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1、Understanding Demand,Objective: What is the law of demand? How do the substitution effect and income effect influence decisions? What is a demand schedule? What is a demand curve?,*Be sure to leave a couple blank lines under each question and answer the questions at the end of the lesson.,CA Standar
2、d(s) Covered,12.2 Students analyze the elements of Americas market economy in a global setting. 1. Understand the relationship of the concept of incentives to the law of supply and the relationship of the concept of incentives and substitutes to the law of demand.,Chapter 4 Video,The law of demand s
3、tates that consumers buy more of a good when its price decreases and less when its price increases.,What Is the Law of Demand?,The law of demand is the result of two separate behavior patterns that overlap, the substitution effect and the income effect.,The Substitution Effect and Income Effect,The
4、Substitution Effect The substitution effect occurs when consumers react to an increase in a goods price by consuming less of that good and more of other goods. As pizza price goes up, people start buying other things, like tacos instead.,The Income Effect The income effect happens when a person chan
5、ges his or her consumption of goods and services as a result of a change in real income. If the price of a good rises and income stays the same, fewer goods are bought. If price of pizzas, tacos and everything else goes up, but your allowance stays the sametherefore, youll buy fewer (less) items for
6、 lunch.,Demand Schedules,The Demand Schedule,A demand schedule is a table that lists the quantity of a good a person will buy at each different price.,A market demand schedule is a table that lists the quantity of a good all consumers in a market will buy at each different price.,Demand,The Demand C
7、urve,A demand curve is a graphical representation of a demand schedule. Price = Quantity Price = Quantity ,Current Event Video,Lets get another point of view on supply & demandClick Here!,Section 1 Assessment,1. The law of demand states that (a) consumers will buy more when a price increases. (b) pr
8、ice will not influence demand. (c) consumers will buy less when a price decreases. (d) consumers will buy more when a price decreases. 2. If the price of a good rises and income stays the same, what is the effect on demand? (a) the prices of other goods drop (b) fewer goods are bought (c) more goods
9、 are bought (d) demand stays the same,Section 1 Assessment,1. The law of demand states that (a) consumers will buy more when a price increases. (b) price will not influence demand. (c) consumers will buy less when a price decreases. (d) consumers will buy more when a price decreases. 2. If the price
10、 of a good rises and income stays the same, what is the effect on demand? (a) the prices of other goods drop (b) fewer goods are bought (c) more goods are bought (d) demand stays the same,Lets get another point of view on supply & demandClick Here!,HW,Read pages 79-83 and complete questions 1-2 p. 8
11、3.,Shifts of the Demand Curve,Objective: What is ceteris paribus? What factors can cause shifts in the demand curve? How does the change in the price of one good affect the demand for a related good?,*Be sure to leave a couple blank lines under each question and answer the questions at the end of th
12、e lesson.,CA Standard(s) Covered,12.2 Students analyze the elements of Americas market economy in a global setting. 1. Understand the relationship of the concept of incentives to the law of supply and the relationship of the concept of incentives and substitutes to the law of demand. 2. Discuss the
13、effects of changes in supply and/or demand on the relative scarcity, price, and quantity of particular products.,Shifts in Demand,Ceteris paribus is a Latin phrase economists use meaning “all other things held constant.” Only one thing changes. i.e.: Price of pizza changes, but nothing else. A deman
14、d curve is accurate only as long as the ceteris paribus assumption is true. When the ceteris paribus assumption is dropped, movement no longer occurs along the demand curve. Rather, the entire demand curve shifts. Change in demand,1. Income Changes in consumers incomes affect demand. A normal good i
15、s a good that consumers demand more of when their incomes increase. An inferior good is a good that consumers demand less of when their income increases. 2. Consumer Expectations Whether or not we expect a good to increase or decrease in price in the future greatly affects our demand for that good t
16、oday. 3. Population Changes in the size of the population also affects the demand for most products. 4. Consumer Tastes and Advertising Advertising plays an important role in many trends and therefore influences demand.,What Causes a Shift in Demand?,Several factors can lead to a change in demand:,The demand curve for one good can be affected by a change in the demand for another good.,Prices of Related Goods,Complements are two goods that are bought and used together. Example: sk
