1. Warm-Up
What factors do you consider most when deciding whether or not to purchase something?
Why?

2. Goals: Chap. 4 Sect. 1 Demand 1. Explain the “Law of Demand”.
2. Explain the role of the “income effect” and the substitution effect” in making economic choices.
3. Create a demand schedule.
4. Interpret a demand curve.

3. They agree on a price and quantity and a deal is made.
Demand
In a market based system: Buyers demand G & S Sellers produce G & S Demand – the desire to own something AND the ability to pay for it. Demand implies both desire and ability- if you want a Benz but can’t afford it, no true demand exists
They agree on a price and quantity and a deal is made.

4. Law of Demand Price then Demand Law of Demand is true because:
-as prices go up, quantity demanded will decrease; as prices go down, quantity demanded will increase.
Price then Demand
Law of Demand is true because:
Substitution Effect + Income Effect + Marginal Utility

5. Substitution and Income
Substitution Effect – When a consumer chooses a lower priced good as a substitute for a preferred good whose price has risen I prefer pizza but if the pizza price gets too high, I will buy more burgers. Burgers are the substitute for pizza. If the pizza price comes back down, I will begin to buy more pizza again, and less burgers.

6. 4 slices of $1.00 pizza but only 2 slices of $2.00 pizza
Income Effect
Income Effect – Consumers change the quantity of a good they buy based on their income and the price of goods.
Rising prices = we feel poorer because our money doesn’t go as far as it did when the prices were lower.
When prices go up, we make up for our loss in purchasing power by buying less.
Falling prices= we feel wealthier because we can now buy more goods for the same amount of money- so we buy more.
4 slices of $1.00 pizza but only 2 slices of $2.00 pizza

7. Marginal Utility
Amount of satisfaction (value) gained for each unit of good/service consumed within a given time period goes down with each additional unit 1st burrito, 2nd burrito, 3rd burrito, etc. 1st time seeing a movie, 2nd time, 3rd time, etc. Law of Demand - -as prices go up, quantity demanded will decrease; as prices go down, quantity demanded will increase.

8. Individual Demand Curve Market Demand Schedule
- A table that lists the quantity of a good or service that a person will buy at a given price. Can be individuals or markets (large groups of people)
Individual Demand Curve
Price of a slice of pizza
Quantity demanded per day
$0.50 5
$1.00 4
$1.50 3
$2.00 2
$2.50 1
$3.00
Market Demand Schedule
Price of a slice of pizza
Quantity demanded per day
$0.50
300
$1.00
250
$1.50
200
$2.00
150
$2.50
100
$3.00 50

9. Individual Demand Curve
a graph that shows the # of buyers willing to buy a good at given prices
Prices on the vertical
Quantity on the horizontal
Individual Demand Curve
Price of a slice of pizza
Quantity demanded per day
$0.50 5
$1.00 4
$1.50 3
$2.00 2
$2.50 1
$3.00
Price of Pizza slice
Quantity Demanded

10. Limits of Demand Curves
A demand curve can be used to predict buyers behavior in response to a change in prices BUT Only good for one specific situation at a time What would happen if the factory next door to the pizzeria closed down?

11. Goals: 1. Explain the “Law of Demand”.
2. Explain the role of the “income effect” and the substitution effect” in making economic choices.
3. Create a demand schedule.
4. Interpret a demand curve.