“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)