The Law of Demand Chapter 4.1 and 4.2

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The Law of Demand
Chapter 4.1 and 4.2
Candy is only sweet to the one who eats it.
You want candy!!!!
Ceteris paribus
Latin phrase meaning “all things
remaining equal”
Mmmmm…..candy
Demand
the amount of a good or service that a
consumer is willing and able to buy at
various possible prices during a given time
period.
Yummy candy
Definitions
Purchasing Power: amount of money a
consumer can spend
Quantity Demanded: Actual amount… at a
particular price
Demand schedule: a chart that lists quantity
demanded with price
Demand curve: Graph of demand schedule. (goes
down)
Income effect: An increase or decrease in a
consumer’s purchasing power causes a change in
demand.
Demand Schedule & Individual Demand
Curve
Demand Schedule & Market Demand Curve
-What producers will make depending on
demand from individuals.
What can change the quantity
demanded?
Because of ceteris paribus only the price can
affect the quantity demanded.
THE LAW OF DEMAND:
An increase in the price causes a decrease in
the quantity demanded and a decrease in
price causes an increase in quantity
demanded.
Changes in demand
When the
demand curve
moves left,
demand
decreases. When
it moves right,
demand
increases.
More definitions
Substitutes: an alternative.
Substitution effect: the tendency of consumers to
replace a higher-priced product for another similar
product that is lower in price. Ex: generic drugs or
chicken for beef
Diminishing marginal utility: the more of an item you
get the less useful it becomes.
Normal goods: as income goes up people buy more
inferior goods: when income goes up people stop
buying these (mac and cheese with hot dogs)
Complementary goods: goods that are commonly
bought with other goods (Ex: toothbrush and
toothpaste)
Six Factors that cause a change in the total
amount of demand
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