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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
• 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
DemandPrices
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
Price of a Slice of Pizza
Quantity 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
Price of a slice of pizza
Quantity 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 that good for other goods.
consumers substitute other goods for that 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.