REMEMBER1. Use the note-taking instructions that I

previously provided.2. This is a SKELETON or Fill-In Outline of

notes. 3. User Interaction is Required – Merely

printing this does not constitute note-taking.

4. This means YOU must fill in details, explain concepts and answer questions.

5. Leave room to write in information.

Chapter 4 Demand

LTO: Understand the concept of Demand

Ch 4, Section 1

• STGs:1. 2. 3. 4.

Summarize the Section Objectives in your own words without changing the meaning. Abbreviate and shorten as needed.

What is Demand?

• The desire to own something (How badly do you want a good or service) and your ability to pay for it.

• Ex: John really wanted a new pair of shoes, but had no money for them. So, even though he wanted them, his demand for those shoes was zero.

Check your vocabulary homework. Change it/add to it as needed.

How do Prices Affect Demand?

• As the Price of a good increases, Demand goes down.

• When the Price decreases, Demand goes up.• This is the Law of DemandNow write the short notes notation for this that I gave in class.

Why does Demand do that?Pg 80, Figure 4.2

Two causes:1. Substitution Effect: instead of pizza, you buy

(substitute) burritos that are less expensive.2. Income Effect: As the pizza price increased, you cannot

afford the same quantity, so you cut back on # of slices of pizza and keep your purchases of other goods the same.

NOTE: If you chose to buy pizza slices at the higher price and gave up buying movie tickets instead, then the Income Effect did NOT happen. You MIGHT do this if there were no Substitutes and you were really hungry.

Q & A

• Pg 81, Figure 4.31. This Demand Schedule shows which effect

explicitly (requires no assumptions)?2. How many slices did the Individual want at 50

cents/slice?3. So, if the Market Demand is 300 slices, how

many people were buying pizza?

Demand Curve

• Graph the Individual Demand for the pizza.• Vertical Axis: Price• Horizontal Axis: Slices of pizza

Limits of a Demand Curve

• Shows only __________ (#) variables:

– _______________ and

– _____________________

How does Demand Affect Prices?

• The more Demand that there is for something, the price increases.

• The less Demand – the price decreases.

NOTE: Supply affects prices too, but that’s in the next chapter.

Section 2Shifts of the Demand Curve

Pg 85. STGs:1. 2. 3.

Summarize the Section Objectives in your own words without changing the meaning. Abbreviate and shorten as needed.

What is the assumption that is made when drawing a Demand Curve?

• Ceteris paribus – (define)

• Only _______________ changes.

Changes in Price and Demand Curve

• So, since all other variables (color of shoes,…) remains constant, the Demand Curve demonstrates what happens to Demand when there is a change in Price.

• Ex: Pg 86, Figure 4.6 GRAPH 1 ONLY• How many slices were purchased (Quantity

Demanded) when the Price for Pizza increased to $1.50 from $1.00?

• Did Demand: Increase, Decrease, Shift Out, Shift In?

A Change in Demand

• Is a change in Quantity Demanded at EVERY PRICE

• The Demand Curve will shift inward (less)– Ex: Pg 86, Graph #2

or• The Demand Curve will shift outward (more)– Ex: Pg 86, Graph #3

What Causes a Shift in the Demand Curve?

(The causes are on the next few slides)

1. Income – Summarize how income affects YOUR DEMAND for different types/quality of goods.

– Inferior Goods

– Normal Goods

What Causes a Shift in the Demand Curve? (cont’d)

2. Consumer Expectations • If a Consumer expects the price of gas to go

up tomorrow, how will that affect how much gas they want to buy today?

• If you know a pair of shoes go on sale next week, what is the effect on your demand for them today?

What Causes a Shift in the Demand Curve? (cont’d)

3. Population• An increase in Population creates more demand

for:• ____________________• ____________________

• As Baby Boomers (born 1940s-1964) get older, what is going to be the impact? (Read the last paragraph).

What Causes a Shift in the Demand Curve? (cont’d)

4. Consumer Tastes (Preferences) & AdvertisingGive an example of how Consumer Tastes have changed the demand for a good or service. Be specific.

Advertising has the goal of getting Consumers to buy a product or a service. So what effect do you think Advertising generally has on the Demand Curve?

What Causes a Shift in the Demand Curve? (cont’d)

5. Prices of Related Goods• Complements –

• Ex:• Effect on Demand for Jelly when the Price of Peanut Butter goes

up:

• Substitutes –

• Ex: • Effect on Demand: You like Tea and Coffee equally. The Price of

Coffee increases. What is the effect on Demand for Tea?

Section 3Elasticity of Demand

• STGs:1.

2.

3.

Elasticity of Demand

• Write the details below in your notes. Then, listen to the Activity in Class. Write the Definition, the scenarios and calculations of Elasticity . Allow 1 pg.

• Formula: (Pg 92, Figure 4.7)= % change in Demand divided by

% change in Price

Unitary – Result is 1Inelastic – Less than 1Elastic – More than 1

Factors Affecting Elasticity(explain the impact on Demand, don’t just fill in the blank)

1. Availability of _________________________

2. Relative Importance

3. Necessities vs ___________________

4. Change over Time

Elasticity and Revenue

• There is a balancing act facing Firms: Pg 96, Figure 4.9– When I lower the Price of Pizza, Demand Goes UP

BUT will the Increase in Sales be more than the Drop in Profit per Slice?

It depends on the Elasticity of Demand for the Pizza.

Elasticity and Pricingof Pizza Slices

• Participate in this Class Activity to determine what price to charge for Pizza.

Price Slices Demanded Total Revenue = Quantity Demanded x Price per Slice

$1.00

$1.50

$2.00

$2.50

$3.00

$5.00 (effect of Change over Time)