Law of Demand

• The price of a good or service is high the quantity demanded will decrease, but when they decrease, quantity demanded increases

Rules that Help Determine Demand

• Diminishing Marginal Utility• Real Income• Substitution Effect

Diminishing Marginal Utility

Diminishing Marginal Utility

• Utility (Satisfaction) • As you buy a product, your satisfaction/utility

decreases. You will only buy a product until your utility falls below your price of that product.

• Food is a good example at an all you can eat buffet.

Income Effect

• If I cannot afford it, I will not buy it.• Example- New Car or Computer that is out of

price range to due salary cut.

Substitution Effect

• When someone buys less of something as the price rises and more of another.

• Example: Price of coffee goes up, so you buy tea instead.