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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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Presentation Transcript
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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