4/16/2014
DEMAND
 Aim:
What does the law of demand
say about prices?

BRAINSTORM
 List
3 things that you consider to be
in high demand in your life
 Why are these in high Demand?
Law of Demand
 Law
of Demand – When prices
are lower, people buy more,
when prices are higher, people
buy less.
 Everyone
has a set income, no
matter what it is, the price of
the good will determine how
much they buy.
Example
How many slices of
pizza would you
buy if they cost
$1?
 What about $3
 What about $10
 As the price gets
higher, the amount
that is demanded
gets lower.

Elements of the Law of Demand
Certain elements can effect the law of
demand
a) Substitution effect – When
consumers react to an increase in a
good’s price by consuming less of
that good and more of others.
(when it gets too expensive, get
something else)
Substitution Effect
Income effect
Income effect- A change in
consumption resulting in a change of
income.
(If the price rises, don’t use it
anymore)
Income Effect
Movie tickets
increase from $8
each to $14.
Result: You don’t
take your date to
the movies!
Demand Schedule
 Make
up a demand curve
The substitution effect and the
income effect describe two ways that
a consumer can change his or her
spending patterns
 These spending patterns can be
predicted in two ways. One is a
demand curve

 The
 This
other is a Demand Schedule
is an accurate way to
determine what is the most
productive price to sell an item.
Ceteris Paribus
When we look at the amount of pizza
being sold, we assume that nothing except
price will effect the amount bought or
sold.
 This is an example of “ceteris paribus”
 Ceteris paribus - the Latin phrase that
means all other things are constant
 This does not take outside elements of
demand into account
(example : what effect would low carb
dieting have on the pizza industry?)
This would cause a significant change
in demand.

What can cause a shift in demand?
Income
a consumers income can effect their demand
for goods. If they get a bigger income, they
have the ability to purchase more goods.
Most items that we purchase are normal goods
Normal goods – goods that consumers demand
more of when their incomes increase
Inferior goods – a good that consumers
demand less of when their incomes increase
a)
Examples
Normal Goods
Lift tickets
Inferior Goods
Macaroni & Cheese
Used Cars
Related Goods
 The
demand for one good can be
effected by the demand for
another good.
 Compliments – are two goods
that are bought and used
together
 Substitutes – are goods used in
place for one another
Questions
 What
is an example of something
you consider an inferior good? Why?
 What is one good that could be
considered a compliment for
another?
 What are two goods that can be
considered substitutes
 What is an income effect? What is an
example of an income effect?