3. Markets Markets – exchanges between buyers and sellers. Supply – questions faced by sellers in those exchanges are related to how much to sell and at what price. Demand – questions faced by buyers – the amount of goods and services consumers are willing to buy at various prices at a particular time and place.

4. The Law of Demand If all other things are equal, the higher the price of a product or service, the less of it people are willing to buy. The lower the price, the more people will buy. Based on the connection between the price of a good or service and the quantity demanded.

6. Graphing the Law of Demand Demand Schedule – list that shows the quantities demanded of a product a various prices during a particular time period. Demand Curve – Each point on the graph shows the quantity purchased at a particular price. The line formed by connecting the points is called a demand curve. Downward slope shows a negative relationship- as one variable increases, the other decreases.

7. Why Demand Rises and Falls Real Income Effect – what people can actually buy with their money; if prices rise and your income stays the same, you are no longer able to buy as much as you once did. Substitution Effect – when prices increase people tend to choose a similar product in their price range.

8. The Law of Diminishing Marginal Utility(Returns) of Diminish – to grow smaller. Utility – usefulness of a product or the amount of satisfaction it provides. Marginal Utility – the extra usefulness or satisfaction people get from buying or using more of a product or service. As people use more of a product or service, the satisfaction they get from their additional purchases declines. People not willing to pay as much for the second, third, or fourth. When it gets to the point where the marginal utlility is less than the price the item, he or she stops buying.

9. Vocabulary Market Supply Demand Law of Demand Law of Diminishing Marginal Utility Demand Schedule Demand Curve Real Income Effect Substitution Effect

10. Analyzing Market Demand A demand curve starts with preferences of individual buyers. Points along the curve show your willingness and abilityu to buy a good or service at a particular price. Market Demand – total of all of the individual demands with a market. When curve shifts to the left –decrease in demand Shifts to the right – increase in demand.

11. Causes of Shifts in Demand Price Average Income Changes in Population Changes in Complementary products; complements are products or services that are used together. Substitutes Changes in personal preferences. Special influences. Fads Expectations about the future.

12. Putting It All Together Work with a partner to list the brand names of ten goods you use. Next, try to identify a complementary product and a substitute for each. Then predict what would happen to the demand for your favorite item or brand and its complementary products if the item doubled in price.

15. Demand Elasticity Elasticity - Consumers are more responsive to changes in the prices of some goods and services than others. Measure elasticity of demand by how sensitive consumers are to a change in price. Elastic – when a specific change in price causes a relatively large change in the quantity demanded. Inelastic – if a change in price does not bring much of a change in the quantity demanded.

17. Effects of Elasticity Elastic - some products are more elastic because they have more substitutes than others. Inelastic – products that have few substitutes tend to be inelastic. If the cost of an item represents a large percentage of a consumer’s real income, a change in the price will have a large effect on demand. Time – some items are inelastic in the short run, but elastic in the long run. Elasticity closely related to competition. The more choices the more competitive.

18. Putting It All Together List some items that you purchase regularly. Which are elastic in demand? Which are inelastic in demand? Explain how you decided which was which?