DemandChapter 4.1

The law of demand This states that if the price is lower of a certain thing

consumer will buy more of it. This goes as the opposite affect the higher the price

the less the consumer will buy. The law of demand is the result of two patterns that

overlap which are substitution effect and income effect.

vs

The Substitution Effect The substitution effect takes place when a consumer

reacts to a rise in the price of one good by consuming less of that good and more of a substitute good.

Example: Instead of buying pizza on Monday and Fridays buy pizza on Monday and eat a bagel on Friday.

This may also apply to drop in prices

Income effect Income effect is Purchasing fewer things without

increasing your purchases. Important thing to remember is that economists

measure consumption in the amount that is bought, not the amount spent to but it

The income effect also works also works when the price is drooped so you feel wealthier.

A Demand schedule The law of demand explains how the price of any item

affects the quantity demanded of the item. A demand schedule is a table that lists the quantity of

a good that a person will purchase at each price in a market.

When u add up the demand schedules of every buyer in the market, you can create a market schedule.

A demand schedule show the quantities demanded at each price by all consumers.

For example: a restaurant owner would predict the total sales at several different prices.

The Demand graph Is a graphic representation of a demand schedule. How do economists create a demand curve? When

they transfer numbers from a demand schedule to a graph, they always label the vertical axis with lowest possible prices at the bottom and the highest at the top.

Likewise, they always label the quantities demanded on the horizontal axis with the lowest possible quantity at the right.

Limits of a demand The market demand curve can be used to predict how

people will change their buying habits when the price of a good rises or fall.

The market demand curve is only accurate for one very specific set of market conditions.

For example: if a nearby factory were to close, so that fewer people were in the area at lunchtime, the pizzeria would sell less pizza even if the price stayed the same.

Understanding demand Demand is the desire to own something and the

ability to pay for it.

Movie scene http://www.imdb.com/title/tt0221027/

5 question quiz 1) what is a demand schedule?

Question 2 What is a demand curve accurate for ?

Question 3 What is the law of demand?

Question 4The law of demand is the result of not one pattern of behavior, but of two separate patterns that overlap. What are the patterns?

Question 5 What is demand exactly?

Congratulations

Answer to 1 Is a table that lists the quantity of a

good that a person will purchase at each price in a market.

Answer to question 2 The demand curve is only accurate for

one very specific set of market conditions.

Answer to question 3 As the prices go down. The quantity

demanded goes up As the prices go up the quantity

demanded goes down.

Answer to question 4 The substitution effect &the income

effect

Answer to question 5 Is the desire to own something and the

ability to pay for it