Demand – 4.1.

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Presentation transcript:

Demand – 4.1

Law of Demand The law of demand states that consumers buy more of a good when its price decreases and less when its price increases.

Influences on Demand The law of demand is the result of two separate behavior patterns that overlap the substitution effect the income effect. These two effects describe different ways that a consumer can change his or her spending patterns for other goods.

Substitution Effect The substitution effect occurs when consumers react to an increase in a good’s price by consuming less of that good and more of other goods.

Income Effect The income effect happens when a person changes his or her consumption of goods and services as a result of a change in real income. VS

Where Is The Demand?? Cadillac CTSV Pinto

Demand/Market Demand Schedules

The Demand Curve A demand curve is a graphical representation of a demand schedule. When reading a demand curve assume all outside factors - ceteris paribus The only movement are the dots on the line A change in price shows a change in quantity demanded