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CHAPTER 4, SECTION 1 Outlining Activity 000094 Econ Sampler.qxd 2/15/06 2:47 PM Page 35 000094 Econ Sampler.qxd 2/15/06 2:47 PM Page 36 Name: ____________________________________________________ Date: ____________________ CHAPTER 4, SECTION 1 Outlining Activity Look through the chapter for an overview of the material. Pay attention to the main topics in the book. As you scan each section of the book, fill in the missing words in the following outline. I. What Is Demand? A. Markets are where people come together to buy and sell goods or services. 1. ______________________Demand is the buying side of a market. 2. ______________________Supply is the selling side of a market. B. Demand refers to the willingness and ability of buyers to purchase a good or service. II. What Does the Law of Demand “Say”? A. The law of demand says that as the price of a good ______________________,increases quantity demanded of the good ______________________,decreases and as price of a good decreases, quantity demanded of the good increases. B. Quantity ______________________demanded refers to the number of units of a good purchased at a specific price. III. Why Do Price and Quantity Demanded Move in Opposite Directions? A. Price and quantity demanded move in opposite directions because of the law of _________________________________diminishing marginal utility. B. The law of diminishing marginal utility states that as a person consumes additional units of a good, the utility gained from each additional unit of the good ______________________.decreases IV. The Law of Demand in Numbers and Pictures A. A demand ______________________schedule is a numerical chart showing the law of demand. B. A demand curve is a(n) ______________________graphical representation of the law of demand. V. Individual Demand Curves and Market Demand Curves A. A(n) ______________________individual demand curve represents an individual’s demand. B. A(n) ______________________market demand curve is the sum of all individual demand curves added together. 36 Guided Reading and Study Guide—SAMPLE © EMC Publishing 000094 Econ Sampler.qxd 2/15/06 2:47 PM Page 37 Name: ____________________________________________________ Date: ____________________ CHAPTER 4, SECTION 1 Just the Facts Handout What Is Demand? A market is a place where people buy and sell things. A market has two sides. There is a buying side and a selling side. The buying side of a market is called demand. The selling side is called supply. Demand is the willingness and ability of buyers to purchase different amounts of something at different prices, during a specific time period. Willingness to buy means a person has a desire for a product. Ability means a person has the money to pay for it. Without both willingness and ability, there is no demand. Both must be present for there to be demand. What Does the Law of Demand “Say”? The law of demand says that when the price of a product goes up, the quantity de- manded goes down. This law also says the opposite. It says that when the price goes down, the quantity demanded goes up. Quantity demanded refers to the number of units of a good that are purchased at a specific price. Notice that the terms demand and quantity demanded sound alike. They are, however, different. You will learn more about this later. Why Do Price and Quantity Demanded Move in Opposite Directions? The law of diminishing marginal utility says that as a person uses more of a product, the person gets less satisfaction from it. For example, you get less satisfaction from the second hamburger you eat than from the first. You get less satisfaction from the third than from the second. And so on. The law of diminishing marginal utility affects the law of demand. The more satisfaction you receive from something, the more you will pay. The less satisfaction you receive, the less you will pay. This means that you will buy more of something only if it costs less. This is the law of demand. The Law of Demand in Numbers and Pictures We can show the law of demand with both numbers and pictures. A demand schedule shows the law of demand with numbers. A demand curve shows the law of demand in picture form (graphically). See Exhibit 4-1 on page 93 of your textbook. Individual Demand Curves and Market Demand Curves An individual demand curve shows one person’s demand for a good. A market demand curve shows the sum of all the individual curves for the good. See Exhibit 4-2 on page 94 of your text. Answer questions 1–4 in the Section 1 Assessment on page 94 of your textbook. © EMC Publishing Guided Reading and Study Guide—SAMPLE © EMC Publishing 37 000094 Econ Sampler.qxd 2/15/06 2:47 PM Page 38 Name: ____________________________________________________ Date: ____________________ CHAPTER 4, SECTION 2 Outlining Activity Look through the chapter for an overview of the material. Pay attention to the main topics in the book. As you scan each section of the book, fill in the missing words in the following outline. I. When Demand Changes, the Curve Shifts A. A rightward shift means that demand has ______________________.increased B. A leftward shift means that demand has ______________________.decreased II. What Factors Cause Demand Curves to Shift? A. Income 1. A good for which demand rises as income rises and falls as income falls is a(n) ______________________.normal good 2. A good for which demand falls as income rises and rises as income falls is a(n) ______________________inferior good. 3. If a person buys the same amount of a good when income changes, the good is a neutral good. B. ______________________Preferences 1. People’s ______________________preferences affect how much of a good they buy. C. Prices of Related Goods 1. With ______________________,substitutes the demand for one good moves in the same direction as the price of the other good. 2. With ______________________,complements the demand for one good moves in the opposite direction as the price of the other. D. Number of ______________________Buyers E. ______________________Future Price 1. Buyers who expect the price of a good to be ______________________higher in the future may buy the good now. In this case, current demand for the good ______________________.increases 2. Buyers who expect the price of a good to be ______________________lower in the future may wait and buy the good later. In this case, current demand for the good falls ______________________. 38 Guided Reading and Study Guide—SAMPLE © EMC Publishing 000094 Econ Sampler.qxd 2/15/06 2:47 PM Page 39 III. What Factor Causes a Change in Quantity Demanded? A. A change in quantity demanded refers to a movement ______________________along a demand curve. B. Only the ______________________price of the good can directly cause a change in the ______________________.quantity demanded © EMC Publishing Guided Reading and Study Guide—SAMPLE CHAPTER 4, SECTION 2 39 000094 Econ Sampler.qxd 2/15/06 2:47 PM Page 40 Name: ____________________________________________________ Date: ____________________ CHAPTER 4, SECTION 2 Just the Facts Handout When Demand Changes, the Curve Shifts Demand can change. It can go up, or it can go down. When demand changes, the demand curve moves. It can move either left or right. When demand increases, the curve moves to the right. When demand decreases, the curve moves to the left. See Exhibit 4-3 on page 95 of your textbook. What Factors Cause Demand Curves to Shift? Several things can cause demand to change. These factors include • income; • buyer preferences; • prices of related goods; • number of buyers; and • future price. Income When a person’s income changes, his or her demand for goods can change. The changes in demand depend on the goods involved. Economists talk about three kinds of goods when they talk about income and demand: • normal goods • inferior goods • neutral goods If income and demand move in the same direction, the good is a normal good. For example, if your income rises and you buy more of a good, the good is a normal good. If your income falls and you buy less, the good is also a normal good. If income and demand move in opposite directions, the good is an inferior good. If your income goes up and you buy less of a good, it is an inferior good. If your income goes down and you buy more, the good is also an inferior good. If income changes but the demand does not change, the good is a neutral good. Preferences People’s preferences (what they like most) affect demand. If more people start to like something, demand goes up for that item. If demand goes up, the demand curve moves to the right. If people stop liking something, the demand goes down and the curve shifts to the left. Prices of Related Goods Demand is affected by the prices of related goods. There are two types of related goods. These are substitutes and complements. Substitutes are similar goods. One can take the place of the other. Peanuts can substitute for pretzels, for example. The price of one good and the demand for the other move in the same direction. For example, if the price of pretzels goes up, the 40 Guided Reading and Study Guide—SAMPLE © EMC Publishing 000094 Econ Sampler.qxd 2/15/06 2:47 PM Page 41 demand for peanuts goes up. Complements are two goods that are used together. Tennis rackets and tennis balls are complements. The demand for one good and the price of the other move in opposite directions. If the price of tennis rackets goes up, the demand for tennis balls goes down. Number of Buyers The more buyers for a good, the higher the demand.
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