9-12 Demand

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Journal (9-12 Video) What did the clip show us about supply and demand?

BIG Ideas Describe how the principle of voluntary exchange operates in a market economy. Explain how diminishing marginal utility, the real income effect and the substitution effect relate to the law of demand.

Voluntary Exchange Voluntary exchange – It is the basis of activity in a market economy Exchange of goods in which the buyer and seller both accept the benefit and opportunity cost This introduces supply and demand as a model of how buyers and sellers interact

Demand Demand – all of the different quantities of a good or service that consumers will purchase at various prices Law of Demand – explains how people react to changing prices in terms of the quantities of a good or service How do you believe changing prices affect demand under this law?

The Law of Demand Price goes up… demand goes down. Price goes down…demand goes up

Factors that affect demand (3) Utility – how satisfied a person is with a purchase 1) Law of diminishing marginal utility – the more you buy of a given product (shoes) the less satisfaction you get from it When the value of satisfaction exceeds the price of the product demand will go away

Factors Continued 2) Real Income Effect Individuals cannot continue to buy a product if the price of that product goes up and their income stays the same Price goes goes up… demand goes down

Factors Continued 3)Substitution Effect If two items satisfy the same need people will select the cheaper item XBOX vs. PS3

Journal (9-12 Relating) Give an example of a personal experience you have had while purchasing a good or service that relates to each of the 3 factors of the law of demand that we just covered. 1) law of diminishing marginal utility 2) real income effect 3) substitution effect