1. Supply & Demand #2:
Law of Demand

2. Remember…
Consumers want to maximize their utility (satisfaction)

3. 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

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

5. 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?

6. 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?

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

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

9. 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?

10. 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…?