UNIT 1 Macroeconomics LESSON 2 - Kevin Rasco

1 344 advanced placement Economics Teacher Resource Manual National Council on economic Education, New York, and DescriptionThis LESSON introduces the market system. Demandis half of a market and a demand schedule repre-sents the quantities that people are willing and ableto buy at alternative prices. The demand curve is agraphical representation of the demand a market is essential to success inAP 3 has the students graph a demandschedule and helps them understand the implica-tions of a shift in the demand curve. The activitythen focuses on the factors that shift the demandcurve. Activity 4 reinforces the factors that cause a demand curve to shift, the direction of the shiftand whether the shift represents an increase ordecrease in Definedemand scheduleanddemand Construct a demand curve using Explain why consumers buy more of a good orservice when the price Explain the difference between a shift in thedemand curve and a movement along thedemand Describe and analyze the forces that shift thedemand Explain why a demand curve would shift to theright or left given a RequiredTwo class periods or 90 minutesMaterials1.

2 Activities 3 and 42. Visual and Visual Begin with a discussion of demand. Have thestudents tell you how much they are willing topay for various quantities of a commodity. Onepossibility is to use one student and tell this stu-dent that he or she has $10 to buy candy. Offerthis student a candy bar and ask how much heor she would be willing to pay for it; then askhow much he or she would be willing to pay fortwo, etc. Write the quantities and prices down;create a demand schedule and graph :The willingness to pay must be constrained by the$10 the student has as income. 2. Use Visual and note that as the pricedecreases, the quantity demanded Use Visual Show that an increase in demandis a shift to the right (and a decrease in demandis a shift to the left), and discuss the factors thatwill shift the demand curve. Changes in prefer-ences, incomes, expectations, population orprices of complementary or substitute goodswill shift the demand Have the students start Activity 3 in class andcomplete it for Review the answers to Activity Review the factors that shift the demand Have the students complete Activity 4 in Review the answers to Activity 2 UNITD emandAdvanced placement Economics Teacher Resource Manual National Council on economic Education, New York, Curves, Movements Along Demand Curves and Shifts in Demand CurvesPart AFigure shows the market demand for a hypothetical product: Greebes.

3 Study the data, and plot thedemand for Greebes on the axes in Figure Label the demand curve D, and answer the questions thatfollow. Write the correct answer in the answer blanks, or underline the correct words in The data for demand curve D indicate that at a price of $ per Greebe, buyers would be willingto buy150million Greebes. Other things constant, if the price of Greebes increased to$ per Greebe, buyers would be willing to buy 50million Greebes. Such a changewould be a decrease in (demand / quantity demanded).Other things constant, if the price ofGreebes decreased to $ , buyers would be willing to buy 250million Greebes. Such achange would be called an increase in (demand / quantity demanded).1 MacroeconomicsLESSON 2 ACTIVITY 3 AnswerKeyUNITF igure for GreebesPriceQuantity Demanded($ per Greebe)(millions of Greebes)$. 50 Figure for (millions of Greebes)PRICE PER GREEBE50100 150 200 250 300 350 400D2DD1346 advanced placement Economics Teacher Resource Manual National Council on economic Education, New York, 2 ACTIVITY 3 AnswerKeyUNIT2.

4 Now, let s suppose there is a dramatic change in federal income-tax rates that affects the dispos-able income of Greebe buyers. This change in the ceteris paribus(all else being equal) conditionsunderlying the original demand for Greebes will result in a new set of data, shown in Figure these new data, and add the new demand curve for Greebes to the axes in Figure Labelthe new demand curve D1and answer the questions that Comparing the new demand curve (D1) with the original demand curve (D), we can say that thechange in the demand for Greebes results in a shift of the demand curve to the (left/right).Such a shift indicates that at each of the possible prices shown, buyers are now willing to buy a (smaller/ larger)quantity; and at each of the possible quantities shown, buyers are willing tooffer a (higher / lower)maximum price. The cause of this demand curve shift was a(n) (increase/ decrease) in tax rates that (increased / decreased)the disposable income of Greebe Now, let s suppose that there is a dramatic change in people s tastes and preferences for Greebes.

5 Thischange in the ceteris paribusconditions underlying the original demand for Greebes will result in a newset of data, shown in Figure Study these new data, and add the new demand curve for Greebes tothe axes in Figure Label the new demand curve D2and answer the questions that the new demand curve (D2) with the original demand curve (D), we can say that thechange in the demand for Greebes results in a shift of the demand curve to the (left / right).Figure Demand for GreebesPriceQuantity Demanded($ per Greebe)(millions of Greebes)$. 50 Figure Demand for GreebesPriceQuantity Demanded($ per Greebe)(millions of Greebes)$. 50 advanced placement Economics Teacher Resource Manual National Council on economic Education, New York, a shift indicates that at each of the possible prices shown, buyers are now willing to buya(smaller / larger)quantity; and at each of the possible quantities shown, buyers are willing tooffer a (lower / higher)maximum price.

6 The cause of this shift in the demand curve was a(n) (increase/ decrease) in people s tastes and preferences for BNow, to test your understanding, underline the answer you think is the one best alternative in each ofthe following multiple-choice Other things constant, which of the following wouldnotcause a change in the demand (shift inthe demand curve) for mopeds?(A) A decrease in consumer incomes(B)A decrease in the price ofmopeds(C) An increase in the price of bicycles, a substitute for mopeds(D) An increase in people s tastes and preferences for mopeds6. Rising oil prices have caused a sharp decrease in the demand for oil. Speaking precisely, and usingterms as they are defined by economists, choose the statement that best describes this quotation.(A) The quotation is correct: An increase in price always causes a decrease in demand.(B) The quotation is incorrect: An increase in price always causes an increase in demand, not adecrease in demand.

7 (C)The quotation is incorrect: An increase in price causes a decrease in the quantity demanded,not a decrease in demand.(D) The quotation is incorrect: An increase in price causes an increase in the quantity demanded,not a decrease in As the price of domestic automobiles has inched upward, customers have found foreign autos tobe a better bargain. Consequently, domestic auto sales have been decreasing, and foreign auto saleshave been increasing. Using only the information in this quotation and assuming everything elseconstant, which of the following best describes this statement?(A) A shift in the demand curves for both domestic and foreign automobiles(B) A movement along the demand curves for both foreign and domestic automobiles(C)A movement along the demand curve for domestic autos,and a shift in the demand curve forforeign autos(D) A shift in the demand curve for domestic autos, and a movement along the demand curve forforeign autos1 MacroeconomicsLESSON 2 ACTIVITY 3 AnswerKeyUNIT348 advanced placement Economics Teacher Resource Manual National Council on economic Education, New York, 2 ACTIVITY 3 AnswerKeyUNIT8.

8 You hear a fellow student say: economic markets are like a perpetual see-saw. If demand rises, theprice rises; if price rises, then demand will fall. If demand falls, price will fall; if price falls, demandwill rise and so on forever. Dispel your friend s obvious confusion in no more than one shortparagraph student is confusing a change in demand (shift in the curve) with a change in quantitydemanded (a movement along the curve). Part of the second sentence if price rises, thendemand will fall is wrong: The quantity demanded will fall; and since this is not a change indemand, the rest of the statement does not placement Economics Teacher Resource Manual National Council on economic Education, New York, for Changes in DemandPart ARead the eight newspaper headlines in Figure , and use the table to record the impact, if any, ofeach event on the demand for beef.

9 Use the first column to the right of the headline to show whetherthe event causes a change in demand. Use the next column to record whether the change is an increaseor a decrease in demand. In the third column, decide whether the demand curve shifts left or , write the letter for the new demand curve. Use Figure to help start at curve B,and move only one curve at a time. One headline implies that the demand for beef does not Demand Curve ShiftsNewHeadlineShift? (Y / N) Shifts, Inc / Dec Left / Right Curve1. Price of Beef to Rise in June Millions of Immigrants Swell Pork Prices Surgeon General Warns That Eating Beef Is Hazardous to Health Beef Prices Fall; Consumers Buy MoreN 6. Real Income for Drops for Third Charcoal Shortage ThreatensMemorial Day Nationwide Fad: The Consumption in MayQUANTITYPRICECABF igure 2 ACTIVITY 4 AnswerKeyUNIT350 advanced placement Economics Teacher Resource Manual National Council on economic Education, New York, 2 ACTIVITY 4 AnswerKeyUNITPart BCategorize each change in demand in Part A according to the reason why demand changed.

10 A givendemand curve assumes that consumer expectations, consumer tastes and preferences, the number ofconsumers in the market, the income of consumers, and the prices of substitutes and complementsare unchanged. In the table below, place an X next to the reason that the event described in the head-line caused a change in demand. One headline will have no answer because it is a change in quantitydemanded. ReasonHeadline Number 12345678A change in consumer expectationsxA change in consumer tastesxxA change in the number of consumers in the marketxA change in incomexA change in the price of a substitute goodxA change in the price of a complementarygoodxFigure