Transcript Law of Demand

Do Now – How much would you
pay for:
Cold
Soda
Sneakers
Sandwich
Cell Phone
Demand
But I want it….
• Demand is the
desire to own
something, and
the ability to pay
for it
The Law of Demand
Prices
Demand
• The Law of
Demand says
that:
– Consumers will
buy more of a
good when its
price is lower,
and less when
its price is
higher
Prices
Demand
The Sub Effect
• When consumers
react to an increase in
a product’s price by
consuming less of
that product and more
of a substitute
product…
– The Substitution
Effect
The Income Effect
• Income Effect: the
change in consumption that
results when a price
increase causes real
income to decline
• When prices increase,
your limited budget just
won’t buy as much as it
did in the past - It feels as
if you have less money
• Also works when the
price goes down – if the
price of gas goes down,
all of a sudden you feel
like you have more
money…
Demand Schedule
• The law of demand explains how the price
of any item affects the quantity demanded
of that item…
• To have a demand for a good, you must
be willing and able to buy it at the
specified price
– Demand means that you want the good, and
can afford to buy it…
Demand Schedule
• Demand Schedule
is a table that lists
the quantity of a
good a person will
buy at various
prices in a market
Quantity
Price of a
Slice of Pizza demanded per
day
$1.00
5
$2.00
4
$3.00
3
$4.00
2
$5.00
1
$6.00
0
Market Demand Schedule
• Market Demand
Schedule is a table
that lists the
quantity of a good
all consumers in a
market will buy at
various prices
– EX: allows a
pizzeria owner to
predict the total
sales of pizza at
several different
prices
Quantity
Price of a
slice of pizza demanded per
day
$1. 00
300
$2.00
250
$3.00
200
$4.00
150
$5.00
100
$6.00
50
Sum it up
As the price of a
good goes
down…
As the price of a
good goes up…
Law of
Demand
demand goes up.
demand goes down.
Substitution
Effect
consumers substitute consumers substitute
that good for other
other goods for that
goods.
good.
Income Effect demand goes up.
demand goes down.
Sum it up
• Demand is the desire to have a good and the
ability to purchase it
• As a good’s price rises, people demand less of
that good; as a good’s price falls, people
demand more of that good
• If the price of a good increases, consumers will
increase their demand for substitute goods; if the
price of a good decreases, consumers will
decrease their demand for substitute goods
• Demand schedules show demand for a good
across a range of prices
• Demand curves are graphic representations of
demand schedules
Get a textbook and answer the following questions.
• What happens to demand for a good when
the price increases?
• What is a market demand curve?
• To have demand for a good, what two
conditions must be met?
• Describe the difference between the
substitution effect and the income effect.