Brief Response

• Why do businesses merge? (2)• By becoming larger and more efficient,

they want to increase or ensure their profits.

• Mergers usually attract investors, stock prices go up.

Microeconomics

Chapter 4 Demand Section 1 p. Terms:

• Demand• 89 the desire, ability, and willingness to

have/buy a product.• People compete with each other to purchase

products • handout

Microeconomics

• 89 the area of economics that deals with small units, such as – Individuals– firms

• Behavior• Decision making

• Helps explain how prices are determined• How individual economic decisions are made.

Demand schedule

• 90 a list that shows• Various quantities demanded• Various market prices for each quantity at a

given time.

Demand curve

• 91 a graphic organizer showing the data on the demand schedule.

• Usually a line graph– Joins various price/quantity points

• Upper left to lower right

Law of Demand

• 91 set phenomenon where the quantity demanded of a good or service varies with its price….– Price goes up, quantity demand goes down– Price goes down, quantity demand goes up

Market demand curve

• 91 shows the quantities demanded by EVERYONE who is interested in purchasing the product

Marginal utility

• 93 the extra USEFULNESS or SATISFACTION a person gets from acquiring or using ONE more unit of a product.– Explains why demand• Slows• Stops

Diminishing marginal utility

• 93 states that the extra satisfaction we get from using additional quantities of a product begins to disappear.– Don’t need it– Can’t use it– Can’t handle it.

Section 2 p. 95 Terms:

• Change in quantity demanded• 95 a movement along the demand curve• Shows a change in the quantity of the product

the market will purchase – Responding to a change in price.

Income effect

• 96 a change in quantity demanded because of a change in price that alters (changes) consumer’s real income– Price goes up– Income does not go up– = consumers buy less

Substitution effect

• 96 change in quantity demanded because of the change in the relative price of the product– Price goes up/down in a small way, probably no

change in quantity demanded– Price goes up/down in a large way, probably a

change in quantity demanded

Change in demand

• 96 happens when people are willing to buy different amounts of a product AT THE SAME PRICE.

• The entire curve shifts to the right.

Substitutes

• 98 products that can be used in place of other products– Margarine instead of butter

• Consumers will use substitutes if it satisfies their needs– At a lower price

Complements

• 98 The use of one product increases the use of another– Butter, jelly, bread are complements– Computers, software, and other hardware are

complements• People will buy complements to improve their

satisfaction with a product.

Hwk Assessments, Class Work, to Know

Assessments: Checking for UnderstandingCH 4, S1

• 1. • Desire• Ability• willingness

CH 4, S1

• 3• Both provide information about demand• The schedule in the form of a table• The curve in the form of a graph that shows

the trend

CH 4, S1

• 4• Diminishing marginal utility• As we use more of a product, we are not

willing to pay as much for it.– The demand curve is downward sloping– People will not pay as much for the second or

third product as they will the first.

Assessments: Checking for Understanding CH 4, S2

• 1• Because of decrease in price• Consumers have more real income• Leading to an increase in the quantity

demanded of a product

CH 4, S2

• 3• A change in quantity demanded reflects a – Change in the quantity of the product purchased– In response to a change in price

• A change in demand reflects a willingness to – Buy different amounts of a product at the same

price

CH 4, S2

• 4• The demand for a product tends to increase – If the price of its substitute goes up

Image, p. 92• Question• + who is EVERYONE in the example?

• Answer:• The curve will begin to level off as the extra

satisfaction from using additional CDs begins to diminish.

• Larry and Curly.• Are markets usually that small? – No, so why do they use just two people?– To keep it easy.

Image, copy questions. (on a separate sheet of paper, use your old one if space.)

• What does this graph show?

• How much revenue would be made at the price of $2

• Is that the best price for the company to ask? Explain completely.

Image, answer using this chart

Image• What does this image show?• Demand curve for widgets at various prices• How much revenue would be made at the price of $2• $4,000• Is that the best price for the company to ask? Explain• No, more revenue could be made at other prices.• Example: the price of $4.50 would yield a revenue of $4,500

– Increasing revenue by $500 over the $2 price.

Image, p. 96

• Question• a change in price alters consumers’ real

income • Consumers tend to substitute• Quantity moves in the opposite direction

Image, p. 98

• Question (6 possible answers)• Income effect• Consumer taste• Substitutes• Complements• Change in expectations• Number of consumers

Scarcity and Demand

• People compete with each other to have/purchase products they need or want.

• handout

Scarcity and Demand: Answers

• EC: What does the random pilot flying over the people in our scene represent in economics?– "The Invisible Hand" described by Adam Smith. A

new event changes the economic and social relations of the people in the economy.

Scarcity and Demand: Answers

• 1. What type of economy is this group of people living in? – traditional

• 2. What is the item that everybody wants? – A glass Coke bottle

• 3. Why is it so desirable? – It is harder, heavier, and smoother than materials

they have available for production; it has many uses.

Scarcity and Demand

• 4. List three uses people have for it?– a. grind grain– b. make patterns for cloth– c. masher– Also: curing snakeskin, making music, poker

• 5. When does scarcity begin to have it's effect? – when there is only one and many people want it; cannot

share it.• 6. What is the effect? – People begin to argue and physically fight over it.

Scarcity and Demand• 7. What do the people decide to do with the item?

– they get rid of it (bury it); • EC: Does anyone in class actually know what they do with it (the

rest of the story)? – Our hero is sent to throw it off the end of the world.

• 8. Why is that a good solution for their economic level? – It would change their society in a bad way. – Traditional societies do not allow change.

• 9. How would a free market economy (mixed economy) solve the problem?– The person with the most wealth would buy and own it. The owner

would control how it was used. They might rent it to others for a profit.

Brief Response

• Do you think the Coke bottle in the previous exercise had elastic demand or inelastic demand? Explain.