Law of Demand (Topic 1)

Law of Demand

What law states that as price increases, the quantity demanded decreases, ceteris paribus (all things are held equal), vice versa?

The Substitution Effect and the Income Effect

What are the two Important reasons to remember as to why the quantity demanded tends to fall as price increases?

Substitution Effect

This effect demonstrates the tendency of consumers to replace a more expensive good with a cheaper alternative when its price rises.

Substitution Effect

This effects shows that when the price of item A increases, consumers will buy more of item B, which is cheaper than item A.

Income Effect

This effect refers to the change in consumption resulting from a change in real income.

Income Effect

In this effect, the demand for normal substitutes increases as income increases.

Income Effect

In this effect, the demand for inferior substitutes decreases as income increases.

Income Effect

In this effect, the two main product variables “Go together.”

Inferior Good and Normal Good

The Income Effect is classified into two goods. What are these two goods?

Inferior Good

In this type of Income Effect Good, income increases while the quantity demanded decreases

Inferior Good

What is the type of Income Effect Good demonstrated by the given situation below?

If the price of the fried chicken in the canteen increases, the demand for it will decrease because consumers will opt to buy cheaper substitutes. In this scenario, the fried chicken becomes the ______________.

Normal Good

In this type of Income Effect Good, income increases while the quantity demanded increases as well

Normal Good

This type of Income Effect Good may also be called “Giffen goods” which are non-luxury items whose consumption increases as price increases, such as rice, bread, wheat, etc.

Normal Good

Between the two Income Effect Goods, most of these goods are mostly purchased for the status symbol of the consumer.

Normal Good

What is the type of Income Effect Good demonstrated by the given situation below?

A person with a higher salary upgrading from off-brand shoes to name-brand sneakers like Nike or Adidas.

Tastes and Preferences
Population
Prices of Related Goods
Expectations

Income

There are 5 Non-price Factors/Determinants that can influence the market. What are these 5 factors?

Population

If the population is larger, there will be an increase in the quantity demanded

Substitute and Complementary

What are the 2 Types of Prices of Related Goods?

Substitute Good

2 Types of Prices of Related Goods

If the price of a ______________ increases, the quantity demanded for the original good increases.

Substitute

2 Types of Prices of Related Goods

Which between the 2 Types of Prices of Related Goods does this scenario belong to?

If the price of tea rises, the quantity demanded for coffee increases.

Complementary Good

If the price of a ______________ (products that go together such as a car and gasoline) increases, the quantity demanded for the original good decreases

Complementary

2 Types of Prices of Related Goods

Which between the 2 Types of Prices of Related Goods does this scenario belong to?

If the price of printers rises, demand for printer ink decreases