1. The Law of Demand
An increase in price will cause a decrease in
the quantity demanded (inverse relationship)
EXPLAINERS:
Income effect
Substitution effect

2. The Law of Demand
EXPLAINERS:
Income effect
Substitution effect
Diminishing Marginal Utility

3. The Law of Demand
P P
A
P1
B
P2
D1 D2
Q1 Q2
Q Q
CHANGE IN CHANGE IN OTHER=
PRICE= change in demand
change in quantity

4. The Law of Demand
P
D1 D2
Q
CHANGE IN OTHER=
change in demand

5. Determinants of Demand
Things other than price that cause the whole
curve to shift
Increase: shift to the right
Decrease: shift to the left

6. Determinants of Demand
Change in consumer tastes
Change in people’s income
normal goods
inferior goods

7. Determinants of Demand
Change in prices of related goods
complementary goods (inverse effect)
substitute goods (direct effect)
Change in expectations
Change in size of market

8. What Happens to
Demand if…?
SITUATION: You’re the owner of a hot dog making
company:
(a) people change their preference from
hamburgers to hot dogs?

9. What Happens to
Demand if…?
SITUATION: You’re the owner of a hot dog making
company:
(b) U.S. negotiates a deal w/ China to trade
hot dogs for egg rolls?

10. What Happens to
Demand if…?
SITUATION: You’re the owner of a hot dog making
company:
(c) the price of ground beef plummets?

11. What Happens to
Demand if…?
SITUATION: You’re the owner of a hot dog making
company:
(d) the minimum wage rises?

12. What Happens to
Demand if…?
SITUATION: You’re the owner of a hot dog making
company:
(e) the MWU threatens a strike if owners
fail to meet their demands?

13. What Happens to
Demand if…?
SITUATION: You’re the owner of a hot dog making
company:
(f) unemployment hits an all-time high?

14. What Happens to
Demand if…?
SITUATION: You’re the owner of a hot dog making
company:
(g) the price of buns increases due to a
wheat shortage?