Supply & Demand: Law of Demand.

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Presentation transcript:

Supply & Demand: Law of Demand

Remember… Consumers want to maximize their utility (satisfaction)

Demand What consumers are WILLING (want) & ABLE (have the ability) to buy at a possible price during a given a period Quantity demanded: amount demanded

Would you buy this for…..? $5? $3? $1?

Law of Demand Quantity demanded varies inversely (opposite) w/ price: Price goes up, demand goes down Price goes down, demand goes up If pineapples go on a sale, what happens to the quantity demanded?

Factors of Demand: Substitution Effect – goods and services that can used to meet your demands EX: both steak and chicken can meet your need for food. Which one has a higher quantity demanded?

Which one will have a higher quantity demanded? Pepsi: $1 Coke: 75 cents Which one will have a higher quantity demanded?

Income Effect Money income: # of dollars in a given period Real income: what you can actually purchase w/money income If prices increase & your money income is the same – you will demand less (your real income is reduced)

Diminishing Marginal Utility Marginal Utility: extra satisfaction from each additional unit More you consume – your marginal utility diminishes (reduces) Why don’t you watch 3 movies on 1 night? Why don’t you take 2 copies of the same newspaper?

Question time! Cupcakes cost $1.50 a piece and doughnuts are selling for 85 cents each. Which one will have a higher quantity demanded? These two products are called what…?