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Students will be able to identify characteristics of the law of demand.
Students will be able to define and/ or identify the following terms:
Law of Demand
Substitution Effect
Income Effect
Look at this demand curve.What happens to quantity purchased
as prices rise?
Why do we purchase more when a saleoccurs?
*The law of demand states that consumers buy more of a good when its price decreases.
*Conversely, consumers buy less of a good when its price increases.
*Consumers love low prices.
It’s obvious, isn’t it? Consumerslove low prices.
*One reason that the law of demand exists is the substitution effect.
*The substitution effect occurs when a consumer reacts to an increase in a good’s price by buying less of that good and more of a similar yet cheaper good.
*When the price of orange juice rises, consumers substitute cheaper apple juice for orange juice.
It really depends on the price, doesn’t it?
*The income effect is the change in consumption resulting from a change in income.
*In other words, when prices rise, your money buys less.
*Higher prices reduce your purchasing power.
Lower prices allow consumers toincrease demand.
Lower prices increase consumers’purchasing power.
A demand schedule records the quantitydemanded at various prices.
A demand schedule can easily be converted to a demand curve.
Economists love graphs because graphsprovide easy understanding of economic
concepts.
If a picture is worth a thousand words,a graph is worth even more.
*State the law of demand.
*Provide an example of the substitution effect.
*How does the income effect lead to the law of demand?
*What is a demand schedule?
*What is a demand curve?
*Why do economists love graphs?