1. Pump Primer Without using your textbook, explain what you believe this term called “price” means.

2. CHAPTER 3 Value and Demand

3. Objectives: You should be able to... Identify and explain the principle of diminishing marginal utility Describe the three functions of price. Define demand. Identify the law of demand. Explain how changes in demand occur.

4. Biblical Integration: This world constantly changes, but God is the same today, as He was yesterday, and as He will continue to be tomorrow. (Heb.13:8)

5. Value The buyer determines the value of an item!The buyer determines the value of an item! Subjective Value = worth determined by the buyerSubjective Value = worth determined by the buyer CHAPTER 3 pp. 44-50

6. principle of diminishing marginal utility CHAPTER 3 pp. 44-50 people tend to receive less and less (diminishing) additional (marginal) satisfaction (utility) from any good or service as they obtain more and more of it during a specific period of time

7. CHAPTER 3 p. 45

8. principle of diminishing marginal utility “receive less and less” = diminishing“receive less and less” = diminishing “additional” = marginal“additional” = marginal “satisfaction” = utility“satisfaction” = utility “specific period of time” = time limit“specific period of time” = time limit CHAPTER 3 pp. 44-50

9. CHAPTER 3 p. 46

10. The Function of Prices transmit informationtransmit information provide incentivesprovide incentives redistribute incomeredistribute income CHAPTER 3 pp. 44-50

11. CHAPTER 3 p. 49

12. Where do prices come from? value = determined by buyervalue = determined by buyer price = determined by buyer and sellerprice = determined by buyer and seller supply and demandsupply and demand CHAPTER 3 pp. 50-56

13. demand CHAPTER 3 pp. 50-56 a willingness of consumers to purchase a product and their act of purchasing it

14. law of demand CHAPTER 3 pp. 50-56 everything else being held constant, the lower the price charged for a good or service, the greater the quantity of it people will demand, and the higher the price, the lower the quantity they will demand

15. CHAPTER 3 p. 51

16. demand schedule CHAPTER 3 pp. 50-56 a table listing various quantities demanded at various prices line-graph of demand schedule information demand curve

17. CHAPTER 3 p. 51 DEMAND CURVE

18. Giffen goods CHAPTER 3 pp. 50-56 goods that experience an increase in the quantity demanded as the price increases

19. inelastic demand CHAPTER 3 pp. 50-56 quantity is less responsive to the price

20. elastic demand CHAPTER 3 pp. 50-56 quantity demanded being far more responsive to the price

21. change in quantity demanded CHAPTER 3 pp. 50-56 whenever a change in price causes a change in the number of items demanded

22. CHAPTER 3 p. 52 MOVEMENT OF DEMAND

23. change in quantity demanded caused by a price changecaused by a price change moves along the same curvemoves along the same curve change in demand caused by a demand changecaused by a demand change shifts the whole curveshifts the whole curve CHAPTER 3 pp. 50-56

24. DEMAND AND QUANTITY DEMANDED Change in quantity demanded Change in quantity demanded D Q P Change in demand Change in demand D1 Q P D2

25. increase in demand CHAPTER 3 pp. 50-56 buyers are willing to demand more of a good or service at every price along the curve

26. CHAPTER 3 p. 52 SHIFT IN DEMAND

27. CHAPTER 3 p. 54

28. CHANGE IN DEMAND Figure 4.3 shows changes in demand. 1.When demand decreases, the demand curve shifts leftward from D 0 to D 1. 2.When demand increases, the demand curve shifts rightward from D 0 to D 2. (Bade 94)

29. Change in Demand = Shift 1.A change in people’s incomes 2.A change in the price of related goods 3.A change in people’s tastes and preferences 4.A change in people’s expectations 5.A change in the number of consumers CHAPTER 3 pp. 50-56

30. normal goods CHAPTER 3 pp. 50-56 goods that experience an increase in demand because of an increase in consumers’ incomes

31. inferior goods demand decreases because buyer’s income increasesdemand decreases because buyer’s income increases demand increases because buyer’s income decreasesdemand increases because buyer’s income decreases CHAPTER 3 pp. 50-56

32. substitute goods CHAPTER 3 pp. 50-56 goods that a household may use in place of others

33. complementary goods CHAPTER 3 pp. 50-56 goods that are usually purchased or used together

34. fad items CHAPTER 3 pp. 50-56 good and services that appear quickly on the scene, receive heavy advertisement, and sell in great quantities over a short period of time

35. Change in Expectations demand shifts due to anticipation of dramatic rise or fall of the price of a gooddemand shifts due to anticipation of dramatic rise or fall of the price of a good influenced by:influenced by: price changesprice changes advertisementsadvertisements CHAPTER 3 pp. 50-56

36. CHAPTER 3 p. 55

37. CHAPTER 3 p. 55

38. CHAPTER 3 p. 56

39. ACTIVITY 4 Demand National Council on Economic Education, New York, N.Y. National Council on Economic Education, New York, N.Y.

40. OBJECTIVES Define demand schedule and demand curve.Define demand schedule and demand curve. Construct a demand curve using hypothetical data.Construct a demand curve using hypothetical data. Explain why consumers buy more of a good or service when the price decreases.Explain why consumers buy more of a good or service when the price decreases. Explain the difference between a shift in the demand curve and a movement along the demand curve.Explain the difference between a shift in the demand curve and a movement along the demand curve. Describe and analyze the forces that shift the demand curve.Describe and analyze the forces that shift the demand curve. Explain why a demand curve would shift to the right or left given a scenario.Explain why a demand curve would shift to the right or left given a scenario.

41. INTRODUCTION This lesson introduces the market systemThis lesson introduces the market system Demand is half of a market and a demand schedule represents the quantities that people are willing and able to buy at alternative prices.Demand is half of a market and a demand schedule represents the quantities that people are willing and able to buy at alternative prices. The Demand Curve is a graphical representation of the demand schedule.The Demand Curve is a graphical representation of the demand schedule. Understanding a market is essential to success in Economics.Understanding a market is essential to success in Economics.

42. You will be graphing a demand schedule, which will help you to understand the implications of a shift in the demand curve.You will be graphing a demand schedule, which will help you to understand the implications of a shift in the demand curve. Activity 3 focuses on the factors that shift the demand curve (homework sheets).Activity 3 focuses on the factors that shift the demand curve (homework sheets). Activity 4 reinforces the factors that cause a demand curve to shift, the direction of the shift and whether the shift represents an increase or decrease in demand.Activity 4 reinforces the factors that cause a demand curve to shift, the direction of the shift and whether the shift represents an increase or decrease in demand.

43. MOVEMENT ALONG A DEMAND CURVE As the price declines from P to P1, the quantity increases from Q to Q1As the price declines from P to P1, the quantity increases from Q to Q1 As the price decreases, the quantity demanded increasesAs the price decreases, the quantity demanded increases

44. SHIFT IN DEMAND The graph shows an increase in demand is a shift to the right (and a decrease in demand is a shift to the left) Increase in demand from D to D 1 shows that at the same price (P), the quantity increased from Q to Q 1.

45. Factors that Shift Demand: Number of ConsumersNumber of Consumers Price of complementary goodPrice of complementary good Price of substitute goodPrice of substitute good Consumer incomeConsumer income Expectations about income or pricesExpectations about income or prices

46. ACTIVITY 4: REASONS FOR CHANGE IN DEMAND Break-up into groups of two or three and complete the following activity.Break-up into groups of two or three and complete the following activity.

47. Part APart A Read the eight newspaper headlines in Figure 4.2, and use the table to record the impact, if any, of each event on the demand for beef.Read the eight newspaper headlines in Figure 4.2, and use the table to record the impact, if any, of each event on the demand for beef. Use the first column to the right of the headline to show whether the event causes a change in demand.Use the first column to the right of the headline to show whether the event causes a change in demand. Use the next column to record whether the change is an increase or a decrease in demand.Use the next column to record whether the change is an increase or a decrease in demand. In the third column, decide whether the curve shifts left or right.In the third column, decide whether the curve shifts left or right. Finally, write the letter for the new demand curve.Finally, write the letter for the new demand curve. Use Figure 4.1 to help you.Use Figure 4.1 to help you. Always start at curve B, and move only one curve at a time.Always start at curve B, and move only one curve at a time. One headline implies that the demand for beef does not change.One headline implies that the demand for beef does not change.

48. ACTIVITY 4 YInc. RC Y RC YDec.LA Y LA N -- YDec.LA Y LA YInc. RC

49. ACTIVITY 4: REASONS FOR CHANGE IN DEMAND Part BPart B Categorize each change in demand in Part A according to the reason why demand changed.Categorize each change in demand in Part A according to the reason why demand changed. A given demand curve assumes that consumer expectations, consumer tastes and preferences, the number of consumers in the market, the income of consumers, and the prices of substitutes and complements are unchanged. In the table, place an X next to the reason that the event described in the headline caused a change in demand.A given demand curve assumes that consumer expectations, consumer tastes and preferences, the number of consumers in the market, the income of consumers, and the prices of substitutes and complements are unchanged. In the table, place an X next to the reason that the event described in the headline caused a change in demand. One headline will have no answer because it is a change in quantity demanded.One headline will have no answer because it is a change in quantity demanded.

50. X X X X X X X