Demand - Mr-Lyon

Video Link
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
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 – all of the different quantities of a good
or service that consumers will purchase at various
 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
Price goes
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