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Chapter Introduction

Section 1: Demand

Section 2: Factors Affecting Demand

Section 3: Supply and the Supply Curve

Section 4: Demand and Supply at Work

Visual Summary

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Chapter Intro 1

Two forces work together in markets to establish prices for all the goods and services we buy. They are demand— the desire, willingness, and ability to buy a good or service, and supply—the quantities of a good or service that producers are willing to sell at all possible market prices.



Chapter Intro 2

Section 1: Demand

Supply and demand in a market interact to determine price and the quantities bought and sold. Demand is the desire, willingness, and ability to buy a good or service.



Chapter Intro 2

Section 2: Factors Affecting Demand

Supply and demand in a market interact to determine price and the quantities bought and sold. Several factors can cause market demand for a product or service to change.



Chapter Intro 2

Section 3: Supply and the Supply Curve

Supply and demand in a market interact to determine price and the quantities bought and sold. Supply is the willingness and ability to produce and sell a good or service.



Chapter Intro 2

Section 4: Demand and Supply at Work

Supply and demand in a market interact to determine price and the quantities bought and sold. In our economy, the forces of supply and demand work together to establish prices.



Chapter Preview-End



Section 1-Main Idea

Guide to Reading

Big Idea

Supply and demand in a market interact to determine price and quantities bought and sold.



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Section 1-Key Terms

Guide to Reading

Content Vocabulary

• demand

• demand schedule

• demand curve

• law of demand

• market demand

• utility

• marginal utility

Academic Vocabulary

• identify

• illustrate

• likewise




A. A

B. B

Section 1-Polling Question

Have you ever bought something just because it was cheap?

A. Yes

B. No

A B

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Section 1

An Introduction to Demand

Demand is the desire, willingness, and ability to buy a good or service.



Section 1

An Introduction to Demand (cont.)

• Demand is the desire, willingness, and ability to buy a good or service.

• Demand schedule:

– Lists how much of a product someone would be willing to buy at different prices



Section 1


• Demand curve:

– Graph showing how much of a product would be bought at all possible prices



Section 1

• The law of demand

– Quantity demanded and price move in opposite directions

– A common sense approach to demand




A. A

B. B

Section 1

Do you agree that people often wish to buy things that they are unable to purchase?

A. Agree

B. Disagree

A B

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Section 1

Market Demand

Market demand is the total demand of all consumers for a product or service.



Section 1

Market Demand (cont.)

• Market demand is the total demand of all consumers for a product or service.

• Determining market demand for an item involves research.

The Law of Demand



Section 1


• Utility:

– The pleasure a product provides

– Not all objects have utility for all people



Section 1

• Diminishing marginal utility—product pleasure decreases with increased consumption

• Explains why prices fall as consumers buy more of an item.




A. A

B. B

Section 1

Do you think you would be willing to pay the same amount for a second copy of an item?

A. Yes

B. No

A B

0%0%



Section 1-End



Section 2-Main Idea

Guide to Reading

Big Idea

Supply and demand in a market interact to determine price and the quantities bought and sold.




Section 2-Key Terms

Guide to Reading

Content Vocabulary

• substitute

• complement

• demand elasticity

Academic Vocabulary

• immigration

• phenomenon




A. A

B. B


Do you think that people should wait a certain period of time before making a large purchase?

A. Yes

B. No

A B

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Section 2

Changes in Demand

Several different factors can cause market demand for a good or service to change.



Section 2

Changes in Demand (cont.)

• Demand changes over time due to many forces.

• Changes in demand:

– More consumers enter the market

– Incomes, tastes, and expectations change

– Prices of related goods change

– Can be shown with market demand curve



Section 2

• Changes in population:

– More consumers means higher demand

– Fewer consumers means lower demand

– Can be affected by immigration

– May also be affected by birth and death rates or migration to other areas




Section 2

• Changes in income:

– High wages give people more money to spend

– Low wages give people less money to spend




Section 2

• Changes in taste:

– Advertising boost

– Popularity fades over time




Section 2

• Changes in expectations:

– Knowledge about future products

– Worry about future events


A Change in Demand



Section 2

• Product-Related Changes:

– Changes in quality

– Changes in substitutes

– As price of product goes up, demand for its substitute will also go up.


Change in Demand for Substitutes



Section 2

– Changes in complements (products used together)

– As demand for one product goes up or down, so will demand for its complements.


• Change in quantity demanded tracks the movement along a given demand curve.



A. A

B. B

C. C

D. D

Section 2

A B C D

0% 0%0%0%

Which of the following expectations would make you change your current spending habits?

A. New fuel technology due in ten years

B. Changes in clothing style

C. An upcoming presidential election

D. The release of a new video game system



Section 2

Elasticity of Demand

Demand elasticity is the extent to which a change in price causes a change in the quantity demanded.



Section 2

Elasticity of Demand (cont.)

• Demand elasticity is the extent to which price changes affect demand.

• Causes of Elastic Demand:

– Attractive substitutes

– Ability to postpone purchase



Section 2

Elasticity of Demand (cont.)

• Causes of Inelastic Demand:

– Few or no substitutes (e.g., medicine)

• Demand for luxuries more elastic than demand for necessities



A. A

B. B

Section 2

Do you agree that gasoline has an inelastic demand?

A. Agree

B. Disagree

A B

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Section 2-End



Section 3-Main Idea

Guide to Reading

Big Idea





Section 3-Key Terms

Guide to Reading

Content Vocabulary

• supply

• law of supply

• supply schedule

• supply curve

• profit

• market supply

• productivity

• technology

• subsidy

• supply elasticity




Section 3-Key Terms

Guide to Reading

Academic Vocabulary

• motive

• restrict




A. A

B. B


Do you agree that producers should always provide a greater supply of a product than they think they will really need?

A. Agree

B. Disagree

A B

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Section 3

An Introduction to Supply

Supply is the quantities of a good or service that producers are willing to sell at all possible market prices.



Section 3

An Introduction to Supply (cont.)

• Supply is the quantity of goods and service for sale.

• Supply is the opposite of demand.



Section 3

• The law of supply:

– As prices go up, so do supplies of goods; as prices go down, so do supplies

– Law illustrated by a supply schedule

An Introduction to Supply (cont.)

The Law of Supply



A. A

B. B

Section 3

Do you know why diamonds, a luxury item, costs more than water, which is need for survival?

A. Yes

B. No

A B

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Section 3

Graphing the Supply Curve

As with the law of demand, special tables and graphs can show the law of supply.



Section 3

Graphing the Supply Curve (cont.)

• Special graphs and tables can show the law of supply.

• A supply curve graphically shows the amount of a product that would be supplied at all possible prices in the market.



Section 3

• Profit motive:

– Pushes producers to try to make money above costs

– Profits can be invested many ways:


• Increase wages

• Invest in business



Section 3

• Acquire more space

• Buy new equipment

• Hire more workers

• Keep money




Section 3

• Market supply:

– Slope follows individual trends

– Upward slope shows that producers prefer to sell more items at higher prices

– Most important influence is price




A. A

B. B

C. C

D. D

Section 3

A B C D

0% 0%0%0%

If you were a business owner, what would you do with your profits?

A. Increase workers wages

B. Buy more equipment

C. Hire more workers

D. Spend it on a personal vacation



Section 3

Changes in Supply

Supply increases or decreases depending on many different factors.



Section 3

Changes in Supply (cont.)

• Different factors cause increases and decreases in overall supply.

• The cost of resources:

– When the price of resources falls, supply goes up.

– When the price of resources goes up, supply falls.

Shifts in the Supply Curve



Section 3

• Productivity:

– When productivity increases, costs go down.

– When productivity decreases, costs go up.




Section 3

• Technology:

– Can lower costs of production and increase supply




Section 3

• Government policies:

– Usually restrict supply

– Taxes


• Higher taxes lower supply

• Lower taxes increase supply



Section 3

• Subsidies:

– Lower production costs


• Expectations:

– Producers may adjust supply to meet expected demand



Section 3

• Number of Suppliers:

– More suppliers cause more supply

– Fewer suppliers cause less supply




A. A

B. B

C. C

D. D

Section 3

A B C D

0% 0%0%0%

Which of the following do you think has the greatest impact on supply?

A. Cost of resources

B. Technology

C. Expectations

D. Number of suppliers



Section 3

Elasticity of Supply

Supply elasticity measures how the quantity supplied of a good or service changes in response to changes in price.



Section 3

Elasticity of Supply (cont.)

• Supply elasticity measures how the quantity of a good or service changes in response to price.

• Depends on the speed at which producers can adjust supply to meet higher prices.

– Inelastic supply cannot easily add more supply when prices are high.

– Elastic supply can quickly increase production when prices go up.



A. A

B. B

C. C

D. D

Section 3

A B C D

0% 0%0%0%

Which of the following supplies would be the hardest to increase quickly?

A. Beef

B. Gold

C. Water

D. Corn



Section 3-End



Section 4-Main Idea

Guide to Reading

Big Idea





Section 4-Key Terms

Guide to Reading

Content Vocabulary

• surplus

• shortage

• equilibrium price

• price ceiling

• price floor

• minimum wage

Academic Vocabulary

• mechanism

• purchase

• focus




A. A

B. B


Do you think an economy would work if everything cost the same price?

A. Yes

B. No

A B

0%0%



Section 4

Markets and Prices

The forces of supply and demand work together in markets to establish prices.



Section 4

Markets and Prices (cont.)

• Supply and demand work together to establish prices.

• Surplus indicates price is too high for demand.

• Shortage indicates price is too low for demand.

The Price Adjustment Process



Section 4

• The balance between supply and demand is equilibrium price.

– Stays until supply or demand changes




Section 4

• Government control over prices:

– Caused by unfair balance between supply and demand

– Price ceiling—maximum price for goods and services

– Price floor—minimum price that can be charged for goods and services

– Minimum wage is example of price floor




A. A

B. B

Section 4

Do you think the government should control prices?

A. Yes

B. No

A B

0%0%



Section 4

Prices as Signals

In our economy, prices are signals that help businesses and consumers make decisions.



Section 4

Prices as Signals (cont.)

• Prices help businesses and consumers make decisions.

• Advantages of prices:

– They are neutral.

– They are flexible.

– They allow freedom of choice.

– Opposite in command economy

– They are familiar.



A. A

B. B

Section 4

Are there any advantages to the lack of choice offered in command economies?

A. Yes

B. No

A B

0%0%



Section 4-End



VS 1



VS-End



Figure 1

Figure 2

Figure 3

Figure 4

Figure 5

Figure 6

TIME Trans

DFS Trans 1

DFS Trans 2

DFS Trans 3

As the supply

increases, the price

decreases.

DFS Trans 4

Vocab1

demand

the desire, willingness, and ability to buy a good or service

Vocab2

demand schedule

a table showing quantities demanded at different possible prices

Vocab3

demand curve

downward-sloping line that graphically shows the quantities demanded at each possible price

Vocab4

law of demand

the concept that people are normally willing to buy less of a product if the price is high and more of it if the price is low

Vocab5

market demand

the total demand of all consumers for a product or service

Vocab6

utility

the amount of satisfaction one gets from a good or service

Vocab7

marginal utility

additional use that is derived from each unit acquired

Vocab8

identify

to find or show the identity of

Vocab9

illustrate

to show or make clear by example

Vocab10

likewise

similarly or in addition

Vocab11

substitute

a competing product that consumers can use in place of another

Vocab12

complement

product often used with another product

Vocab13

demand elasticity

measure of responsiveness relating change in quantity demanded to a change in price

Vocab14

immigration

the arrival of people from another region

Vocab15

phenomenon

a rare or important fact or event

Vocab16

supply

the amount of goods and services that producers are able and willing to sell at various prices during a specified time period

Vocab17

law of supply

the principle that suppliers will normally offer more for sale at higher prices and less at lower prices

Vocab18

supply schedule

table showing quantities supplied at different possible prices

Vocab19

supply curve

upward-sloping line that graphically shows the quantities supplied at each possible price

Vocab20

profit

the money a business receives for its products or services over and above its costs

Vocab21

market supply

the total of all the supply schedules of all the businesses that provide the same good or service

Vocab22

productivity

the degree to which resources are being used efficiently to produce goods and services

Vocab23

technology

the methods or processes used to make goods and services

Vocab24

subsidy

a government payment to an individual, business, or group in exchange for certain actions

Vocab25

supply elasticity

responsiveness of quantity supplied to a change in price

Vocab26

motive

something that causes a person to act

Vocab27

restrict

to place limits on or keep within bounds

Vocab28

surplus

situation in which quantity supplied is greater than quantity demanded; situation in which government spends less than it collects in revenues

Vocab29

shortage

situation in which quantity demanded is greater than quantity supplied

Vocab30

equilibrium price

the price at which the amount producers are willing to supply is equal to the amount consumers are willing to buy

Vocab31

price ceiling

maximum price that can be charged for goods and services, set by the government

Vocab32

price floor

minimum price that can be charged for goods and services, set by the government

Vocab33

minimum wage

lowest legal wage that can be paid to most U.S. workers

Vocab34

mechanism

the steps that compose a process or activity

Vocab35

purchase

to buy or pay for

Vocab36

focus

a central point of attention or activity

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