Students will be able to identify characteristics of the law of demand.

Students will be able to define and/ or identify the following terms:

Law of Demand

Substitution Effect

Income Effect

Look at this demand curve.What happens to quantity purchased

as prices rise?

Why do we purchase more when a saleoccurs?

*The law of demand states that consumers buy more of a good when its price decreases.

*Conversely, consumers buy less of a good when its price increases.

*Consumers love low prices.

It’s obvious, isn’t it? Consumerslove low prices.

*One reason that the law of demand exists is the substitution effect.

*The substitution effect occurs when a consumer reacts to an increase in a good’s price by buying less of that good and more of a similar yet cheaper good.

*When the price of orange juice rises, consumers substitute cheaper apple juice for orange juice.

It really depends on the price, doesn’t it?

*The income effect is the change in consumption resulting from a change in income.

*In other words, when prices rise, your money buys less.

*Higher prices reduce your purchasing power.

Lower prices allow consumers toincrease demand.

Lower prices increase consumers’purchasing power.

A demand schedule records the quantitydemanded at various prices.

A demand schedule can easily be converted to a demand curve.

Economists love graphs because graphsprovide easy understanding of economic

concepts.

If a picture is worth a thousand words,a graph is worth even more.

*State the law of demand.

*Provide an example of the substitution effect.

*How does the income effect lead to the law of demand?

*What is a demand schedule?

*What is a demand curve?

*Why do economists love graphs?