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Read the definition of demand presented in the section “Demand.” Why do you think both of these factors must be present in order to have true demand?

Even if there is a strong desire to purchase a product or service, without the ability to pay for that product or service there is no real economic chance that it will be purchased, and the dynamics of demand do not exist. Therefore, there is no real demand for the product or service.

After reading the sections “The Substitution Effect” and “The Income Effect,” compare and contrast the substitution effect and the income effect.

Both the substitution effect and the income effect are brought on by a change in prices. They differ in their effect. With the substitution effect, for example, a price increase would reduce demand for the good or service but increase it for others. With the income effect, a rise in prices lowers demand for all goods and services.

Read the quote from Professor Henderson in the section “The Law of Demand.” What do you think Henderson means when he says that “on this law is built almost the whole edifice of economics”? What is the meaning of the word edifice in this context?

Economist Henderson is stating that the relationship of prices to the behavior of consumers is a fundamental one in all economic matters. Edifice means “a structure.” In this case, it means the whole of economic theory.

Why might it be a good idea for a small business owner to create a market demand schedule?

Creating a market demand schedule would help a small business owner because it would help him or her to plan and make decisions if he or she knew the quantities demanded at various prices by all consumers in the market.

Read the sections “Understanding Demand” and “Market Demand Schedules.” Which do you think would be most important to the owner of a business?

If you owned a store, knowing the demand schedule of one customer might not be as helpful as knowing how all of your customers would react to price changes. When you add up the demand schedules of every buyer in the market, you can create a market demand schedule.

Read the first paragraph under “Changes in Demand.” Was the person’s change in demand for a burger in this situation based on price or on some other factor?

The change in demand does not reflect an assumption of ceteris paribus; it takes into account a factor other than price (the weather).

Look at Figure 3.4. How are individual and market demand schedules similar? How are they different?

Individual and market demand schedules are similar in that they both measure consumer reactions to price changes. They differ in what they measure. A demand schedule is a table that lists the quantity of a good that a person will purchase at various prices in a market. A market demand schedule, however, shows the quantities demanded at various prices by all consumers in a market.

A market demand schedule shows the quantities demanded at various prices by all consumers in the market. A demand schedule can be plotted on a demand graph, or curve. Economists use both of these tools to understand the impact of price changes on market behavior. Use the market demand graph provided to extract data and fill in in the market demand schedule.

Price of a Slice of Pizza: $1.00 $5.00 Quantity Demanded Per Day: 250 200 100 50

As you read through this lesson, complete this web diagram about what causes demand curves to shift.

Items for the ovals include income, population, demographics, consumer tastes and advertising, prices of related goods, and consumer expectations.

 What are non-price determinants, and why are they given that name? Give some examples.

Non-price determinants are changes other than price that can lead to a change in demand. Non-price determinants include income, consumer expectations, population, demographics, and consumer tastes and advertising.

After reading the section “Changes in Income,” explain how changes in income affect the demand for normal goods.

An increase in income creates an increase in demand for most goods, defined as normal goods. A decrease in income creates a decrease in demand for goods

Review Figure 3.7. Note which states offer tax holidays. How do you think tax holidays affect demand?

The tax holidays, by offering reduced spending, increase demand. Consumers will likely plan their spending around these holidays to take advantage of the tax breaks.

Think about normal goods and inferior goods. Give an example of normal and inferior goods that are also substitutes.

Possible answer: Department store clothing (normal good) and discount store clothing (inferior good) can be considered substitutes, since discount clothes may be purchased instead of department store clothes when incomes fall.

Many states hold “tax holiday” events. Analyze Maps What pattern do you see in the location of tax holidays? Why might this pattern exist?

(Most of the states are connected by a border, which might be explained by the fact that having tax holidays give stores in one state an advantage over any neighboring states and is therefore mimicked.)

 Identify an example of a non-price determinant for fuel-efficient cars that might cause a demand shift to the right. Identify another example that might cause a shift to the left.

A major disruption in oil supplies, such as from a war, might cause a shift in demand to the right, as people might become more concerned about rising oil prices. A major oil discovery might cause a shift in demand to the left, as people would be less concerned about saving fuel.

A change in the price of a product causes movement along the demand curve. What would cause the entire demand curve to shift?

Answers may vary. Students may respond generally, saying that a non-price determinant can cause a shift in demand, or they may respond with specific factors, such as a change in income, population, or consumer tastes or a change in the price of a complementary or substitute good.

 Compare and Contrast  Explain the difference between a change in quantity demanded and a shift in the demand curve.

A demand curve is accurate only if there are no changes other than price that affect a consumer’s decision.  A change in quantity demanded, however, can be affected by such factors as weather, advertising, changes in taste, changes in demographics, and other factors. 

Using a specific examples of complements and substitutes, explain how a change in demand for one good can affect demand for a related good.

In an example of a complement, a rise in the demand for pizza will cause the demand for cheese to rise.  In an example of a substitute, a rise in the price of meat will cause the demand for vegetarian pizzas to rise.