Law of Demand

Economics Unit 2

Demand

When consumers use their income

to purchase a good or service

They demand, or want, to purchase

various goods and services

Consumers can include regular

people, businesses or governments

Law of Demand

The price of a product is an

important consideration for most

consumers.

Generally, consumers are more

willing to purchase a product at a

lower price than a higher price

The quantity of a particular product

that buyers are prepared to purchase

varies inversely with a change in

price

Assumes all other factors remain

constant (ceteris paribis).

Two theories of Law of Demand

Income effect – As the price rises, it uses

more of a person's income, so they are less

willing to purchase it

Substitution effect – As the price rises for

one product, a substitute good seems more

attractive

Demand Curve

The law of demand can be expressed

on a graph (demand curve)

Price must always be on the Y-axis

Quantity must always be on the X-axis

The demand curve is generally

downward sloping, but not always a

straight line

What is SALT

Scale – Is the scale suitable on both axis?

Axes – Are the tick marks evenly spaced?

Labelled – Are the axes labelled. Are the

measurements included?

Title – Probably only important if there is

more than one graph

Movement in Demand

A change in the price will cause in a

movement along the demand curve

This is distinguished from a shift in

the demand curve caused by a

change in a non-price factor.

Contraction

As the price increases, less

quantity is demanded

This is a movement upwards along

the demand curve

Expansion

As the price decreases, more

quantity is demanded

This is a movement downwards

along the demand curve