1.3 Law of Demand

Law of Demand

Buyers demand goods, Sellers supply those goods, and The interaction determines price and quantity traded.

Desire

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

The Law of Demand states that when a good’s price is lower, consumers will

Buy more of it

It states how a change in ___  of a good or service affects the __

Price;quantity demanded

To create a demand curve price goes on the ___ axis and quantity on the ___ axis. 

Vertical; horizontal

When the price changes, we move along the demand curve to a different quantity, but the demand curve hasn’t moved. This is called

 a decrease or increase in the quantity demand.

if something other than price causes a change in demand we are now dealing with 

shifts

Changes in Demand

B = # of Buyers / Population

I = Changes in Income
T = Changes in Tastes/Preferences

E = Changes in what consumers expect

R = Related Goods [Compliments/Substitutes]

What’s the pneumonic device for Changes in Demand

BITER

BITER

B = # of Buyers / Population

I = Changes in Income
T = Changes in Tastes/Preferences

E = Changes in what consumers expect

R = Related Goods [Compliments/Substitutes]

B of BITER

Number of Buyers/population

The larger the population, the higher the demand!

I = Changes in Income

If you have more income at your disposal,
demand increases for normal goods.Inferior good demands will decrease with an increase in income. 

T = Changes in Tastes/Preferences 

Changes  in  preference  or  popularity  of  product/  service

E = Changes in what consumers expect

If you expect the price to rise, your current demand will rise, 

which means you will buy the good sooner. 

If you expect the price to drop, your current demand 

for the good will fall and you will wait for the lower price.

R = Related Goods [Compliments/Substitutes]

Complementary Good: Two goods that are bought and used together. Substitute Good: Goods that are used in place of one another.

Changes  in  any  of  the  factors  other  than  price causes  the demand  curve  to  shift  either: 

Decrease  in  Demand  shifts  to  the  Left (Less  demanded  at each  price)

OR 

Increase  in  Demand  shifts  to  the  Right (More  demanded  at each  price)