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Onsumer Choice and Demand: Higher Price, Less Consumption
Onsumer Choice and Demand: Higher Price, Less Consumption
C onsumer choice
and demand :
Higher price, less consumption
TEACHER’S GUIDE
P. 231 Defined
P. 235 Content standards
P. 236 Materials
P. 236 Procedure
P. 240 Closure
P. 241 Assessment
P. 245 Overheads
P. 260 2Answer key
Visuals N
Visuals for overhead projector.
Copy to transparent paper for overhead.
Lessons 2
Copy and handout to students.
DEFINED
H ouseholds buy many goods and services. We can think of the many
goods and services they buy in a typical week or month being
placed in a large basket. The total amount of the goods and services
in the basket is limited by their income and the price of each good or
service. How much of any one good or service do you consume? What
affects your consumption decision?
Consumption means the purchase of a good or service for use now
or later. This is an important component of economics, and plays a
critical role in decision making. The quantity of a good or service that
consumers purchase depends on many variables. The law of demand
states that when the price of a commodity rises and nothing else changes,
the quantity consumed declines. The law of demand is true for a number
of reasons. First, income is limited.
Assume you have an income of $10 and the only good or service
you can buy is an apple. If the price of an apple is $1, you can buy
10 apples. If the price of apples increases to $2, you can only buy 5
apples.
Suppose now you can buy two commodities, apples or oranges. If
your income is still $10 and both apples and oranges are $1 a piece,
you can buy some combination of apples and oranges up to 10 pieces
of fruit. You can exchange one apple for one orange. In other words,
the opportunity cost of one apple is one orange. The opportunity cost
of one orange is one apple. Assume you buy 5 apples and 5 oranges
with your $10. Now, if the price of apples increases to $2 you can
only buy 10 pieces of fruit if you buy all oranges. The higher price of
apples forces you to substitute oranges for apples or buy less fruit. The
opportunity cost has changed. You now must give up 2 oranges for one
apple. The opportunity cost for an apple is 2 oranges. The opportunity
cost for an orange is half an apple.
If income does not change, when the price of one commodity rises,
not enough money is available to maintain consumption of the same
basket of goods previously consumed. (A basket of goods is made up
of all goods and services consumed in some given time frame such as
a week or month.) In addition, when the price of one good goes up,
the opportunity cost to consume that good also rises. Maintaining the
original consumption level of that good means that we have to give up
some consumption of other goods. Remember from module two, price
is a reflection of opportunity cost.
$12
Price ($ per #)
$10
$8
B
$6
A
$4
C
$2
Demand
$0
0 0.25 0.5 1 1.5 2
Quantity (# of Apples)
Quantity Price
(lbs of Apples) ($ per pound)
0.00 $10
0.25 $8
0.50 $6
1.00 $4
1.50 $2
2.00 $0
$12
Price ($ per #)
$10
$8
$6
$4
D2
$2
$0 Demand
the school year in a university town, for example), the demand curve
will increase and shift it to the right. If health authorities announce that
two Macintosh apples a day will prevent cancer, consumer preferences
would likely adjust by increasing demand, shifting it to the right. If the
price of other apple varieties increases, people will substitute Macintosh
apples for other varieties and there will be an increase in the demand
for Macintosh apples, again, shifting the demand curve to the right. In
each of these cases consumers purchased a greater quantity at each
price and the demand curve shifted to the right. At the original price of
$4 per pound, consumers will now purchase one and one-half pounds
of Macintosh apples instead of just one pound.
Alternatively, when some of the students leave a university town in
the summer, the number of consumers will decline, shifting demand
to the left as shown below. Demand curve D3 shows a decrease in
demand, a shift to the left. If a new crop of fresher, crisper apples is
expected to arrive to market next week, the demand for apples this
week may decline, shifting the demand curve to the left. Alternatively,
a decrease in the price of other apple varieties will decrease the
demand for Macintosh apples, shifting the curve to the left. (Be aware,
a decrease in the price of Macintosh apples is a movement along the
existing curve changing quantity demanded, not changing or shifting
demand.) A change in the price of a related good will shift the demand
for Macintosh apples.
$12
Price ($ per #)
$10
$8
$6
$4
$2 Demand
$0 D3
0 0.25 0.5 1 1.5 2
Quantity (# of Apples)
CONCEPTS
1. Consumption
2. Demand
3. Law of demand
4. Change in quantity demanded
5. Change or shift in demand
6. Related commodities (substitutes and complements)
OBJECTIVES
1. Know that consumption is the purchase or use of a good or service.
2. Understand the law of demand.
3. Understand why the demand curve is downward sloping.
4. Know the difference between a change in demand (a shift of the curve)
and a change in quantity demanded (a movement along the curve).
CONTENT STANDARDS
TIME REQUIRED
2-3 class periods
MATERIALS
Donuts (or some other immediately consumable item that students like)
Overhead projector
Transparency pen
Visuals for overhead projector: Copy to transparency.
NVisual-1: Demand defined
NVisual-2: Donut demand
NVisual-3: CD demand
NVisual-4: Movie schedule, income = $30
NVisual-5: Movie schedule, income = $60
NVisual-6: Change in quantity demanded
NVisual-7: Change in demand
Lesson worksheets: Copy for each student.
2 Lesson-I: Demand and price
2 Lesson-II: Demand shifters
2 Lesson assessment
PROCEDURE
1. Economics is the study of choices and the allocation of scarce
resources. An important component of economics is how much of a
commodity (a good or service) to purchase. The quantity consumers
purchase depends on a variety of variables.
LQuestion: Ask students to identify some of these variables.
Answer: Students should identify the price of the commodity,
consumer income, and the price of related commodities. Write
these on the board.
The price of the purchased commodity will be the initial focus
of discussion. Demand relates the price of a commodity and the
quantity purchased at that price. Display NVisual-1: Demand
defined. The law of demand states that there is an inverse relationship
between the price of a commodity and the quantity purchased.
Remind students that the price of a good or service represents the
opportunity cost of that purchase; the amount of other commodities
that must be given up to consume the desired good. A sacrifice is
made for every consumption decision because income is limited.
2. Divvying-up donuts.
a. Bring donuts (or some immediately consumable item the students
like) to class. Tell the students you are going to sell the donuts.
They must pay you cash for the donuts and they can consume
them after receiving them. Display NVisual-2: Donut demand.
LQuestion: Ask students how many donuts each of them would
like if the donuts were free. Insert the quantity demanded at zero
price on the demand schedule. Ask students how many donuts
they will purchase if the price is $.25 per donut. Note that donuts
must be paid for in cash before they may be consumed. Record
the results.
LQuestion: What if the price is $.50 per donut?
Continue to raise the price as shown in the demand schedule
until only a few donuts are willingly purchased by the students
in the class. Record each price and quantity combination.
b. Graph the resulting price and quantity combinations on the axes
provided at the bottom of the visual. Remind students that the
horizontal axis shows the quantity demanded and the vertical axis
shows the price per unit. This is the class demand for donuts.
c. Notice that the demand curve developed is negative or downward
sloping. The law of demand states that there is an inverse
relationship between the quantity demanded and the price of
that commodity. This is shown on NVisual-1: Demand defined.
If the price of donuts increases, less will be purchased and if
price declines more will be purchased.
CLOSURE
Lesson review
ASSESSMENT
Multiple-choice questions
Answers:
1. d
2. b
3. c
4. a
5. c
Discussion/Essay Questions
1. LQuestion: At a price of $2.50 per gallon, Sally buys 1 gallon of milk
a week. If the price of milk increases to $3.50 per gallon, and nothing
else changes, will Sally buy more or less milk each week? Why?
Answer: Sally will buy less milk each week. Given an income
constraint, Sally must purchase less milk if she has not changed other
consumption habits.
NOTES
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Copyright © 2008 by MCEE (www.econedmontana.org) Economics: The Study of Choices 243
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Consumer choice and demand
Module-8 Higher price, less consumption
Teacher
NOTES
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O ve r h e a d
visuals
Consumer choice and demand
Consumer choice and demand
Module-8 Higher price, less consumption
Visual
N246
Consumer choice and demand
Module-8 Higher price, less consumption
Visual
N247
Consumer choice and demand
Module-8 Higher price, less consumption
Visual
N248
Consumer choice and demand
Module-8 Higher price, less consumption
Visual
N249
Consumer choice and demand
Module-8 Higher price, less consumption
Visual
N250
Consumer choice and demand
Module-8 Higher price, less consumption
Visual
demand
N251
Consumer choice and demand
Module-8 Higher price, less consumption
Visual
D2
demand
D3
N252
Module-8
L e sso n
wor ksh e e ts
consumer choice and demand
Consumer choice and demand
Module-8 Higher price, less consumption
Lesson
Quantity Price
of CDs Consumed per CD
per month
15 $1.00
10 $5.00
5 $10.00 Demand for CDs
1 $15.00
Price per CD $20
$15
$10
$5
$0
0 5 10 15 20
Quantity of CDs
Recall, economics is the purchased at the various prices (P) with your
study of the allocation of given income of $30. You can only attend
scarce or limited resources. as many movies as your income will allow.
Another reason the demand To calculate the quantity of movies you can
curve has a negative slope see at various prices, divide your income by
is because all individuals the price of a movie: Q = 30/P. The various
have a limited budget (at movie prices are shown in figure-7
least in the short run). This con-
straint may be because of your earnings, al- Fill in the first column for the quantity of
lowance, parental imposed spending limit, movies you can see at the given prices.
or net worth.
Consider the following example. Movies Plot the points of the demand schedule
are the only commodity that exists or can be on the diagram to its right.
purchased. You have an income of $30 per
month, you spend all of it on movies. Deter- Why is the demand curve downward
mine the quantity of movies (Q) that may be sloping?
Demand Shifters
$20
$5.00 $15
$6.00 $10
$10.00 $5
D1 (Income = $30)
$15.00 $0
0 10 20 30 40 50 60
$30.00 Quantity of Movies
(consumers) increased, the number of donuts willingly purchased at reasonable prices will also
likely increase. If new information suggests that donut consumption contributes more to weight gain,
then the preference for donuts may change and less be consumed at each price. Often economists
also include a change in expectations as an influence on demand. If it is suddenly announced that
donuts will be given away at lunch, then expectations will change and the demand for donuts will
also change. Each of these factors will shift the demand curve.
Review
A Change in quantity demanded is in response to a change in the price of the desired good.
This is shown as a movement along the demand curve.
A shift in demand results from a change in the price of related commodities, income, number
of consumers, tastes and preferences, or expectations. An increase in demand is a shift to the right.
A decrease in demand is a shift to the left.
Practice
Determine whether the following factors will change the quantity demanded or shift the demand
curve and draw in the appropriate change moving from point A.
4
Shift Jake’s demand for subway sandwiches. 2
.A
0
0
0 1 2 3 4 5
Quantity of Sandw iches
5
Price per iPod
4
4. It is expected that the price of iPods will decline at the 3
2
.A
end of the month. The affect on the demand for iPods 1
today will be: 0
0
A change in the quantity of iPods demanded. 0 1 2 3 4 5
A shift in the demand for iPods. Quantity of iPods
4
3
2
.A
1
0
5. The price of whipping cream has increased. This will: 0
0 1 2 3 4 5
Change the quantity of waffles demanded. Quantity of Waffles
Shift the demand for waffles.
Lesson Assessment
Multiple-choice questions
2. LQuestion: An increase in demand (a shift to the right) may be the result of:
a. A change in the price of the commodity desired.
b. An increase in consumer income.
c. A decrease in consumer income.
d. A decrease in the number of consumers in the market.
5. LQuestion: Which of the following will cause a rightward shift in the demand curve?
a. An increase in the price of a complementary good.
b. A decrease in the price of a substitute good.
c. A decrease in the price of a complementary good.
d. A fall in consumer income.
Lesson assessment
Discussion/essay questions
1. LQuestion: At a price of $2.50 per gallon, Sally buys 1 gallon of milk a week. If the price of milk
increases to $3.50 per gallon, and nothing else changes, will Sally buy more or less milk each
week? Why?
NOTES
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