1. Reading Quiz Define demand. What is the substitution effect?
What is the income effect?
What is diminishing marginal utility?

2. Warm-Up How does PRICE affect your decisions as a consumer?
When are you likely to spend more money on a good/service, and when are you likely to spend less?
What factors motivate your decisions?

3. Demand
Chapter 4.1

4. Demand
Demand: How much consumers are both willing and able to buy during a given period. Demand ≠ Want

6. Substitution Effect Many goods satisfy our particular wants
Relative price: the price of one good relative to others goods  substitution effect
People replace more expensive items with less costly alternatives

7. BOBS: $17.99 TOMS: $54.99

8. Law of Diminishing Marginal Utility
The more of a good a person consumes, the less satisfaction he/she received from every additional unit of consumption.
Things become less satisfying!

9. Ticket out the door!
Write about a time when you used the substitution effect.
(-use complete sentences)
Write about a time when you experienced the law of dominishing marginal utility.
(-use complete sentences)

10. Income Effect Money Income: number of $ you receive/pay period
Real Income: purchasing power
Affected by change in price