Download Understanding_Demand__11_ _2

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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 sale
occurs?
* 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.
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It’s obvious, isn’t it? Consumers
love low prices.
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* 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.
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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.
* 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?
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