Chapter 2: Making Smart Choices (The Law of Demand)
2.1- Describe What determines you willingness to pay for a product/service.
2.2-Identify what smart choices depend on marginal benefit, not total benefit, and
explain what changes marginal benefit.
2.3-Describe the relationship between price and quantity demanded, and identify
the role of substitutes.
2.4-Explain the difference between a change in quantity demanded and a change in
demand, and distinguish five factors that change demand.
2.5-Define elasticity of demand and explain how it determines business pricing
2.1 Put your money where your mouth is: Weighing benefit’s, Costs, and Substitutes.
1. What is the difference between wants and demands?
2. How many songs or albums by your favorite musician or group have you
bought? How many songs have you copied or downloaded? What determined
your choice between buying and downloading?
3. You have just started at a college that is a 30-minute drive from home or a
90-minute transit ride. How would you make a smart choice between taking
transit and buying a car? What are the important issues on the benefits
comparison? On the cost comparison?
2.2 Living on the Edge: Smart choices are marginal choices
1. What is marginal benefit, and on what does it depend?
2. Why are you willing to pay more for a diamond than a glass of water even
though water is essential for survival and diamonds are an unnecessary
3. You and your entrepreneurial buddy have a concession stand on the beach. It
is a hot, sunny, crowded day, and you are selling a few $5 collapsible
umbrellas as sun parasols. The skies suddenly darken, rain begins to pour,
and your buddy quickly changes the umbrella price sign to $10. Will you sell
more or fewer umbrellas? Explain your thinking; include your analysis of the
2.3 When the price isn’t right: The Law of Demand
-What happens to your buying decision when the additional cost (what you pay)
1. What is the Law of Demand?
2. You own a car and work at a job that is not accessible by public transit. If the
price of gasoline goes up dramatically, does the law of demand