quantity demanded move in opposite directions? Demand ᮣ What is the law of diminishing marginal utility? Focus and Motivate ᮣ What is the difference between a demand schedule and a demand curve? Section Objectives Key Terms After completing this section, students market will be able to demand ᮣ explain the law of demand; law of demand ᮣ describe the difference between quantity demanded demand and quantity demanded; law of diminishing marginal utility ᮣ provide examples of the law of demand schedule diminishing marginal utility; and demand curve ᮣ create demand curves from given demand schedules. What Is Demand? Cruz has the willingness (she wants the car), but not the ability (not enough money) to A market is any place where people come buy the car. Under these circumstances together to buy and sell goods or services. (willingness, but not ability, to buy), Cruz Economists often say a market has two sides: does not have a demand for the car. ࡗ a buying side and a selling side. In econom- EXAMPLE: Molly is shopping for a new ics, the buying side is referred to as demand, Kickoff Activity cell phone. The one she likes is $129, which and the selling side is referred to as supply. In is within her price range. She was worried Tell students to reread the 9:03 A.M.
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