The Law of Demand and Its Effects
Understanding Demand
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
Do Now: 2/25/20
•
What do you think is the definition of
supply and demand?
Look at this demand curve.
What happens to quantity purchased
as prices rise?
Why do we purchase more when a sale
occurs?
The Law of Demand
•
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.
The Law of Demand
•
The law of demand is the basic
principle that consumers buy
more of a good when its price
decreases and less of a good
when its price increases.
It’s obvious, isn’t it? Consumers
love low prices.
The Substitution Effect
•
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
•
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 to
increase demand.
•
Lower prices increase consumers’
purchasing power.
•
A demand schedule records the
quantity demanded at various prices.
A demand schedule can easily be
converted to a demand curve.
•
Economists love graphs because
graphs provide easy understanding of
economic concepts.
If a picture is worth a thousand words,
a graph is worth even more.
Questions for Reflection:
•
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?
Characteristics of the law of demand, definitions of key terms like Law of Demand, Substitution Effect, and Income Effect are explored in this content. The relationship between price and quantity purchased, consumer behavior in response to price changes, and the income effect on purchasing power are discussed. Visual aids further elucidate these economic concepts.
Download Presentation
Please find below an Image/Link to download the presentation.
The content on the website is provided AS IS for your information and personal use only. It may not be sold, licensed, or shared on other websites without obtaining consent from the author.If you encounter any issues during the download, it is possible that the publisher has removed the file from their server.
You are allowed to download the files provided on this website for personal or commercial use, subject to the condition that they are used lawfully. All files are the property of their respective owners.
The content on the website is provided AS IS for your information and personal use only. It may not be sold, licensed, or shared on other websites without obtaining consent from the author.
E N D
Presentation Transcript
Understanding Demand 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
Do Now: 2/25/20 What do you think is the definition of supply and demand?
Look at this demand curve. What happens to quantity purchased as prices rise?
The Law of Demand 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.
The Law of Demand The law of demand is the basic principle that consumers buy more of a good when its price decreases and less of a good when its price increases.
Its obvious, isnt it? Consumers love low prices.
The Substitution Effect 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.
The Income Effect 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 to increase demand. Lower prices increase consumers purchasing power.
A demand schedule records the quantity demanded at various prices.
A demand schedule can easily be converted to a demand curve.
Economists love graphs because graphs provide easy understanding of economic concepts.
If a picture is worth a thousand words, a graph is worth even more.
Questions for Reflection: 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?
