“the law of demand” 7-1 notes demand: how many goods and services consumers will buy at various...

“The Law of Demand”

7-1 Notes

Demand:How many goods and services

consumers will buy at various prices

• Effected by– Willingness to

buy– Ability to buy

• Individual demand – your willingness and ability to buy a good

• Market demand – all consumers willingness and ability to buy a good

Law of Demand-demand for a product moves in the

opposite direction of its price

• When prices fall, people buy more– sales

• When prices increase, people buy less– Airplane tickets

The Demand Schedule: a table that list the quantity of goods a person

(individual) or people (market) will buy at each price

.

Demand Schedules

Individual Demand Schedule

Price of a slice of pizza

Quantity demanded per day

Market Demand Schedule

Price of a slice of pizza

Quantity demanded per day

$.50$1.00$1.50$2.00$2.50$3.00

543210

$.50$1.00$1.50$2.00$2.50$3.00

300250200150100

50

Reasons why demand and price have an inverse relationship

• Real income Effect

• Substitution Effect

• Diminishing Marginal Utility

Why do businesses want to figure out market

demand?• Know how

much to produce and at what price to maximize profits

Changes in demand on a demand curve

• If a good’s demand increases, the demand curve will shift to the right because more people are willing and able to pay more money for the good

• If a good’s demand decreases the demand curve will shift to the left

Causes of the demand curve to shift right or left (increase or

decrease)• Consumer income• Tastes• Substitutions• Populations• Complementary

goods

What effects consumer’s tastes?Advertising, News Reports, Trends, and

Seasons

• What if people tire of a product?

-Buy less and demand curve shifts left

Substitutes- Product used in place of another

• Butter and margarine

• Chicken and lamb

Complementary goods- Related Goods that are often purchased

together • I-Pods- Covers,

Speakers, Head Phones, etc…

• Gillette razor handles and replacement blades

Utility - the usefulness or satisfaction from the consumption of a good

Diminishing Marginal Utility- The more you acquire the less eager you will be to buy more

Quantity Demanded v. Demand

• Quantity Demanded– A change in

quantity demand is caused by a change in the PRICE of the good only

• Demand– A change in

demand is caused by something other than price (tastes, income, populations, substitutes, and compliments)