1. Standard
SSEMI2a.
Define the Law of Demand.

2. Demand Price Quantity Demanded
Definition: The desire, ability, and willingness to buy a product.
(Ex: Bill Gates is able to purchase a Ferrari, but if he isn’t willing he has NO demand for one)
Law of Demand states the quantity demanded of a good or service varies inversely with the price
Quantity Demanded
Price

3. Why does the Law of Demand occur?
The law of demand is the result of three separate behavior patterns that overlap:
The Substitution effect
The Income effect
The Law of Diminishing Marginal Utility
We will define and explain each… 3 3

4. Why does the Law of Demand occur?
1. The Substitution Effect
If the price goes up for a product, consumer buy less of that product and more of another substitute product (and vice versa)
2. The Income Effect
If the price goes down for a product, the purchasing power increases for consumers -allowing them to purchase more. 4

5. Why does the Law of Demand occur?
3. Law of Diminishing Marginal Utility U-
TIL-
IT- Y
Utility = Satisfaction
We buy goods because we get utility from them
The law of diminishing marginal utility states that as you consume more units of any good, the additional satisfaction from each additional unit will eventually start to decrease
In other words, the more you buy of ANY GOOD the less satisfaction you get from each new unit. 5

6. Demand Curve Price Demand
A graph showing quantity demanded at each and every price in the market.
Price
Demand
Quantity Demanded

7. Marginal Utility Marginal Extra
The extra usefulness or satisfaction a person gets from acquiring or using one more unit of product
Diminishing Marginal utility: states the extra satisfaction we get from using additional quantities of the product begins to diminish
Marginal Extra

8. Change in Quantity Demanded
A movement ALONG THE DEMAND CURVE that shows the change in quantity in response to a change in price.
$100
100 units

9. Remember: NICEST Change in Demand
When there is a CHANGE in DEMAND: People are now willing to buy different amounts of the product at the same prices.
There are 6 factors that cause a change in demand:
Remember: NICEST

10. Number of Consumers
The market curve shifts as the number of consumers change.
With the U.S. population aging, demand for different products will increase

11. Consumer Income
Changes in the amount a person makes can cause a change in demand.

12. Complements Goods that are related
The use of one increases the use of the other
Peanut butter and Jelly
Chips and dip

13. Changes in Expectations
This refers to the way people think about the future.
If people believe that the future, their job or their lifestyle will experience significant change, consumer spending will likely decrease.

14. Substitutes A product can be used in place of another product.
You can use Splenda or Equal for Sugar

15. Consumer taste Consumers do not always want the same things over time.
Are Beenie Babies still popular?
What about Smart phones?