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Consumers and Demand. The Law of Demand. Demand : The desire to own something and the ability to pay for it. The Law of Demand : Consumers buy more of a good or service when its price decreases and less when its price increases.

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The law of demand
The Law of Demand

  • Demand: The desire to own something and the ability to pay for it.

  • The Law of Demand: Consumers buy more of a good or service when its price decreases and less when its price increases.

  • It’s all about getting the most for your buck (e.g. the auction market)




Shifts in demand
Shifts in Demand

  • What causes a shift?

    • Income

      • Normal Goods (Income increases → Demand increases)

      • Inferior Goods (Income increases → Demand decreases)

    • Consumer Expectations (e.g. sales)

    • Population (e.g. baby boomers)

    • Consumer Tastes and Advertising


Consumer tastes and advertising
Consumer Tastes and Advertising

  • Food

  • Fashion

  • Entertainment

  • Personal Health

  • Toys

  • Clothing


Shifts in demand cont d
Shifts in Demand (Cont’d)

  • As consumers earn more money, they are able to spend more.

  • Income effect: The change in consumption resulting from a change in income.


Shifts in demand cont d1
Shifts in Demand (Cont’d)

  • Goods used in place of one another (substitute products – e.g. sugar and Splenda).

  • Two goods that are brought and used together (complementary products – e.g. hot dogs and buns).


Elasticity of demand
Elasticity of Demand

  • The degree to which changes in price cause changes in quantity demanded (Elastic vs. Inelastic).

  • Two Reasons for Elasticity of Demand:

    • The relationship between income and cost of the product (Car vs. Salt)

    • Whether or not a substitute is available (Butter vs. Margarine)


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