Economics: New Ways of Thinking

Economics: New Ways of ThinkingAncillary Sampler

Thank you for your interest in EMC Publishing’s Economics: New Ways of Thinking! By nowyou have probably discovered why we were so excited to offer our new textbook that teachesbasic economics principles through powerful real-world examples.

We are equally excited to present the robust ancillaries you will use to energize your teachingof this program. The key ancillaries were written by outstanding teachers who know whatyou and your students need and want.

This booklet contains Chapter 4 of each print ancillary included in our newest economicsprogram. Please note that we also offer teacher’s editions for three of these supplements:Applying the Principles Workbook, Guided Reading and Study Guide, and Finding Economics.

If you would like to review the complete versions of any of the ancillary components, pleasecall 800-328-1452.

Table of Contents

Introduction Pages 1–2

Assessment Book: Tests and Quizzes with Answer Key Pages 3–14

Applying the Principles Workbook Pages 15–33

Guided Reading and Study Guide Pages 35–50

Finding Economics Pages 51–54

Lesson Plans Pages 55–61

Daily Lectures: Overheads and Notes Pages 63–72

Use the Complete Print Ancillary Program!

Assessment Book: Test and Quizzes with Answer Key – See pages 3–14

• One quiz for each section of the book (50 quizzes total)• Two tests for each chapter of the book (32 tests total)

Applying the Principles Workbook, and Teacher’s Edition – See pages 15–33

• Exercises that reinforce the textbook material and apply it to new situations• One activity for each section of the book, plus extra practice on demand and supply• More than 80 charts, graphs, and figures

Guided Reading and Study Guide, and Teacher’s Edition – See pages 35–50

• For each section of the book, one handout that summarizes key points in simple languagefor students who read below grade level, and one outlining activity

• For each chapter of the book, one vocabulary activity, one graphic organizer activity, onegraphs and tables activity, and one practice test

Finding Economics, and Teacher’s Edition – See pages 51–54

• Fictional, high-interest short stories embedded with economics principles, one story foreach chapter of the book

• Content that builds cross-curricular connections required in state standards

Lesson Plans – See pages 55–61

• Detailed lesson plans for every section of the textbook

Daily Lectures: Overheads and Notes – See pages 63–72 and pocket inside back cover

• Lecture notes with easy-to-follow narratives presenting key ideas, formatted so that theycan be used to make overhead transparencies

• Full-color transparencies for the most important and difficult economics principles,charts, graphs, and formulas

1INTRODUCTION

000094 Econ Sampler.qxd 2/15/06 2:46 PM Page 1

Energize with Technology!

Test Generator CD

• ExamView test generator on CD-ROM, with over 1,800 questions • Ability for teachers to select, create, and edit tests and quizzes

Spanish Audio CD

• Spanish audio segments summarizing key points from each section of the book

Marketplace ® CD

• Audio segments from the radio show Marketplace, two for each chapter of the textbook • Lesson plan for all the audio segments, plus student handouts and worksheets

Economics Principles Lectures, Videocassette and DVD

• Lectures on key economics principles, presented by the textbook author, Roger A. Arnold

Internet Resource Center

Study Guide• One outline for each chapter, including all subheads and key terms, with study questions

for students to answer• Ability for students to save, modify, and print the outlines

Crossword Puzzles• One crossword puzzle per chapter, covering the key terms

Current Events Lectures/Lessons• New lessons based on current events• Printable lesson plans, transparencies, worksheets, and handouts

Practice Tests• Review and reportable tests

Lesson Plans• Detailed lesson plans for every section of the textbook

Economics in Action: Student CD

Fun, animated, interactive, and engaging CD for students, including the following features:• English and Spanish audio summaries• Crossword puzzles• English and Spanish flash cards• Flash/video lessons on key graphs, charts, formulas, and figures, with related exercises • Review and reportable tests

2 INTRODUCTION



4

Name: _____________________________________________________ Date: ____________________

© EMC PublishingAssessment Book—SAMPLE

CHAPTER 4, SECTION 1 QUIZ

Sentence Completion

For questions 1–5, write the word or phrase that best completes each sentence on the line provided.

1. The numerical representation of the law of demand is called a(n)

_____________________________.

2. When buyers are willing and able to purchase different quantities of a good at different prices, it

demonstrates their _________________________________ for the item.

3. The _________________________________ of a good will increase or decrease as a result of a price

change.

4. A(n) _________________________________ exists in any place where people come together to buy

and sell goods or services.

5. The _________________________________ states that as prices increase, the quantity that buyers

will purchase will decrease.

True or False

Mark statements 6–10 true or false by writing T or F on the line provided.

______ 6. Demand curves do not include straight lines.

______ 7. Demand schedules and demand curves contain the same information presented in differentways.

______ 8. Buyers have demand for a good or service whenever they have enough money to purchase theitem.

______ 9. The law of diminishing marginal utility states that consumers value the first unit of a goodmore highly than an additional unit of the same item.

______10. A demand schedule lists only prices.


Name: _____________________________________________________ Date: ____________________

5© EMC Publishing Assessment Book—SAMPLE

Name: _____________________________________________________ Date: ____________________


Sentence Completion


1. A(n) _________________________________ is something for which the demand remains

unchanged as income rises or falls.

2. Two goods are _________________________________ if they are consumed together.

3. If demand for a particular good falls as income rises, it is called

a(n) _________________________________.

4. A good that can be used in place of another good is called

a(n) _________________________________.

5. _________________________________ are those things for which the demand rises as income rises

and falls as income falls.

True or False


______ 6. If the demand for chocolate increases, the demand curve shifts to the left.

______ 7. A shift of the curve and a movement along the curve are the same.

______ 8. Price is the only factor that causes a change in quantity demanded.

______ 9. Popcorn and butter would be classified as complementary goods.

______10. A shift of the curve means that the curve moves either right or left.


6

Name: _____________________________________________________ Date: ____________________

© EMC PublishingAssessment Book—SAMPLE


Sentence Completion


1. _________________________________ exists when the percentage change in quantity demanded is

less than the percentage change in price.

2. The concept of demand that deals with the relationship between price and quantity demanded is

called _________________________________.

3. A(n) _________________________________ is considered a reasonable replacement for something.

4. When buyers will purchase the same amount of a good, even though the price has increased, the

demand for that item is _________________________________.

5. Demand is _________________________________ when the percentage change in quantity

demanded is the same as the percentage change in price.

True or False


______ 6. In the elasticity equation, the numerator is percentage change in quantity demanded.

______ 7. If movie prices increase by 30 percent and attendance (quantity of tickets demanded) dropsby 40 percent, demand is considered inelastic.

______ 8. Time is one of the factors that determine elasticity of demand.

______ 9. Buyers are more responsive to price changes for goods on which they spend a larger percent-age of their income.

______10. If demand is inelastic and price decreases, total revenue will decrease.

Name: _____________________________________________________ Date: ____________________


Name: _____________________________________________________ Date: ____________________


Name: _____________________________________________________ Date: ____________________

CHAPTER 4, TEST A

True or False


______ 1. A demand curve is a graph that may contain a straight line that slopes downward from left toright.

______ 2. If demand for VCRs decreases, the curve would shift to the left.

______ 3. Price is the only factor that can cause a change in quantity demanded.

______ 4. Elasticity of demand deals with the relationship between price and quantity demanded.

______ 5. Elasticity is really measuring consumer response to a price change.

______ 6. Price has no impact on how much consumers will buy.

______ 7. One of the most important factors in determining whether or not the demand for a productis elastic is whether or not substitutes for it exist.

______ 8. Insulin and heart medicine are examples of inelastic goods.

______ 9. Chocolate bars, tropical vacations, and automobiles are all elastic goods.

______10. The law of demand states that consumers will buy more of a product at lower prices.

______11. If a good has many substitutes, it can be considered inelastic.

______12. The law of demand states that as prices rise, the quantity demanded rises also.

______13. Economists state that the more utility you receive from an item, the higher price you are will-ing to pay for it.

______14. If you eat six slices of pizza, you are likely to get the same satisfaction from the last piece asyou enjoyed with the first piece.

______15. Demand and quantity demanded are basically the same.

______16. A demand schedule is a list of prices and the quantities demanded at each price.

______17. Demand curves slope upward from left to right.

______18. Whenever demand for a good changes, the demand curve for that good shifts to the right orthe left.

______19. As income rises, demand for normal goods rises.


8 CHAPTER 4, TEST A © EMC PublishingAssessment Book—SAMPLE

______20. Leading experts in the field of economics can predict with certainty when an economic eventwill occur.

______21. One critical determinant of elasticity is whether or not substitutes exist.

______22. In the elasticity equation, the percentage change in price is always on the top over the per-centage change in the quantity demanded.

______23. If a seller increases the price of a good, it will always bring about an increase in total revenue.

______24. Elasticity of demand is important to economists only; business owners don’t need to under-stand advanced economic concepts like elasticity.

______25. Quantity demanded is determined by price.

______26. One factor that determines demand is people’s preference.

______27. Pepsi and Coke can be considered substitutes.

______28. Future price has no relationship to current demand.

______29. A movement along the demand curve to a different point illustrates price change on a graph.

______30. Inelastic demand is usually associated with demand for luxuries.

Multiple Choice

For questions 31–40, write the letter of the best choice on the line provided.

______31. The prices consumers pay are determined by

a. chance.

b. producers.

c. markets.

d. advertising.

______32. A market is any place

a. where buyers and sellers meet.

b. where only sellers offer goods forsale.

c. with a sign designating a store.

d. where fruits and vegetables are sold.

______33. In economics, demand means

a. willingness and desire to buy a good.

b. willingness and ability to buy a good.

c. ability to buy a good.

d. willingness to buy a good.

______34. Demand curves

a. slope upward from left to right.

b. slope downward from left to right.

c. show a positive relationship.

d. slope downward from right to left.

______35. Which of the following could increasedemand for a good?

a. higher birthrate

b. increased immigration

c. higher prices in the future

d. All of the above

______36. A shift of the demand curve represents

a. a movement on the demand curve.

b. a change in the quantity demanded.

c. a change in demand.

d. All of the above


9CHAPTER 4, TEST A© EMC Publishing Assessment Book—SAMPLE

______37. Who determines whether a good isnormal or inferior?

a. individuals

b. sellers

c. government

d. All of the above

______38. If demand for a good is elastic and itsprice decreases, total revenue

a. goes up.

b. goes down.

c. remains the same.

d. cannot be predicted.

______39. What will happen in the car market ifconsumers expect higher prices in thenear future?

a. The demand for cars will decrease.

b. The demand for cars will increase.

c. The supply of cars will drop.

d. The demand for cars will notchange.

______40. If the number of buyers in the marketincreases, which of the following willhappen?

a. The supply in the market willincrease.

b. The demand in the market willdecrease.

c. The demand in the market willincrease.

d. The supply in the market willdecrease.

Short Essay

Write answers to essay questions 41 and 42 on the lines provided.

41. Illustrate the law of demand in words, in symbols, and as a graph.

Law of Demand


10 CHAPTER 4, TEST A © EMC PublishingAssessment Book—SAMPLE

42. Discuss the five factors that cause demand curves to shift and give a specific example of each one.


Name: _____________________________________________________ Date: ____________________


Name: _____________________________________________________ Date: ____________________

CHAPTER 4, TEST B

True or False


______ 1. In the elasticity equation, the numerator is the percentage change in price.

______ 2. When calculating elasticity of demand, if demand is less than 1 it is considered inelastic.

______ 3. In measuring elasticity, if the quantity demanded changes by the same percentage as price it isconsidered unit-elastic demand.

______ 4. If the quantity demanded changes by the same percentage as price, it is considered inelasticdemand.

______ 5. Consumers are price-sensitive to all products; therefore, all products are elastic.

______ 6. If salt prices increase 50 percent and the quantity demanded drops 25 percent, we know thatsalt is an elastic good.

______ 7. If DVD prices drop by 30 percent and the quantity demanded increases 60 percent, demand isinelastic.

______ 8. There is an inverse relationship between price and quantity demanded, according to the lawof demand.

______ 9. According to economists, as a person consumes additional units of a good, satisfaction fromeach additional unit decreases.

______10. Price and quantity demanded move in opposite directions according to the law of demand.

______11. Physical fitness centers (gyms) are not using economic thinking when they offer new enrolleestwo memberships for the price of one.

______12. Demand schedules demonstrate that as price decreases, quantity demanded always decreasesas well.

______13. Individual demand curves and market demand curves are different.

______14. If demand shifts to the right, it means that buyers want to buy more of the good at each andevery price.

______15. Economists refer to damaged goods as inferior goods.

______16. Neutral goods are those goods that have gone on sale.

______17. Economists, rather than consumers, determine which goods are normal or inferior.


12 CHAPTER 4, TEST B © EMC PublishingAssessment Book—SAMPLE

______18. When the demand for one good moves in the same direction as the price of another good, thetwo are complements.

______19. Price change is shown on a graph by a shift of the curve to the left.

______20. Unit-elastic demand exists when the quantity demanded changes by the same percentage asprice, and elasticity equals 1.

______21. Buyers are less responsive to price changes for goods on which they spend a smaller percent-age of their income.

______22. The less time you have to respond to a price change in a good, the more likely it is that yourdemand for the good is going to be inelastic.

______23. Because of the relationship between elasticity and total revenue, most sellers would prefer tosell elastic goods.

______24. If demand is elastic and the price is decreased, total revenue will increase.

______25. If you sell a product for which the demand is inelastic and you reduce the price, your total revenue will decrease.

______26. Due to elasticity of demand, a sold-out concert guarantees that total revenue is maximized.

Multiple Choice

For questions 27–40, write the letter of the best choice on the line provided.

______27. The law of demand can be represented

a. in picture form as a graph.

b. in words.

c. as a schedule listing prices andquantities demanded.

d. All of the above

______28. Market demand represents

a. all individual demand curves addedtogether.

b. all the producers in the market.

c. all buyers and sellers in the market.

d. All of the above

______29. If the demand for computers increases,the demand curve will

a. go up.

b. go down.

c. shift to the left.

d. shift to the right.

______30. If the demand curve shifts to the left, itmeans

a. sellers will produce less.

b. buyers want to buy less.

c. there is less of the product.

d. there is more of the product.

______31. Which of the following will not changethe demand for a product?

a. a change in the price of a substitute

b. a change in income

c. a change in expectations about thefuture price of the product

d. a change in the price of the product


13CHAPTER 4, TEST B© EMC Publishing Assessment Book—SAMPLE

______32. A normal good

a. has not been damaged.

b. will be purchased, regardless ofchanges in income.

c. will be in higher demand if a per-son’s income increases.

d. will be in higher demand if a per-son’s income decreases.

______33. When goods are substitutes, which ofthe following occurs?

a. The demand for one good moves inthe opposite direction as the price ofthe other good.

b. The demand for one good moves inthe same direction as the price ofthe other good.

c. The demand for one good does notaffect the price of the other.

d. The supply of one good moves inthe opposite direction as the price ofthe other good.

______34. If there are few or no substitutes for agood, then which of the following istrue?

a. The demand would not change.

b. The supply would be elastic.

c. The demand would be elastic.

d. The demand would be inelastic.

______35. With complementary goods, which ofthe following occurs?

a. The demand for one good moves inthe opposite direction as the price ofthe other good.

b. The demand for one good moves inthe same direction as the price ofthe other good.

c. The demand for one good does notaffect the price of the other.

d. The supply of one good moves inthe opposite direction as the price ofthe other good.

______36. A change in quantity demanded can becaused by

a. income.

b. preferences.

c. price.

d. price of a substitute.

______37. On a demand curve, a change in quan-tity demanded is represented by

a. a shift to the left.

b. a shift to the right.

c. a movement along the curve.

d. All of the above

______38. The demand for necessities like milk,electricity, and water is usually

a. elastic.

b. inelastic.

c. unit-elastic.

d. None of the above

______39. Elasticity of demand measures

a. how much buyers respond to achange in income.

b. how much sellers respond to achange in price.

c. how much buyers respond to achange in price.

d. how much sellers respond to achange in income.

______40. If a decrease in income increases thedemand for a good, the good is

a. inferior.

b. normal.

c. a complement.

d. a substitute.


14 CHAPTER 4, TEST B © EMC PublishingAssessment Book—SAMPLE

Short Essay

Write answers to essay questions 41 and 42 on the lines provided.

41. Explain the difference between demand and quantity demanded, and list the factor or factors thataffect each one.

42. Define elasticity of demand and describe how it is calculated; give examples of elastic and inelasticgoods.



16

Name: ____________________________________________________ Date: ____________________

© EMC PublishingApplying the Principles Workbook—SAMPLE

CHAPTER 4, SECTION 1Demand!

Demand and the Law of Demand

To be sure you understand demand and the law of demand, fill in the blanks in questions 1–4.

1. The two conditions of demand are _________________________________ and

_________________________________.

2. The law of demand says that as the price of a good increases, the quantity demanded of the good

______________________.

3. The law of demand says that as the price of a good decreases, the quantity demanded of the good

______________________.

4. According to the law of demand, price and quantity demanded move in ______________________direction(s).

Demand Schedules and Demand Curves

The law of demand can be represented in numbers using a demand schedule or it canbe represented as a graph showing a demand curve.

Answer question 5 to illustrate the connection between a demand schedule and a demand curve.

5. Use the demand schedule below to create ademand curve for Simon’s consumption ofmusic downloads on the grid shown. Label thecurve D1.

DEMAND SCHEDULE FOR SIMON

Price (dollars) Quantity demanded (units)$7 1$6 2$5 3$4 4$3 5$2 6$1 7

willingness to purchase

ability to purchase

decreases

opposite

increases

1 2 3 4 5 6 7 8 9 100

$10

$9

$8

$7

$6

$5

$4

$3

$2

$1

Quantity demanded

Price

Demand Curve Derived from Demand Schedule


Use the graph you created in question 5 to answer questions 6–10.

6. The demand curve shows that at a price of $7, Simon will buy ______ music download(s), and at a

price of $1, he will buy ______ music download(s).

7. Simon’s buying behavior demonstrates the law of ______________________.

8. Simon’s change in buying behavior at different prices is a change in ______________________.

9. Simon is not willing to pay $7 for every download because his utility (satisfaction) decreases as he downloads more and more music. Economists call this concept the

_________________________________.

10. How does the concept in question 9 explain the slope of the demand curve?

According to the law of diminishing marginal utility, individuals eventually obtain less utility

(satisfaction) from additional units of a good, so it follows that they will buy larger quantities only at

lower prices. As a result, the demand curve slopes downward from left to right.

All people do not have the same demand for a good. Some people have a greater will-ingness and ability to purchase a good than other people do.

Use the information in question 11 to compare the demand curves of two different people forthe same good.

11. Use the demand schedule below to create a demand curve for Carla’s consumption of music downloads. Draw the graph on the grid in question 5. Label the curve D2.

DEMAND SCHEDULE FOR CARLA

Price (dollars) Quantity demanded (units)$7 4$6 5$5 6$4 7$3 8$2 9$1 10

To answer questions 12–16, use the graph in question 5, which now shows both Simon’s andCarla’s demand curves.

12. Carla’s demand curve (D2) is to the ______________________ of Simon’s demand curve (D1).

13. For each of the listed prices, Carla is willing and able to buy ______________________ music downloads than Simon is willing and able to buy.

14. At each of the possible quantities, Carla is willing and able to pay a ______________________ pricethan Simon is willing and able to pay.

15. The demand curves you created on the grid in question 5 are ______________________ demandcurves.

17CHAPTER 4, SECTION 1© EMC Publishing Applying the Principles Workbook—SAMPLE

demand

quantity demanded

law of diminishing marginal utility

1

7

right

more

higher

individual


16. Suppose Simon and Carla are the only buyers of music downloads. How would you create a marketdemand curve from the demand curves you drew on the grid in question 5?

The market demand curve would be the sum of the two individual demand curves. For example, the

market demand curve would contain the point representing a price of $7 and a quantity demanded of

5 units (1 unit from Simon � 4 units from Carla).

18 CHAPTER 4, SECTION 1 © EMC PublishingApplying the Principles Workbook—SAMPLE


CHAPTER 4, SECTION 2The Demand Curve Shifts

Changes in Demand and Shifts in Demand Curves

When demand changes, the demand curve shifts. Fill in the blanks in questions 1 and 2 with thecorrect answers.

1. If demand increases, the demand curve shifts ______________________, meaning that buyers want

to buy ______________________ of a good at each and every price.

2. If demand decreases, the demand curve shifts ______________________, meaning that buyers want

to buy ______________________ of a good at each and every price.

Factors That Cause Shifts in Demand Curves

In questions 3–7, list five factors that cause demand curves to shift. For each factor, describe how the factor affects the demand for a good (whether the factor causes demand to rise or fall). Studentsmay list the factors in any order; the following listing matches the order of presentation in the Student Text.

3. Factor:

income

Description:

As income rises, demand for normal goods rises while demand for inferior goods falls. As income falls,

demand for normal goods falls while demand for inferior goods rises.

4. Factor:

preferences

Description:

Increased preference for a good increases demand; decreased preference for a good decreases demand.

5. Factor:

prices of related goods

Description:

If two goods are substitutes and the price of one good rises (falls), the demand for the other good rises

(falls). If two goods are complements and the price of one good rises (falls), the demand for the other

good falls (rises).

Name: ____________________________________________________ Date: ____________________

19© EMC Publishing Applying the Principles Workbook—SAMPLE

rightward

more

leftward

less


6. Factor:

number of buyers

Description:

The more buyers in a particular market area, the higher the demand; the fewer buyers, the lower the

demand.

7. Factor:

future price

Description:

If buyers expect prices to rise in the future, they will buy now. If buyers expect prices to fall in the

future, they will postpone their purchases.

Demand Versus Quantity Demanded

Demand is not the same as quantity demanded. Answer questions 8–11 on the lines provided.

8. What will cause a change in the demand for a good?

Any of the following five factors will change demand: income, preferences, prices of related goods,

number of buyers, and future price.

9. What will cause a change in the quantity demanded of a good?

Only a change in the price of the good will change quantity demanded.

10. How is a change in demand represented on a graph?

A change in demand is shown as a shift in the demand curve.

11. How is a change in quantity demanded represented on a graph?

A change in quantity demanded is shown as a movement from one point on the demand curve to

another point on the same demand curve.

Changes in Demand and in Quantity Demanded

In questions 12–17, fill in the blanks to describe how each event will affect the demand for largesport utility vehicles (SUVs).

12. The price of gasoline hits $3 per gallon.

Will the demand for large SUVs increase, decrease, or stay the same?

decrease



In which direction will the demand curve shift?

left

Which of the five factors causes the shift?

prices of related goods (complement)

13. Smaller, sportier “crossover vehicles” hit the market and become the latest craze.


decrease


left


preferences

14. Rising steel prices cause the prices of SUVs to rise.


stay the same


The curve will not shift; there will be a movement along the curve.


None; this is a change in quantity demanded (price change), not a change in demand.

15. Government data show that the incomes of Americans are expected to rise faster than ever over thenext year.


increase if SUVs are a normal good


right


income

16. Word leaks to consumers that General Motors and Ford plan to offer big rebates on SUVs nextmonth.


decrease


left


future price (consumers postpone purchases)



17. The government loosens immigration laws, allowing millions of immigrants into the country.


increase


right


number of buyers

The Relationship Between Income and Demand

As a result of an increase in wages from his employer, Kramer increased his consump-tion of Junior Mints and Bosco chocolate-flavored syrup, decreased his consumptionof fried chicken, and maintained the same consumption of yogurt.

In questions 18–21, identify each of the goods consumed by Kramer as a normal good, an inferi-or good, or a neutral good.

18. Junior Mints ______________________

19. Bosco chocolate-flavored syrup ______________________

20. fried chicken ______________________

21. yogurt ______________________

In questions 22–25, identify which one of graphs (a), (b), and (c) illustrates the change toKramer’s demand curve for each of the goods.


normal good

normal good

inferior good

neutral good

0 Quantity demanded

Price

D1 D2

(a)

0 Quantity demanded

Price

D2 D1

(b)


22. Junior Mints ______

23. Bosco chocolate-flavored syrup ______

24. fried chicken ______

25. yogurt ______


0 Quantity demanded

Price

D

(c)

(a)

(a)

(b)

(c)


CHAPTER 4, SECTION 3Elasticity of Demand

Elasticity Versus Inelasticity

According to the law of demand, when price rises, quantity demanded falls and whenprice falls, quantity demanded rises. Elasticity of demand is a measure of how much thequantity demanded of a good rises or falls due to a change in the price of the good.

You can think of elastic demand as being like an elastic band—the quantitydemanded of the good will stretch freely when pulled by a change in the good’s price.Inelastic demand is more like a rope—the quantity demanded of the good will notstretch easily when pulled by a change in the good’s price.

In questions 1 and 2, circle the letter of the correct answer.

1. If the price of a good with elastic demand increases, which of the following describes the effect on thequantity demanded of the good? d

a. increases a little

b. increases a lot

c. decreases a little

d. decreases a lot

2. If the price of a good with inelastic demand increases, which of the following describes the effect onthe quantity demanded of the good? c

a. increases a little

b. increases a lot

c. decreases a little

d. decreases a lot

Factors That Determine Elasticity of Demand

In questions 3–6, list the four factors that determine the elasticity of demand. For each factor,describe how the factor affects the elasticity of demand for a good (that is, explain whether itcauses demand to be more elastic or more inelastic). Students may list the factors in any order;the following listing matches the order of presentation in the Student Text.

3. Factor:

number of substitutes

Description:

More available substitutes tend to make demand for a good elastic; fewer available substitutes tend to

make demand for a good inelastic.

4. Factor:

luxuries versus necessities

24

Name: ____________________________________________________ Date: ____________________

© EMC PublishingApplying the Principles Workbook—SAMPLE


Description:

The demand for luxuries tends to be elastic; the demand for necessities tends to be inelastic.

5. Factor:

percentage of income spent on the good

Description:

The demand for goods that take a large percentage of income tends to be elastic; the demand for goods

that take a relatively small percentage of income tends to be inelastic.

6. Factor:

time

Description:

The less time you have to respond to a price change in a good, the more likely it is that your demand

for that good is going to be inelastic.

Considering the factors you listed in questions 3–6, identify the demand for the goods in ques-tions 7–9 as elastic, inelastic, or unit-elastic. Explain the reason for each choice.

7. T-bone steak

Demand for a T-bone steak would most likely be elastic because there are available substitutes, it is a

luxury good, and it takes a relatively large portion of income.

8. new sport utility vehicle

Demand for a new SUV would most likely be elastic because there are available substitutes, it is a

luxury good, and it takes a relatively large portion of income.

9. insulin

Demand for insulin would be inelastic because there are no substitutes and it is an absolute necessity

for a diabetic regardless of the percentage of income spent.

In each of the cases described in questions 10–12, identify whether the demand for the good iselastic, inelastic, or unit-elastic. Write your answers on the lines provided.

10. ______________________ The price of corn rises 5 percent, and the quantity demanded falls 15 percent.

11. ______________________ The price of bagels rises 8 percent, and the quantity demanded falls 8 percent.

12. ______________________ The price of telephones rises 10 percent, and the quantity demanded falls2 percent.


elastic

unit-elastic

inelastic


Elasticity and Total Revenue

Elasticity of demand matters to sellers of goods because it relates to their total revenue(Price � Quantity sold � Total revenue). Questions 13–19 relate to how the elasticity ofdemand for a good affects a seller’s total revenue when the seller changes the price of thegood. Fill in each blank with the correct answer.

13. If demand for a good is elastic and price increases, then total revenue will

______________________.

14. If demand for a good is elastic and price decreases, then total revenue will

______________________.

15. If demand for a good is inelastic and price increases, then total revenue will

______________________.

16. If demand for a good is inelastic and price decreases, then total revenue will

______________________.

17. If demand for a good is unit-elastic and price increases, then total revenue will

______________________.

18. If demand for a good is unit-elastic and price decreases, then total revenue will

______________________.

19. If a seller would like to increase revenue, the seller should (a) increase the price of the good if the

demand for the good is ______________________ or (b) decrease the price of the good if the

demand for the good is ______________________.

In each of questions 20–22, complete the table to calculate the total revenue for the good. Thenfill in the blanks in the question following the table to summarize the results in each case.

20. When Edith increased the price of a good from $2 to $3, the quantity demanded rose from 100 to 110.

Price � Quantity sold � Total revenue

Original $______ ______ $______

New $______ ______ $______

So, because revenue ______________________ when the price ______________________, demand

for the good must be ______________________.

21. When Renaldo increased the price from $10 to $12, the quantity demanded fell from 80 to 40.


Original $______ ______ $______

New $______ ______ $______




increase

increase

decrease

decrease

stay the same

stay the same

inelastic

elastic

rose

fell

elastic

rose

rose

inelastic

2

3

100

110

200

330

10

12

80

40

800

480


22. When Keiko decreased the price from $150 to $125, the quantity demanded rose from 60 to 120.


Original $______ ______ $______

New $______ ______ $______



Elasticity of Demand and a Cigarette User Fee

To increase state revenue and decrease smoking rates, the governor of Minnesota proposed thatthe state impose a $0.75 per pack “cigarette user fee.” His proposal was passed by the state legisla-ture. Use this information and your knowledge about elasticity of demand to answer questions23–26.

23. Did the governor of Minnesota assume that demand for cigarettes was elastic or inelastic when hemade his proposal? Explain your answer.

The governor assumed that demand for cigarettes was elastic because one of his goals was to

decrease smoking rates. If you raise the price of a good with elastic demand, the quantity demanded

will go down.

24. Given the large increase in price, in which income groups and age groups would you expect to see thegreatest decrease in quantity demanded?

People with smaller incomes likely will be affected because the relative percentage of their income

spent on cigarettes will be greater. Also people who smoke occasionally but are not addicted to

nicotine likely will be affected because they may view cigarettes as a luxury instead of a necessity.

25. Which of the four factors that determine elasticity of demand do you think plays the largest role inpeople’s demand for cigarettes?

The factor of whether a good is a luxury or a necessity would probably play the largest role. For peo-ple

who are addicted to nicotine, cigarettes are a necessity.

26. How might time affect this scenario?

It takes time to quit smoking, so as time goes on, some users may stop smoking because of theincrease

in price.


150

125

60

120

9,000

15,000

rose

elastic

fell


Elasticity of Demand and Gas Prices

Many people once believed that an increase in the price of gasoline would change consumer atti-tudes and driving behavior. For instance, economists assumed that people would drive less oftenand buy smaller, more efficient cars as the price of gasoline increased. However, gas pricesincreased in 2005, and while the sales of sport utility vehicles suffered, people’s driving habitsand gas consumption levels changed very little. Use this information and your knowledge aboutelasticity of demand to answer questions 27–29.

27. Is the demand for gasoline more elastic or more inelastic than previously thought? Explain youranswer.

The demand for gasoline seems to be more inelastic than previously thought. If you raise the price of

an inelastic good, the quantity demanded will decrease only a little.

28. Which of the four factors that determine elasticity of demand do you think plays the largest role inpeople’s buying habits for gasoline?

Both the number of substitutes and whether a good is a luxury or a necessity likely play roles in

people’s demand for gasoline. In the short run, people may believe that few substitutes exist for

driving. And many people apparently see the use of their cars as a necessity, not a luxury.

29. How might time affect this scenario?

If gasoline prices do not drop, people may buy more fuel-efficient vehicles when they need new cars

and they may change their lifestyles or even relocate to decrease their consumption of gasoline.




30. inelastic 31. elastic

0 Quantity demanded

Price

D

0 Quantity demandedPr

ice

D

Elasticity of Demand in Graphs

In questions 30 and 31, use your understanding of elasticity of demand to decide whether thegraph shows a good with elastic demand or a good with inelastic demand.


30

Name: ____________________________________________________ Date: ____________________

© EMC PublishingApplying the Principles Workbook—SAMPLE © EMC Publishing

CHAPTER 4We Demand Practice!

In each of questions 1–14, an event has occurred that will affect the demand or quantitydemanded for a good. Illustrate the change in demand or quantity demanded for the good thatis listed below the graph. To illustrate a change in demand (also called a shift of the demandcurve), draw a parallel line to the right or left of the original line plus an arrow to indicate direc-tion of the shift. To illustrate a change in the quantity demanded (also called a movement alongthe demand curve), indicate two points on the demand curve and draw an arrow pointing up ordown the curve between the two points.

0 Quantity demanded

Price

D

Harry Potter Books

0 Quantity demanded

Price

D

Motor Scooters with High Miles per Gallon

1. Harry Potter movies increase interest in thebooks.

2. Gas prices have risen to new high levels.


31CHAPTER 4© EMC Publishing Applying the Principles Workbook—SAMPLE

0 Quantity demanded

Price

D

T-bone Steak

0 Quantity demanded

Price

D

Hamburger Buns

3. The price of beef is expected to rise next week. 4. The price of beef rises.

0 Quantity demanded

Price

D

Snow Shovels

0 Quantity demanded

Price

D

Sunscreen

5. The first snowstorm of the season occurs. 6. Summer vacation begins!


32 © EMC PublishingApplying the Principles Workbook—SAMPLE © EMC PublishingApplying the Principles Workbook—SAMPLECHAPTER 4 © EMC Publishing

0 Quantity demanded

Price

D

New Cars

0 Quantity demanded

Price

D

T-bone Steak

7. A tax rebate increases incomes. 8. The price of pork rises.

0 Quantity demanded

Price

D

VCRs

0 Quantity demanded

Price

D

DVDs

9. The price of DVD players decreases. 10. The price of DVD players decreases.


33CHAPTER 4© EMC Publishing Applying the Principles Workbook—SAMPLE

0 Quantity demanded

Price

D

Milk

0 Quantity demanded

Price

D

Orange Juice

11. The price of breakfast cereal rises. 12. The price of orange juice rises.

0 Quantity demanded

Price

D

Apple Juice

0 Quantity demanded

Price

D

Golf Balls

13. The price of orange juice rises. 14. Tiger Woods creates a new fad: golf.




36 © EMC PublishingGuided Reading and Study Guide—SAMPLE

Name: ____________________________________________________ Date: ____________________

CHAPTER 4, SECTION 1Outlining Activity

Look through the chapter for an overview of the material. Pay attention to the main topics inthe book. As you scan each section of the book, fill in the missing words in the following outline.

I. What Is Demand?

A. Markets are where people come together to buy and sell goods or services.

1. ______________________ is the buying side of a market.

2. ______________________ is the selling side of a market.

B. Demand refers to the willingness and ability of buyers to purchase a good or service.

II. What Does the Law of Demand “Say”?

A. The law of demand says that as the price of a good ______________________, quantity

demanded of the good ______________________, and as price of a good decreases, quantity

demanded of the good increases.

B. Quantity ______________________ refers to the number of units of a good purchased at a

specific price.

III. Why Do Price and Quantity Demanded Move in Opposite Directions?

A. Price and quantity demanded move in opposite directions because of the law of

_________________________________ utility.

B. The law of diminishing marginal utility states that as a person consumes additional units of a

good, the utility gained from each additional unit of the good ______________________.

IV. The Law of Demand in Numbers and Pictures

A. A demand ______________________ is a numerical chart showing the law of demand.

B. A demand curve is a(n) ______________________ representation of the law of demand.

V. Individual Demand Curves and Market Demand Curves

A. A(n) ______________________ demand curve represents an individual’s demand.

B. A(n) ______________________ demand curve is the sum of all individual demand curves added

together.

increases

Demand

Supply

decreases

demanded

decreases

schedule

graphical

individual

market

diminishing marginal


© EMC Publishing

CHAPTER 4, SECTION 1Just the Facts Handout

What Is Demand?

A market is a place where people buy and sell things. A market has two sides. There isa buying side and a selling side. The buying side of a market is called demand. Theselling side is called supply.

Demand is the willingness and ability of buyers to purchase different amounts ofsomething at different prices, during a specific time period. Willingness to buy meansa person has a desire for a product. Ability means a person has the money to pay for it.Without both willingness and ability, there is no demand. Both must be present forthere to be demand.

What Does the Law of Demand “Say”?

The law of demand says that when the price of a product goes up, the quantity de-manded goes down. This law also says the opposite. It says that when the price goesdown, the quantity demanded goes up.

Quantity demanded refers to the number of units of a good that are purchased ata specific price. Notice that the terms demand and quantity demanded sound alike.They are, however, different. You will learn more about this later.

Why Do Price and Quantity Demanded Move in Opposite Directions?

The law of diminishing marginal utility says that as a person uses more of a product,the person gets less satisfaction from it. For example, you get less satisfaction from thesecond hamburger you eat than from the first. You get less satisfaction from the thirdthan from the second. And so on.

The law of diminishing marginal utility affects the law of demand. The moresatisfaction you receive from something, the more you will pay. The less satisfactionyou receive, the less you will pay. This means that you will buy more of something onlyif it costs less. This is the law of demand.

The Law of Demand in Numbers and Pictures

We can show the law of demand with both numbers and pictures. A demand scheduleshows the law of demand with numbers. A demand curve shows the law of demand inpicture form (graphically). See Exhibit 4-1 on page 93 of your textbook.

Individual Demand Curves and Market Demand Curves

An individual demand curve shows one person’s demand for a good. A marketdemand curve shows the sum of all the individual curves for the good. See Exhibit 4-2on page 94 of your text.

Answer questions 1–4 in the Section 1 Assessment on page 94 of your textbook.

37© EMC Publishing Guided Reading and Study Guide—SAMPLE

Name: ____________________________________________________ Date: ____________________



Name: ____________________________________________________ Date: ____________________



I. When Demand Changes, the Curve Shifts

A. A rightward shift means that demand has ______________________.

B. A leftward shift means that demand has ______________________.

II. What Factors Cause Demand Curves to Shift?

A. Income

1. A good for which demand rises as income rises and falls as income falls is a(n)

______________________.

2. A good for which demand falls as income rises and rises as income falls is a(n)

______________________ good.

3. If a person buys the same amount of a good when income changes, the good is a neutral good.

B. ______________________

1. People’s ______________________ affect how much of a good they buy.

C. Prices of Related Goods

1. With ______________________, the demand for one good moves in the same direction as

the price of the other good.

2. With ______________________, the demand for one good moves in the opposite direction

as the price of the other.

D. Number of ______________________

E. ______________________ Price

1. Buyers who expect the price of a good to be ______________________ in the future may

buy the good now. In this case, current demand for the good ______________________.

2. Buyers who expect the price of a good to be ______________________ in the future may

wait and buy the good later. In this case, current demand for the good

______________________.

increased

decreased

normal good

inferior

Preferences

preferences

substitutes

complements

Buyers

Future

higher

increases

lower

falls


39© EMC Publishing Guided Reading and Study Guide—SAMPLE CHAPTER 4, SECTION 2

III. What Factor Causes a Change in Quantity Demanded?

A. A change in quantity demanded refers to a movement ______________________ a demand

curve.

B. Only the ______________________ of the good can directly cause a change in the

______________________.

along

price

quantity demanded



Name: ____________________________________________________ Date: ____________________


When Demand Changes, the Curve Shifts

Demand can change. It can go up, or it can go down.When demand changes, the demand curve moves. It can move either left or right.

When demand increases, the curve moves to the right. When demand decreases, thecurve moves to the left. See Exhibit 4-3 on page 95 of your textbook.

What Factors Cause Demand Curves to Shift?

Several things can cause demand to change. These factors include• income;• buyer preferences;• prices of related goods;• number of buyers; and• future price.

IncomeWhen a person’s income changes, his or her demand for goods can change. Thechanges in demand depend on the goods involved.

Economists talk about three kinds of goods when they talk about income anddemand:• normal goods• inferior goods• neutral goods

If income and demand move in the same direction, the good is a normal good.For example, if your income rises and you buy more of a good, the good is a normalgood. If your income falls and you buy less, the good is also a normal good.

If income and demand move in opposite directions, the good is an inferior good.If your income goes up and you buy less of a good, it is an inferior good. If yourincome goes down and you buy more, the good is also an inferior good.

If income changes but the demand does not change, the good is a neutral good.

PreferencesPeople’s preferences (what they like most) affect demand. If more people start to likesomething, demand goes up for that item. If demand goes up, the demand curvemoves to the right. If people stop liking something, the demand goes down and thecurve shifts to the left.

Prices of Related GoodsDemand is affected by the prices of related goods. There are two types of relatedgoods. These are substitutes and complements.

Substitutes are similar goods. One can take the place of the other. Peanuts can substitute for pretzels, for example. The price of one good and the demand for theother move in the same direction. For example, if the price of pretzels goes up, the


41© EMC Publishing Guided Reading and Study Guide—SAMPLE CHAPTER 4, SECTION 2

demand for peanuts goes up.Complements are two goods that are used together. Tennis rackets and tennis

balls are complements. The demand for one good and the price of the other move inopposite directions. If the price of tennis rackets goes up, the demand for tennis ballsgoes down.

Number of BuyersThe more buyers for a good, the higher the demand. The fewer buyers, the lower thedemand.

Future PriceBuyers may expect the price of a good to be higher in the future. If so, they may buynow. This increases the current demand. The opposite can also happen. Buyers mightthink the price will be lower in the future. In this case, they may wait to buy. Thisdecreases the current demand.

What Factor Causes a Change in Quantity Demanded?

Only one factor can change quantity demanded. This factor is price. The change isshown as movement along a demand curve. See Exhibit 4-49(b) on page 99 of yourtext.

Answer questions 1–3 in the Section 2 Assessment on page 99 of your textbook.



Name: ____________________________________________________ Date: ____________________



I. What Is Elasticity of Demand?

A. Elasticity of demand deals with the relationship between price and quantity demanded.

B. Elasticity of demand compares the percentage change in ______________________ with the

percentage change in ______________________.

C. Elasticity of demand is seen as the following ratio:

Elasticity of demand =Percentage change in quantity demandedPercentage change in price

D. ______________________ demand exists when the quantity demanded (the numerator) changes

by a greater percentage than the percentage change in price (the denominator).

E. ______________________ demand exists when the quantity demanded (the numerator) changes

by a smaller percentage than the percentage change in price (the denominator).

F. ______________________ demand exists when the quantity demanded (the numerator) changes

by the same percentage as the percentage change in price (the denominator).

II. What Determines Elasticity of Demand?

A. Number of Substitutes

B. ______________________ Versus Necessities

C. Percentage of ______________________ Spent on the Good

D. Time

III. An Important Relationship Between Elasticity and Total Revenue

A. Case 1: Elastic demand and a price increase cause total revenue to ______________________.

B. Case 2: Elastic demand and a price decrease cause total revenue to ______________________.

C. Case 3: Inelastic demand and a price increase cause total revenue to ______________________.

D. Case 4: Inelastic demand and a price decrease cause total revenue to ______________________.

quantity demanded

Elastic

Inelastic

Unit-elastic

Luxuries

Income

decrease

decrease

increase

increase

price



What Is Elasticity of Demand?

Elasticity of demand deals with the relationship between price and quantity de-manded. It measures the impact of a price change. A small price change can cause abig change in how many of a certain product people buy. Or a small price change cancause little change in the number of units of a good that people buy.

How do economists measure the relationship between price and quantity de-manded? They compare the percentage change in price with the percentage change inquantity demanded. They do this by dividing the percentage change in quantitydemanded by the percentage change in price. This comparison produces three types ofresults:• When the change in quantity demanded is greater than the change in price, the

result is elastic demand.• When the change in quantity demanded is less than the change in price, the result is

inelastic demand.• When the change in quantity demanded is the same as the change in price, the

result is unit-elastic demand.

What Determines Elasticity of Demand?

Four factors affect elasticity of demand:• number of substitutes• whether the good is a luxury or a necessity• percentage of income spent on the good• time

Number of SubstitutesSome goods have few substitutes. Other goods have many. Heart medicine is an example of a good with few substitutes. A soft drink is an example of a good withmany substitutes.

If a good has few substitutes, the demand will probably be inelastic. If a good hasmany substitutes, the demand will probably be elastic.

Luxuries Versus NecessitiesNecessary goods are goods that people feel they need to survive. Food is a necessarygood. Even if the price increases, people will not be able to cut back on these goods.The demand for necessities tends to be inelastic.

Luxuries are goods that people do not need to survive. Very expensive cars are luxuries. If the price increases, people will cut back on their purchases of these items.The demand for luxuries tends to be elastic.

Percentage of Income Spent on the GoodBuyers react more to price changes on goods for which they spend a lot of theirincome. The demand for these goods tends to be elastic. On the other hand, buyersdon’t react much to price changes if they spend a small amount of their income on agood. The demand for such a good tends to be inelastic.


Name: ____________________________________________________ Date: ____________________


44 © EMC PublishingGuided Reading and Study Guide—SAMPLECHAPTER 4, SECTION 3

TimeMore time means more chances to change how much people buy after a price change.With more time, they can find substitutes. They can change their lifestyle. This meanstheir demand is more elastic with more time.

With little time to react, people tend not to change the amount they buy after aprice change. They do not have time to react, so their demand tends not to change.This means the demand is inelastic.

An Important Relationship Between Elasticity and Total Revenue

Whether demand for a good is elastic or inelastic matters to sellers of goods. It affectstheir total revenue. Four different results can occur when prices rise or fall:• If demand is elastic, an increase in price causes a decline in total revenue.• If demand is elastic, a decrease in price causes an increase in total revenue.• If demand is inelastic, an increase in price causes an increase in total revenue.• If demand is inelastic, a decrease in price causes a decrease in total revenue.

Answer questions 1–4 of the Section 3 Assessment on page 107 of your textbook.



Name: ____________________________________________________ Date: ____________________

CHAPTER 4Graphic Organizer Activity

Supply the missing words in the blank spaces of this graphic organizer.

____________________ and quantity demanded move in

opposite directions.

The graphical representation of demand is called

a(n) ____________________.

The factors that cause a shift in demand are

____________________, ____________________, prices of

related goods, number of buyers, and future price.

A change in ____________________ causes a change in the

quantity demanded of the good.

Demand may be ____________________,

____________________, or unit-elastic.

Determinants of demand elasticity include the number of

____________________, whether goods are luxuries versus

necessities, the percentage of income spent on a good, and

____________________.

An important relationship exists between elasticity and total

____________________.

Price

demand curve

income preferences

price

elastic

inelastic

substitutes

time

revenue

Law ofDemand

DEMAND(Chapter 4)

SUPPLY(Chapter 5)

PRICE(Chapter 6)

Factors That ShiftDemand

Elasticity ofDemand



Name: ____________________________________________________ Date: ____________________

1. A place where people come together to buy and sell goods or services is called a

_________________________________.

2. The _________________________________ states that as a person consumes additional units of a

good, eventually the utility gained from each additional unit of the good decreases.

3. When demand is _________________________________, the percentage change in quantity

demanded is less than the percentage change in price.

4. In economics we call _________________________________ the willingness and ability of buyers

to purchase a good or service.

5. Goods consumed jointly are _________________________________; this means that the price of

one good and the demand for the other good move in opposite directions.

6. The relationship between the percentage change in quantity demanded and the percentage change in

price is known as _________________________________.

7. The _________________________________ states that as the price of a good increases, the quantity

demanded of the good decreases, and as the price of a good decreases, the quantity demanded of the

good increases.

8. A good for which demand rises as income rises and falls as income falls is referred to as a(n)

_________________________________.

9. When demand is _________________________________, the percentage change in quantity

demanded is greater than the percentage change in price.

10. A(n) _________________________________ is a good for which demand falls as income rises and

rises as income falls.

marketdemandlaw of demandquantity demandedlaw of diminishing marginal utilitydemand scheduledemand curvenormal good

inferior goodneutral goodsubstitutescomplementselasticity of demandelastic demandinelastic demandunit-elastic demand

market

law of diminishing marginal utility

inelastic demand

demand

complements

elasticity of demand

law of demand

normal good

elastic demand

CHAPTER 4Vocabulary Activity

For each question, fill in the blank with the correct term from the following list.

inferior good


47© EMC Publishing Guided Reading and Study Guide—SAMPLE CHAPTER 4

11. A good for which demand remains unchanged as income rises or falls is called a(n)

_________________________________.

12. Two goods are _________________________________ if the price of one good and the demand for

the other move in the same direction.

13. _________________________________ exists when the percentage change in quantity demanded is

the same as the percentage change in price.

neutral good

substitutes

Unit-elastic demand



Name: ____________________________________________________ Date: ____________________

CHAPTER 4Working with Graphs and Tables Activity

The exhibit below shows a demand curve for tickets to Lindsay Lohan concerts. Each of the following occurrences causes a shift in the demand curve. For each occurrence, draw a newdemand curve that shows how the demand curve shifts. Label each demand curve with theappropriate number. The first one (labeled D1) is completed for you.

1. Concert promoters begin a huge advertising pitch for the concerts.

2. Lindsay Lohan releases a new hit song.

3. The incomes of concert fans decrease (assume concerts are normal goods).

4. Shakira (a substitute for Lindsay Lohan) hits the road with a concert tour.

Q4 Q3 Q0 Q1 Q2 Quantity of tickets demanded

Price

D0 D1


CHAPTER 4Practice Test

True or False

For each of these statements, place a T in the blank if the statement is true or an F if the state-ment is false.

1. ______ Suppose that the demand for football tickets at your school is elastic. If your school lowersthe price of tickets, then total revenue from ticket sales will increase.

2. ______ The price of CDs increases 10 percent and the quantity demanded of CDs falls 5 percent.The demand for CDs is elastic.

3. ______ According to the law of demand, as the price of a good increases, the quantity demanded ofthe good decreases.

4. ______ Peanut butter and jelly are complement goods. If the price of jelly increases, then thedemand for peanut butter increases.

5. ______ The law of diminishing marginal utility states that as a person consumes additional units of agood, eventually the utility gained from each additional unit of the good increases.

6. ______ If the percentage change in price is 10 percent and the percentage change in quantitydemanded is 5 percent, then the elasticity of demand is equal to 2.

7. ______ If the price of concert tickets increases, the demand for concert tickets will decrease.

8. ______ A demand curve graphically shows the law of demand.

9. ______ If Joe’s demand for hotdogs falls as his income rises, then hotdogs are an inferior good.

10. ______ A good will tend to have a more elastic demand if it has many substitutes.

11. ______ A person who has a long period of time to adjust to price increases in housing will likelyhave an elastic demand for housing.

Short Answer

Write your answers on the lines provided.

1. Suppose that the number of students in your high school decreases by a large amount next year.What will likely happen to the demand for sodas at your school vending machines?

A decrease in the number of buyers will probably decrease the demand for sodas.

T

T

T

T

T

T

F

F

F

F

F


Name: ____________________________________________________ Date: ____________________


50 © EMC PublishingGuided Reading and Study Guide—SAMPLECHAPTER 4

2. The basketball team at your school is having an especially good season. Are there more or fewer peo-ple at their basketball games this year? Explain your answer, using the concept of demand.

A successful team should positively change preferences for watching games. Therefore, demand for

seeing the games should increase—the demand curve should shift to the right.

3. Explain the difference between a change in demand and a change in quantity demanded.

A change in demand refers to a shift in the demand curve. A change in quantity demanded refers to a

movement along a demand curve.

4. Shirley has a job at Burger Delight. Her boss recently increased the price of burgers. The boss tellsShirley that after the price increase, revenues at Burger Delight went down. If you were Shirley, howwould you explain this to the boss? In your answer, use the concepts of demand and elasticity.

Assuming that only the price of burgers changed, then demand for the burgers must be elastic. Aprice

increase causes quantity demanded to go down by a greater amount, so that total revenues decrease.



52

Name: ____________________________________________________ Date: ____________________

© EMC PublishingFinding Economics—SAMPLE

CHAPTER 4Before you read the following scene, review Chapter 4 in the Student Text, focusing onthe major concepts covered there. You may want to skim the chapter or read theChapter Summary on page 108.

Now, with the economics concepts of Chapter 4 fresh in your mind, read “Movingto Atlanta,” searching, like an economics detective, for the economics below the sur-face. The story contains a number of economics ideas, but they are hidden. It is yourjob to find them.

As you read, circle and underline words and phrases that you think are clues orconnections to the economics embedded in the scene. Make notes in the margin. Atthe end of the scene, on the lines provided, write two or three sentences describingeach of the three most interesting economics ideas that you found in the scene.

Moving to Atlanta

Dana moved into the blue house on the corner of Peachtree Lane onemonth ago, in early August. Her father had lost his job in Seattle, and founda new one in Atlanta. When he told Dana that the family had to move, shewas understandably upset. What high school student wants to pick up andtravel across the country for her senior year?

“Can’t I just stay here for a year?” she asked her parents. “I’m sure Robin’smom will let me live with them,” she added. Robin had been Dana’s bestfriend since the third grade.

“I know it’s hard on you,” Dana’s mother said. “But you’ll adjust. It may bea little hard in the beginning, but things will get better with time. After all,don’t you want to stay with the family?”

Well, of course I want to stay with the family, Dana thought. It’s just thatthe family doesn’t seem to want to stay where I want to stay. Don’t Momand Dad know that abrupt and drastic changes like this could deeply andadversely affect me? I can see myself years from now sitting in some psychi-atrist’s office, trying to figure out why I turned out to have so many problems.“Well, doctor,” I’ll say, “I think it all started when my parents dragged meacross the country at the tender age of seventeen.…”

Nevertheless, Dana had said good-bye to her friends, gotten into theblack Honda Pilot with her mother, father, and younger brother (who didn’twant to move either), and started the journey from Seattle to Atlanta, a totalof 2,181 miles. The house had been packed up three days before. All thefamily’s furniture, clothes, computers, dishes, pots and pans, and just abouteverything else was on a huge truck being driven by two strong strangersfrom a moving company.

Dana knew Seattle; it had been her home for her entire life. She knewnext to nothing about Atlanta, and she was a little nervous about the move.After her parents had returned from a visit to find a house there, she askedher mother what the city was like. What Dana meant was, What will my newlife there be like? Will the kids my age accept me? Will I get along with them,and will we have things in common? But Dana hadn’t asked these questions,

Notes


53CHAPTER 4© EMC Publishing Finding Economics—SAMPLE

Notesmainly because she wasn’t sure why she was feeling uneasy about going tothis new place.

She discovered the reason on her very first day of school in Atlanta. Thatday, her unsettled feeling skyrocketed. “At 8:35 a.m., Dana’s slight uneasehas turned to panic,” said the on-the-scene reporter in her head. “Thatqueasy feeling in her stomach has just reached a 10 on the Richter scale,and if she opens her mouth to talk, she is not sure that the words will comeout correctly, in the right order.”

She walked to the school administration office and told the woman at thecounter that her name was Dana Petty and that she was supposed to startschool today.

“Oh, yes,” the assistant said. “You’re from Seattle, aren’t you?”“Yes, I am,” Dana said.“Well, welcome,” the assistant added. “We’re always happy to have one

more good student at our school.”Dana smiled and wondered how the assistant knew she was a good stu-

dent. Maybe she doesn’t know, Dana decided; maybe she just says thatbecause it is a positive thing to say. Or maybe she says it because she thinksI’m a bad student, and she wants me to try to be a good student. Then Danarealized she was doing it again: she was overanalyzing things because shewas nervous. She had always done that.

Later that day, in her biology lab, she made her first new friend. His namewas Andrew. The only empty seat in biology lab was the seat next to Andrew,so that is where the biology teacher asked Dana to sit.

Andrew said a quick hi when Dana sat down next to him. Dana smiledand said hi back. Then Dana looked at the teacher. She didn’t want to getreprimanded for talking in class her first day.

As soon as class was over, Andrew turned to Dana.“My name is Andrew,” he said.“I’m Dana,” Dana said.“Where are you from?” Andrew asked.“Seattle,” Dana said. Then she added, “A long way from here, I’m afraid to

say.”Dana and Andrew began to collect their books and notebooks.“We have lunch now,” Andrew said. “Would you like me to show you

around the school? Maybe we can eat lunch together first.”Dana smiled with relief. She didn’t want to eat lunch alone. That would

just be too hard.“Sure, that would be great,” Dana said. She followed Andrew out of the

biology lab and to the lunchroom. They sat and talked and ate. Afterward,Andrew, true to his promise, showed Dana around the school. She wasamazed at how many people the football stands could hold. “Football is bigaround here,” Andrew said. “I can see that,” Dana said.

It didn’t take long for Andrew to ask Dana if she wanted to go to the foot-ball game on Friday night. She said that she would like that.

Friday night, during the game and afterward, everything went smoothly.Dana liked Andrew, and the two talked about going out again soon. So Danawas ready when the phone rang the next afternoon.

“Hi,” Andrew said. “Would you like to go to a movie tonight?”“Oh, I can’t,” said Dana. “My parents are going to meet some people in

my dad’s new workplace, and I have to watch my brother.”“Okay,” said Andrew. There was an uncomfortable pause. Then, “Well, I

guess I’ll see you in school next week—”


54 CHAPTER 4 © EMC PublishingFinding Economics—SAMPLE

Notes“We could go to the movie tomorrow,” Dana interrupted.Why did I say that? she asked herself as she tried to focus on Andrew’s

response. It makes me sound desperate, and I don’t want to sound desper-ate—but really, I am! After all, Andrew is the only person I know in all ofAtlanta.

Somehow, through all this inner dialogue, Dana heard Andrew say thattomorrow wouldn’t work for him, and she managed to tell him that was okayand to hang up with some dignity.

Then she felt sad and lonely. What if that was it, and Andrew didn’t wantto see her again? Whom would she eat lunch with?

If that had been a call from a guy in one of my classes back in Seattle, Iwouldn’t have felt this way, she thought. I’m sure I would have just assumedthat I would see him on Monday, and we would find another time to go out.Or at least I wouldn’t have felt sad and lonely about the idea that we mightnot get together again. Why do I feel so differently here in Atlanta?

As time passed, Dana made more friends in Atlanta. It has now been fivemonths since Dana moved to town. She still talks to her friends back inSeattle, but less and less frequently. Two of her best friends are Soo Jin andLiz, classmates at her not-so-new school.

Dana doesn’t date Andrew anymore, although she did go out with himseveral times after the football game. Dana noticed that the more friends shegot, the more Andrew wanted to go out with her. It was as if he had to knowthat Dana had options before he would pursue a relationship with her.Eventually, though, they both realized that they didn’t have much in com-mon, and they began to see other people.

“I have a hard time understanding guys sometimes,” she often says toSoo Jin and Liz. Soo Jin and Liz agree that it’s not always easy.

Find the Economics

Name the three most interesting economics ideas that you found “hidden” in this scene, andexplain the clues that led you to discover them.

1.

2.

3.



56

Name: _________________________________ Class: ______________________ Date: _____________

© EMC PublishingLesson Plans—SAMPLE

L E S S O N P L A N

M T W TH F

AB = Assessment Book: Tests and Quizzes with Answer Key APW = Applying the Principles Workbook ATE = Annotated Teacher’s Edition DLON = Daily Lectures: Overheads and Notes GRSG = Guided Reading and Study Guide SE = Student Edition

CHAPTER 4, SECTION 1Understanding Demand

Pacing: 2 days

Objectives: After completing this lesson, students will be able to � explain the law of demand;� describe the difference between demand and quantity demanded;� provide examples of the law of diminishing marginal utility; and� create demand curves from given demand schedules.

Read□ Instruct students to read SE pages 90–94.

Focus and Motivate□ Do the Economics Around the Clock Kickoff Activity and the Activating Prior Knowledge exercise,

ATE, page 90.

Teach□ Introduce and explain the key concepts of the lesson.□ Use Transparencies 4-1 to 4-3, DLON.□ Discuss Economics in the Real World, “Are the Prices at Disneyland Goofy?” SE, page 92.

Assign□ Assign “Demand!” APW, pages 36–38.

AssessAdminister one or more of the following assessment tools:□ Section 1 Assessment, SE, page 94□ Quick Quiz, ATE, page 93□ Section 1 Quiz, AB

Reteach/ReviewAs needed, assign the following materials for students requiring further work on the concepts in this lesson:□ Section 1 Outlining Activity, GRSG□ Section 1 Just the Facts Handout, GRSG

Enrich/ExtendChoose from the following features for extension and enrichment:□ Your Personal Economics, “Too Good to Be True?” SE, pages 100–101□ Thinking Like an Economist, ATE, page 91


57© EMC Publishing Lesson Plans—SAMPLE


Optional□ Economic Principles Lectures, Videocassette or DVD□ Encore CD□ Finding Economics□ Internet Resource Center

□ Current Events Lectures/Lessons□ Practice Tests□ Study Guide

□ Marketplace Audio Lesson CD□ Spanish Audio Summaries CD□ Test Generator CD

CHAPTER 4, SECTION 1


58

Name: _________________________________ Class: ______________________ Date: _____________


L E S S O N P L A N

M T W TH F


CHAPTER 4, SECTION 2The Demand Curve Shifts

Pacing: 2 days

Objectives: After completing this lesson, students will be able to� explain why a demand curve shifts to the right or the left;� distinguish between normal, inferior, and neutral goods;� list the factors that cause a change in demand; and� identify the factor that causes a change in quantity demanded.


Focus and Motivate□ Do the Kickoff Activity, ATE, page 95.

Teach□ Use Transparency 4-4, DLON, to explain how and why a demand curve shifts.□ Use the Reinforcement Activity, the Discussion Starter, and the Prediction Activity, ATE, pages 96 and

97, to prompt discussion of the factors that cause demand curves to shift.

Assign□ Assign “The Demand Curve Shifts,” APW, pages 39–43.

AssessAdminister one or more of the following assessment tools:□ Section 2 Assessment, SE, page 99□ Quick Quiz, ATE, page 98□ Section 2 Quiz, AB

Reteach/ReviewAs needed, assign the following materials for students requiring further work on the concepts in this lesson:□ Reteaching Activity, ATE, page 99□ Section 2 Outlining Activity, GRSG□ Section 2 Just the Facts Handout, GRSG

Enrich/ExtendChoose from the following features for extension and enrichment:□ Economics in the Real World, “New Coke, Classic Coke, or Pepsi?” SE, page 98□ Thinking Like an Economist, ATE, page 96□ Cooperative Learning, ATE, page 96









60

Name: _________________________________ Class: ______________________ Date: _____________


L E S S O N P L A N

M T W TH F


CHAPTER 4, SECTION 3Elastici ty of Demand

Pacing: 2 days

Objectives: After completing this lesson, students will be able to� describe elasticity of demand;� compute elasticity of demand;� distinguish between elastic, inelastic, and unit-elastic demand;� list the factors that can change the elasticity of demand; and� describe the relationship between an increase in price for a good, and higher total revenue.


Focus and Motivate□ Do the Economics Around the Clock Kickoff Activity, ATE, page 102.

Teach□ Use Transparencies 4-5 and 4-6, DLON, to introduce and explain the concept of elasticity and how it is

computed.□ Use the Reinforcement Activities, ATE, pages 103 and 104, to support a discussion of the factors that

determine elasticity of demand.

Assign□ Assign “Elasticity of Demand,” APW, pages 44–49.

AssessAdminister one or more of the following assessment tools:□ Section 3 Assessment, SE, page 107□ Quick Quiz, ATE, page 106□ Section 3 Quiz, AB□ Chapter 4 Assessment, SE, pages 108–109□ Chapter 4 Test A, AB□ Chapter 4 Test B, AB

Reteach/ReviewAs needed, assign the following materials for students requiring further work on the concepts in this lesson:□ Section 3 Outlining Activity, GRSG□ Section 3 Just the Facts Handout, GRSG




Enrich/ExtendChoose from the following features for extension and enrichment:□ Economics on the Web, SE, page 105□ Differentiating Instruction, ATE, page 106








64©

EM

C Pu

blish

ing

Dai

ly L

ectu

res:

Ove

rhea

ds a

nd N

otes

—SA

MP

LE

CHAP

TER

4, S

ECTI

ON 1

Und

erst

andi

ng D

eman

d

Wha

t Is D

eman

d?�

Dem

and

is th

e w

illin

gnes

s an

d ab

ility

of

buye

rs to

pu

rch

ase

diff

eren

t qu

anti

ties

of

a go

od,a

tdi

ffer

ent p

rice

s,du

rin

g a

spec

ific

tim

e p

erio

d.B

oth

will

ingn

ess

and

abili

ty m

ust

be

pres

ent;

ifei

ther

is m

issi

ng,

ther

e is

no

dem

and.

�Q

uan

tity

dem

and

edis

dif

fere

nt f

rom

dem

and.

Qu

anti

ty d

eman

ded

is th

e n

um

ber

ofu

nit

s of

ago

od p

urc

has

ed a

t a s

pec

ific

pri

ce.Q

uan

tity

dem

ande

d is

alw

ays

a n

um

ber.

The

Law

ofD

eman

d�

Th

e la

w o

fd

eman

dte

lls u

s w

hat

hap

pen

s to

the

quan

tity

dem

ande

d w

hen

the

pric

e ch

ange

s.(S

ee T

ran

spar

ency

4-1

.) B

asic

ally

,it s

ays

that

wh

en th

e pr

ice

goes

up,

the

quan

tity

dem

ande

dgo

es d

own

—an

d w

hen

the

pric

e go

es d

own

,th

e qu

anti

ty d

eman

ded

goes

up.

�D

o yo

u n

otic

e an

yth

ing

abou

t th

e re

lati

onsh

ip b

etw

een

pri

ce a

nd

quan

tity

dem

ande

d? T

hey

mov

e in

opp

osit

e di

rect

ion

s.

�W

hy is

the

law

of

dem

and

impo

rtan

t,an

d w

hat

doe

s it

mea

n to

you

? It

sh

ows

that

you

,an

dot

her

con

sum

ers,

are

will

ing

to p

urc

has

e fe

wer

goo

ds a

s th

e pr

ice

goes

up.

An

d it

sh

ows

that

you

are

will

ing

to p

urc

has

e m

ore

good

s as

the

pric

e go

es d

own

.

DA

IL

Y

LE

CT

UR

E

64-72 Overhead Book.qxd 2/15/06 2:45 PM Page 64

65CH

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MC

Publ

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Lec

ture

s: O

verh

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and

Not

es—

SAM

PLE

The

Law

ofD

imin

ishi

ng M

argi

nal U

tilit

y�

Why

doe

s th

e la

w o

fde

man

d w

ork

the

way

it d

oes?

Eco

nom

ists

say

it is

bec

ause

of

the

law

of

dim

inis

hin

g m

argi

nal

uti

lity

.Th

is is

an

inte

rest

ing

idea

that

sou

nds

mor

e di

ffic

ult

tou

nde

rsta

nd

than

it is

.Let

’s b

reak

the

term

dow

n.(

See

Tran

spar

ency

4-2

.)

•D

imin

ishi

ngsi

mpl

y m

ean

s de

clin

ing

or d

ecre

asin

g.W

hat

ever

we

are

talk

ing

abou

t,if

it is

dim

inis

hin

g,it

’s g

oin

g do

wn

.

•M

argi

nali

s th

e ec

onom

ist’s

wor

d fo

r ad

diti

onal

.If

we

are

at a

cer

tain

poi

nt,

and

then

we

add

mor

e,th

e m

ore

is m

argi

nal

.

•U

tilit

ym

ean

s th

at s

omet

hin

g h

as v

alu

e or

use

to u

s,th

at th

e so

met

hin

g gi

ves

us

sati

sfac

tion

.

•So

,th

e la

w o

fdim

inis

hing

mar

gina

l uti

lity

says

that

as

a p

erso

n c

onsu

mes

add

itio

nal

un

its

ofa

good

,eve

ntu

ally

,th

e u

tilit

y ga

ined

from

eac

h a

ddit

ion

al u

nit

of

the

good

dec

reas

es.

The

Law

ofD

eman

d in

Num

bers

and

Pic

ture

s�

We

can

act

ual

ly s

how

how

the

law

of

dem

and

wor

ks b

y lis

tin

g pr

ices

an

d qu

anti

ties

dem

ande

din

a ta

ble,

and

by p

lott

ing

thos

e n

um

bers

in a

gra

ph.

�In

eco

nom

ics,

such

a ta

ble

is c

alle

d a

sch

edu

le a

nd

such

a g

raph

is c

alle

d a

curv

e.(S

eeTr

ansp

aren

cy 4

-3.)

Sin

ce w

e’re

look

ing

at d

eman

d h

ere,

the

tabl

e is

a d

eman

d s

ched

ule

and

the

grap

h is

a d

eman

d c

urv

e.T

he

dem

and

curv

e is

the

line

that

con

nec

ts th

e pl

otte

d po

ints

on

the

grap

h.I

n th

is e

xam

ple,

the

“cu

rve”

is a

ctu

ally

a s

trai

ght l

ine.


66CH

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SAM

PLE

�D

o yo

u s

ee h

ow th

e ta

ble

wor

ks?

At a

pri

ce o

f$3

,wh

at is

the

quan

tity

dem

ande

d? (

Ans

wer

:Tw

o.)

Wh

at is

the

quan

tity

dem

ande

d at

$1?

(A

nsw

er:F

our.

)

�N

ow lo

ok a

t th

e gr

aph

.At a

pri

ce o

f$3

,wh

at is

the

quan

tity

dem

ande

d? F

ind

$3 o

n th

e ve

rtic

alax

is,a

nd

follo

w th

e do

tted

bla

ck li

ne

over

to w

her

e it

mee

ts th

e so

lid r

ed li

ne,

wh

ich

is th

ede

man

d cu

rve.

Th

e pl

ace

wh

ere

the

two

lines

inte

rsec

t is

poin

t B.F

ollo

w th

e do

tted

bla

ck li

ne

from

poi

nt B

dow

n to

the

hor

izon

tal a

xis.

Wh

at is

the

quan

tity

dem

ande

d? (

Ans

wer

: Tw

o,ju

stas

it w

as in

the

dem

and

sch

edu

le.)

Now

fin

d th

e qu

anti

ty d

eman

ded

at a

pri

ce o

f$1

.(A

nsw

er:

Fou

r.)

Indi

vidu

al a

nd M

arke

t Dem

and

Cur

ves

�O

ne

fin

al p

oin

t:W

e ca

n lo

ok a

t in

divi

dual

or

mar

ket d

eman

d cu

rves

;th

ese

are

diff

eren

t.A

nin

divi

dual

dem

and

curv

e re

pres

ents

on

e p

erso

n’s

dem

and

for

a go

od.A

mar

ket d

eman

d cu

rve

is th

e su

m o

fal

l th

e in

divi

dual

dem

and

curv

es fo

r a

good

.


67©

EM

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Ove

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ds a

nd N

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—SA

MP

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CHAP

TER

4, S

ECTI

ON 2

The

Dem

and

Cur

ve S

hift

s

Whe

n D

eman

d C

hang

es,t

he C

urve

Shi

fts

�D

eman

d ca

n c

han

ge.I

t can

go

up,

or it

can

go

dow

n.E

con

omis

ts s

how

ch

ange

s in

dem

and

ongr

aph

s—th

e de

man

d cu

rves

that

we

lear

ned

abo

ut i

n th

e la

st le

sson

.

�W

hen

dem

and

goes

up,

the

dem

and

curv

e sh

ifts

to th

e ri

ght.

Wh

en d

eman

d go

es d

own

,th

ede

man

d cu

rve

shif

ts to

the

left

.(Se

e Tr

ansp

aren

cy 4

-4.)

•In

the

grap

h y

ou s

ee h

ere,

the

dem

and

curv

e in

the

mid

dle,

the

one

labe

led

D1,

is th

e st

arti

ng

poin

t.O

n th

is c

urv

e,w

hat

is th

e qu

anti

ty d

eman

ded

at a

pri

ce o

f$1

? (A

nsw

er:

Fou

r hu

ndr

ed q

uar

ts o

for

ange

juic

e.)

•Su

ppos

e th

at th

e de

man

d fo

r or

ange

juic

e in

crea

ses

to 6

00 q

uar

ts.P

eopl

e st

ill w

ant t

o pa

y$1

per

qu

art,

but n

ow th

ey w

ant t

o bu

y m

ore

at th

at p

rice

.Wh

at h

appe

ns

to th

e de

man

dcu

rve?

(A

nsw

er:I

t sh

ifts

to th

e ri

ght a

nd

beco

mes

D2.

) W

hen

dem

and

goes

up,

the

dem

and

curv

e sh

ifts

to th

e ri

ght.

•N

ow s

upp

ose

that

the

dem

and

for

oran

ge ju

ice

decr

ease

s to

200

qu

arts

.Wh

at h

appe

ns

toth

e de

man

d cu

rve?

(A

nsw

er:I

t sh

ifts

to th

e le

ft a

nd

beco

mes

D3.

) W

hen

dem

and

goes

dow

n,t

he

dem

and

curv

e sh

ifts

to th

e le

ft.

DA

IL

Y

LE

CT

UR

E


68CH

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s: O

verh

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and

Not

es—

SAM

PLE

•N

otic

e th

at in

all

thes

e ex

ampl

es,t

he

pric

e st

ays

the

sam

e.W

hen

the

quan

tity

dem

ande

dgo

es u

p,at

the

sam

e pr

ice,

the

curv

e sh

ifts

to th

e ri

ght.

Wh

en th

e qu

anti

ty d

eman

ded

goes

dow

n,a

t th

e sa

me

pric

e,th

e cu

rve

shif

ts to

the

left

.

Wha

t Fac

tors

Cau

se D

eman

d C

urve

s to

Shif

t?�

Five

fact

ors

cau

se d

eman

d cu

rves

to s

hif

t:

•In

com

e.A

s a

per

son’

s in

com

e ch

ange

s,h

e or

sh

e m

ay b

uy m

ore

or le

ss o

fa

cert

ain

goo

d.If

ape

rson

’s in

com

e an

d de

man

d ch

ange

in th

e sa

me

dire

ctio

n,t

he

good

is a

nor

mal

go

od

.If

inco

me

and

dem

and

go in

opp

osit

e di

rect

ion

s,th

e go

od is

an

infe

rior

go

od

.If

dem

and

does

not

ch

ange

eve

n th

ough

inco

me

does

,th

e go

od is

a n

eutr

al g

oo

d.

•P

refe

renc

es.C

han

ges

in p

refe

ren

ces

cau

se c

han

ges

in d

eman

d.

•P

rice

s of

rela

ted

good

s.W

hen

two

good

s ar

e su

bst

itu

tes,

the

dem

and

for

one

mov

es in

the

sam

e di

rect

ion

as

the

pric

e of

the

oth

er.W

hen

two

good

s ar

e co

mp

lem

ents

,th

e de

man

dfo

r on

e m

oves

in th

e op

posi

te d

irec

tion

of

the

pric

e of

the

oth

er.C

ompl

emen

ts a

re g

oods

use

d to

geth

er.

•N

umbe

r of

buye

rs.A

ch

ange

in th

e n

um

ber

ofbu

yers

,eit

her

an

incr

ease

or

a de

crea

se,c

anch

ange

dem

and.

•Fu

ture

pri

ce.B

uyer

s’ex

pect

atio

ns

offu

ture

pri

ces

can

cau

se th

em to

buy

now

or

wai

t to

buy.

Bot

h a

ctio

ns

affe

ct c

urr

ent d

eman

d.


69CH

APTE

R 4,

SEC

TIO

N 2

© E

MC

Publ

ishin

gD

aily

Lec

ture

s: O

verh

eads

and

Not

es—

SAM

PLE

�T

he

only

fact

or th

at a

ffec

ts q

uan

tity

dem

ande

d is

pri

ce.

�R

emem

ber:

Dem

and

and

quan

tity

dem

ande

d ar

e n

ot th

e sa

me

thin

g.


70©

EM

C Pu

blish

ing

Dai

ly L

ectu

res:

Ove

rhea

ds a

nd N

otes

—SA

MP

LE

DA

IL

Y

LE

CT

UR

E

CHAP

TER

4, S

ECTI

ON 3

Elas

tici

ty o

fDem

and

Wha

t Is E

last

icit

y of

Dem

and?

�E

last

icit

yis

an

oth

er te

rm in

eco

nom

ics

that

sou

nds

mor

e di

ffic

ult

to u

nde

rsta

nd

than

it r

eally

is.I

t mea

sure

s h

ow a

pri

ce c

han

ge a

ffec

ts th

e qu

anti

ty o

fa

part

icu

lar

good

that

peo

ple

wan

t to

buy

.

�D

eman

d fo

r a

good

can

be

elas

tic,

inel

asti

c,or

un

it-e

last

ic.E

last

icm

ean

s th

at a

pri

ce c

han

geh

as a

sig

nif

ican

t im

pact

on

the

quan

tity

dem

ande

d.In

elas

tic

mea

ns

that

ther

e is

a m

inor

chan

ge in

qu

anti

ty d

eman

ded

wh

en th

e pr

ice

chan

ges.

An

d u

nit

-ela

stic

mea

ns

that

the

impa

ctof

a pr

ice

chan

ge is

neu

tral

—th

at is

,nei

ther

maj

or n

or m

inor

.(Se

e Tr

ansp

aren

cy 4

-5.)

•H

ow d

o w

e fi

nd

out w

hic

h t

ype

ofde

man

d is

at w

ork?

In

all

case

s,th

e ty

pe o

fde

man

d h

asto

do

wit

h th

e re

lati

onsh

ip b

etw

een

the

per

cen

tage

ch

ange

in q

uan

tity

dem

ande

d an

d th

epe

rcen

tage

ch

ange

in p

rice

.

•W

hen

we

divi

de th

e p

erce

nta

ge c

han

ge in

qu

anti

ty d

eman

ded

by th

e p

erce

nta

ge c

han

ge in

pric

e,w

e ge

t a n

um

ber

that

is g

reat

er th

an 1

,les

s th

an 1

,or

exac

tly

1.

•If

the

answ

er to

ou

r di

visi

on p

robl

em is

gre

ater

than

1,t

he

dem

and

is e

last

ic;i

fth

e an

swer

is le

ss th

an 1

,th

e de

man

d is

inel

asti

c;if

the

answ

er is

exa

ctly

1,t

he

dem

and

is u

nit

-ela

stic

.


71CH

APTE

R 4,

SEC

TIO

N 3

© E

MC

Publ

ishin

gD

aily

Lec

ture

s: O

verh

eads

and

Not

es—

SAM

PLE

�Le

t’s lo

ok a

t som

e ex

ampl

es to

see

how

we

dete

rmin

e el

asti

city

of

dem

and.

(See

Tra

nsp

aren

cy4-

6.)

•Su

ppos

e th

e qu

anti

ty d

eman

ded

goes

dow

n b

y 15

per

cen

t an

d th

e pr

ice

goes

up

by 1

0 pe

rcen

t.W

e di

vide

15

perc

ent b

y 10

per

cen

t an

d ge

t 1.5

.Is

this

nu

mbe

r gr

eate

r th

an o

r le

ssth

an 1

? It

’s g

reat

er th

an 1

,so

the

dem

and

is e

last

ic.

•N

ow le

t’s s

ay th

at th

e qu

anti

ty d

eman

ded

goes

dow

n b

y 5

per

cen

t an

d th

e pr

ice

goes

up

by10

per

cen

t.W

e di

vide

5 p

erce

nt b

y 10

per

cen

t an

d ge

t 0.5

.Th

e an

swer

is fi

ve-t

enth

s,or

on

e-h

alf,

so it

’s le

ss th

an 1

,wh

ich

mea

ns

the

dem

and

is in

elas

tic.

•Fi

nal

ly,l

et’s

say

that

the

quan

tity

dem

ande

d go

es d

own

by

10 p

erce

nt a

nd

the

pric

e go

es u

pby

10

per

cen

t.W

e di

vide

10

per

cen

t by

10 p

erce

nt a

nd

get 1

.On

e is

obv

iou

sly

equ

al to

1,s

oth

e de

man

d is

un

it-e

last

ic.

•To

su

mm

ariz

e:If

the

answ

er is

gre

ater

than

1,t

he

dem

and

is e

last

ic,w

hic

h m

ean

s th

at a

re

lati

vely

sm

all p

rice

ch

ange

has

a b

ig im

pact

on

the

quan

tity

dem

ande

d.If

the

answ

er is

less

than

1,t

he

dem

and

is in

elas

tic,

wh

ich

mea

ns

that

the

pric

e ch

ange

has

litt

le im

pact

on

the

quan

tity

dem

ande

d.A

nd

fin

ally

,if

the

answ

er is

exa

ctly

1,t

he

chan

ges

in p

rice

an

dqu

anti

ty d

eman

ded

are

the

sam

e,an

d th

eref

ore

the

impa

ct is

neu

tral

.


72CH

APTE

R 4,

SEC

TIO

N 3

© E

MC

Publ

ishin

gD

aily

Lec

ture

s: O

verh

eads

and

Not

es—

SAM

PLE

Wha

t Det

erm

ines

Ela

stic

ity

ofD

eman

d?�

Fou

r fa

ctor

s af

fect

the

elas

tici

ty o

fde

man

d:

•N

umbe

r of

subs

titu

tes.

Wh

en th

ere

are

few

su

bsti

tute

s fo

r a

good

,th

e qu

anti

ty d

eman

ded

isu

nlik

ely

to c

han

ge m

uch

ifth

e pr

ices

ris

es.T

her

efor

e,th

e de

man

d fo

r th

e go

od is

like

ly to

be in

elas

tic.

Wh

en th

ere

are

man

y su

bsti

tute

s fo

r a

good

,th

e op

posi

te is

tru

e:th

e de

man

dte

nds

to b

e el

asti

c.

•Lu

xuri

es v

ersu

s ne

cess

itie

s.D

eman

d fo

r n

eces

siti

es te

nds

to b

e in

elas

tic

beca

use

peo

ple

nee

dth

ose

good

s ev

en if

pric

e ri

ses.

Dem

and

for

luxu

ries

ten

ds to

be

elas

tic

beca

use

peo

ple

will

ofte

n d

o w

ith

out t

hos

es g

oods

ifpr

ice

rise

s.

•Pe

rcen

tage

ofi

ncom

e sp

ent o

n th

e go

od.I

fa

good

req

uir

es a

larg

e p

erce

nta

ge o

fa

per

son’

sin

com

e,de

man

d fo

r it

ten

ds to

be

elas

tic.

Dem

and

for

good

s th

at r

equ

ire

a sm

all p

erce

nta

geof

a pe

rson

’s in

com

e te

nds

to b

e in

elas

tic.

•T

ime.

Wh

en c

onsu

mer

s h

ave

littl

e ti

me

to r

espo

nd

to a

pri

ce c

han

ge,d

eman

d is

usu

ally

inel

asti

c.W

hen

they

hav

e m

ore

tim

e to

res

pon

d,de

man

d is

usu

ally

ela

stic

.

Rel

atio

nshi

p B

etw

een

Elas

tici

ty a

nd R

even

ue�

Ela

stic

dem

and

and

an in

crea

se in

pri

ce le

ad to

a d

ecre

ase

in to

tal r

even

ue.

�E

last

ic d

eman

d an

d a

decr

ease

in p

rice

lead

to a

n in

crea

se in

tota

l rev

enu

e.

�In

elas

tic

dem

and

and

an in

crea

se in

pri

ce le

ad to

an

incr

ease

in to

tal r

even

ue.

�In

elas

tic

dem

and

and

a de

crea

se in

pri

ce le

ad to

a d

ecre

ase

in to

tal r

even

ue.


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Economics: New Ways of Thinking