Name date period Economics

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1 Name date period Economics UNIT 2.1 DEMAND The purpose of the guided reading and note-taking packets is to help guide you through the textbook, and help you prepare for in-class discussions and activities. You can choose to use all or part of each packet and/or another method that serves your learning. Only the enduring understanding response(s) portion of the packet will be formally assessed. Additionally, you are expected to master the content outlined in the packets, and that content mastery will be formally assessed. Enduring Understandings 1. What role do the following principles play in your consumption? No free lunch Incentives matter Future consequences count 2. Take any product and graph a demand curve for the product and explain and graph changes in quantity demanded. Graph and explain changes in demand with specific reference to demand shifters (determinants). Graph and explain demand elasticity. 1

2 DEMAND In-class: Demand, Demand Curve, Law of Demand and the change in quantity demanded (Chpt 5.2 pgs ) CHANGE IN DEMAND AND DEMAND SHIFTERS Read Section 5.3. Answer the questions and complete a row in the matrix for each of the six demand shifters described in Section 5.3. The first demand shifter, Changes in Income, has been completed for you. 1. What is a change in demand? 2. What is a demand shifter? 3. Why is a change in demand not the same as a change in quantity demanded? Demand Shifter How the demand shifter influences the demand curve Graph what happens to the demand curve if the shifter increases Changes in Income (Consumer income) An increase in income will shift the demand curve to the right. A decrease in income will shift the demand curve to the left. This is because people purchase less items when their incomes are lower and more items when their incomes are higher. Market Size (Number of Consumers) 2

3 Demand Shifter How the demand shifter influences the demand curve Graph what happens to the demand curve if the shifter increases Consumer tastes and preferences Graph the change if the tastes for a good become more positive Consumer expectations Expect the price of a good will rise The price of substitute goods The price of complementary goods 4. What is the relationship between demand shifters and changes in demand? 5. If only the price for a good or service changes, does the demand curve shift? Why or why not? 3

4 Mary runs the only grocery store in a 12 block area of San Jose. Many of her customers are elderly and don t have much income. Mary sells lots of canned tuna fish. It isn t too expensive, and it is a good source of protein. Mary charges $.79 cents a can all the time, but she has noticed that her sales have changed from time to time. For each scenario below use the correct demand shifter to explain why the demand for tuna changed. Use a generic demand curve without prices or quantities to graph the change. 1. When the price of hamburger went up 20 cents a pound, Mary sold about 50 more cans of tuna each day. 2. Mary s customers receive their Social Security checks on the first of the month. Mary sells about 100 more cans of tuna a day at the start of a month than at the end of a month. 3. A newspaper article reported high levels of the poison mercury in tuna fish. For a few weeks after that report, Mary s sales decreased by 30 cans a day. 4. There was a news story suggesting that a truck driver s strike might cause food deliveries to be interrupted. Mary sold 100 cans more a day. 4

5 DEMAND SHIFTERS Directions: Read the following situations and answer the questions using the demand shifters. Explain which shifter is at work and how it is at work. 1. Between 1984 and 1985, the number of tickets purchased to movie theaters decreased. Identify the possible reasons for this decline. How might this decline have been caused by the availability of substitutes? 2. Are there substitutes for gasoline? If so, what might they be? 3. In order to increase purchases, a chain of grocery stores reduced its prices and tried to change its image by making stores cleaner and more attractive and by adding lighter foods to the deli menu. Explain how these efforts illustrate a change in quantity demanded and one of the shifters of demand. 4. When MP3 players became available, the sales of CDs dropped, and the sales of MP3 players soared. Explain why the decline in CD sales does not illustrate the price effect. Is there a demand shifter at work in this example? Explain. 5. If the price (tuition) of attending community colleges were to rise, what would happen to the number of classes purchased by students? Why? 6. As consumer began looking for more nutritious food, such as real fruit juice and less sugar content, manufacturers of powdered drinks, such as Kool-Aid, were confronted by declining sales. Explain the shifter of demand that is illustrated by this change. Manufacturers reacted by lowering their prices. Why might lower prices lead to increased consumer purchases of powdered soft drinks? 7. Joe eats one can of Spam per week. Recently, Joe received a significant raise in his income. Over the course of the following month, Joe purchased only one can of Spam. Does this situation contradict the law of demand? Why or why not? 8. All of the major hotels on one of the Hawaiian Islands increased their rates in an attempt to raise profits. Two months later, United Airlines reduced the number of flights to Hawaii by twenty percent. Explain what happened in this situation. 5

6 Directions: Read each headline below and determine the effect this headline would have on the demand for the good or service indicated. Draw a demand curve that reflects that change and list which demand shifter (if any) is at play. Scientists Prove Milk Lengthens Life Span What effect does this have on demand for milk? The price of coffee increases. What effect does this have on demand for coffee? The birth rate doubles. What effect does this have on demand for food? Builder Completes New Subdivision Next to Movie Theater What effect does this have on demand for movie tickets? The price of laundry detergent increases. What effect does this have on demand for laundry detergent? The season changes from spring to summer. What effect does this have on demand for bathing suits? Mortgage Interest Rates Reach Record High What effect does this have on demand for new homes? The price of gasoline increases. What effect does this have on demand for gas? 6

7 DEMAND ELASTICITY In-class: elasticity, demand elasticity, factors that influence elasticity (Chpt 5.6 pg. 87) P P D D Perfectly Inelastic Demand Q Perfectly Elastic Demand Q 7