Law of Demand

Demand-

The amount of a particular good orservice consumers want to buy

Law of demand-

as the price of a good increasesthe amount demanded will deceaseand as price decreases thendemand will increase

Diminishing Utility

-the law of demand says that a lowerprice will increase demand but thisis limited

-diminishing utility

-the amount of satisfaction orusefulness of a product decreasesas more and more are consumed.

-Ex.—You can only enjoy so manysoft drinks before you can’t drinkanymore no matter the price youare paying

Elasticity

-Elasticity

-Is the degree to which a changein price affects the demand forthe product

-Elastic Demand

-a change in the price does affectthe quantity demanded

-Inelastic demand

-change in the price does NOTaffect the quantity demanded

Income Level Changes-The demand of many consumers is

based on their income level orpurchasing power

-A change in either direction to aperson’s purchasing power willchange their demand for goodsand services

-personal income

-disposable income

Change in Consumers

-The number of possible consumersin an area affects demand

-Faster growth areas may facehigher levels of demand

-Areas of the country who arelosing population will face lowerdemand for goods

Consumer Expectations

-Many consumers plan when makingeconomic choices and theirpredictions for the future changetheir demand

-a period of high unemployment oreconomic boom can greatly changethe demand for certain goods

Consumer Tastes-Because consumers have many

choices of where to spend theirmoney, the popularity of items willchange demand

-Advertisers spend billions everyyear to shape the “tastes” ofconsumers

-Some items become high demanditems for a short while and thenvery little demand

Substitute Goods

-substitute goods are goods that canbe used in place of anotherproduct

ex.—chicken or beef

-if a good experiences a pricechange then the substitute goodwill face a demand change

ex—chicken price increases,demand for beef increases

Complementary Goods

-complementary goods are goodsthat work with another product

ex-cd-roms and computers

-a change in the demand for one willmany times affect the demand forthe other as well