1. Topic 3
Demand, Supply, & Prices
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2. $0.79
$3.00
How many would you buy?
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3. Demand Demand: Desire to own something & the ability to pay for it
Law of Demand: when a good’s price is lower, consumers will buy more of it
When the price is higher, consumers will buy less
“On this law is built almost the whole edifice of economics.” – Encyclopedia of Economics
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5. 2 different ways a consumer can change his or her spending patterns
Substitution Effect
Income Effect
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6. 2 different ways a consumer can change his or her spending patterns
Substitution Effect: A consumer reacts to a rise in the price of one good by consuming less of that good & more of a substitute good
$20
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7. Substitute Effect $5 $3
$20
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8. Consumption = what you buy, not how much $ you spend
Income Effect
Rising prices make us feel poorer ( falling prices make us feel richer)
Income Effect: The change in consumption that results when a price increase causes real income to decline
Consumption = what you buy, not how much $ you spend
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11. Demand Schedule
Demand Schedule: a table that lists the quantity of a good that a person will purchase at various prices in a market
Market Demand Schedule: shows the quantities demanded at various prices by all consumers in the market
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12. Demand Graph
Plotting the numbers from the demand schedule on a graph = Demand Curve
Price low to high
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Quantity demanded low to high

13. In your notes graph both demand schedules below:
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17. Shifts in Demand (3.2)
Increases or decreases in demand are not always due to price
Ceteris paribus
Latin, “all other things held constant”
Demand curve is only accurate if no other changes other than price could affect the consumers decision
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18. Change in quantity demanded
Shifts in Demand (3.2)
When we drop ceteris paribus & let other factors change, we no longer move along the demand curve, but the entire curve shifts
A shift means that at every price, consumers buy a different quantity than before
Change in quantity demanded
Change in demand
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19. Non-Price Determinants of Demand
Factors that can lead to the shifting of demand curve up or down

20. Non-Price Determinants of Demand
Changes in Income
Consumer expectations
Population
Demographics
Consumer tastes & Advertising
Price of Related Goods
Changes in Income
Consumer Expectations
Changes in Demographics
Changes in Population Size
Consumer Tastes and Advertising
Prices of Related Goods

21. Changes in Income Most items we purchase are normal goods
Inferior goods
Goods that consumers demand more of when their income increases
Goods you buy less of or not at all when your income rises

22. Consumer Expectations
If consumers feel that a good’s price will increase soon, they will buy more now
If consumers feel that a good’s price will decrease soon, they will buy less or hold off

23. Changes in Demographics & Population Size
Demographics: statistical characteristics of populations
(Age, race, gender, occupation, income level)

24. Consumer Tastes & Advertising

25. Consumer Tastes & Advertising

26. Prices of Related Goods
Compliments: two goods that are bought and used together
Supplements: goods that are used in place of one another