Econ Unit 2: Supply & Demand

Law of Demand

There is an inverse relationship between price and quantity demanded

Demand Curve

Negative slope from left to right

Movement along the existing demand curve

Change in price, called a change in the quantity demanded

Whole demand curve moves

Change in demand, at the same price, people want more or less of a good

3 Behavior patterns that make up the Law of Demand

1. Substitution Effect

2. Income Effect

3. Law of Diminishing Marginal Utility

Substitution Effect

If price increases for a product, consumers will buy less of thatproduct (quantity demanded decreases) and more of another product that resembles it.

Demand

Different quantities of goods that consumers are willing and able to buy at different prices.

Income Effect

One’s demand for a good will largely be based on the status of their purchasing power.