2. “The Law of Demand” 7-1 Notes

3. Demand: How many goods and services consumers will buy at various prices Effected by –Willingness to buy –Ability to buy Individual demand – your willingness and ability to buy a good Market demand – all consumers willingness and ability to buy a good

4. Law of Demand- demand for a product moves in the opposite direction of its price When prices fall, people buy more –sales When prices increase, people buy less –Airplane tickets

5. The Demand Schedule: a table that list the quantity of goods a person (individual) or people (market) will buy at each price. Demand Schedules Individual Demand Schedule Price of a slice of pizza Quantity demanded per day Market Demand Schedule Price of a slice of pizza Quantity demanded per day $.50 $1.00 $1.50 $2.00 $2.50 $3.00 543210543210 $.50 $1.00 $1.50 $2.00 $2.50 $3.00 300 250 200 150 100 50

6. Reasons why demand and price have an inverse relationship Real income Effect Substitution Effect Diminishing Marginal Utility

7. Why do businesses want to figure out market demand? Know how much to produce and at what price to maximize profits

8. Changes in demand on a demand curve If a good’s demand increases, the demand curve will shift to the right because more people are willing and able to pay more money for the good If a good’s demand decreases the demand curve will shift to the left

9. Causes of the demand curve to shift right or left (increase or decrease) Consumer income Tastes Substitutions Populations Complementary goods

10. What effects consumer’s tastes? Advertising, News Reports, Trends, and Seasons What if people tire of a product? -Buy less and demand curve shifts left

11. Substitutes- Product used in place of another Butter and margarine Chicken and lamb

12. Complementary goods- Related Goods that are often purchased together I-Pods- Covers, Speakers, Head Phones, etc… Gillette razor handles and replacement blades

13. Utility - the usefulness or satisfaction from the consumption of a good Diminishing Marginal Utility- The more you acquire the less eager you will be to buy more

14. Quantity Demanded v. Demand Quantity Demanded –A change in quantity demand is caused by a change in the PRICE of the good only Demand –A change in demand is caused by something other than price (tastes, income, populations, substitutes, and compliments)