7 The Law Of Demand

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7 The Law Of Demand

  1. 1. OBJECTIVE: ANALYZE THE EFFECT THE LAW OF DEMAND HAS ON THE MARKET PLACE The Law of Demand
  2. 2. What is a Marketplace? <ul><li>A market represents the freely chosen actions between buyers and sellers of goods and services </li></ul><ul><li>In a market economy individuals decide for themselves the answers to the basic economic questions </li></ul>
  3. 3. Voluntary Exchange <ul><li>The basis of activity in a market economy is the principal of voluntary exchange </li></ul><ul><li>In which a buyer and seller exercise their economic freedom by working toward a satisfactory exchange </li></ul>
  4. 4. The Law of Demand <ul><li>The law of demand says as the price of an item goes up people will buy less. </li></ul><ul><li>The Law also says as the price of an item comes down people will buy more </li></ul>
  5. 5. Several Factors Affect Demand <ul><li>Real Income Effect- A individual cannot keep buying the same quantity of a product if the price rises and income remains the same </li></ul><ul><li>Substitution Effect- if two items satisfy the same need and the price of one rises, people will buy the other </li></ul><ul><li>Diminishing Marginal Utility- the level of satisfaction is reduced with the purchase of each addition identical item </li></ul>
  6. 6. Determinants of Demand <ul><li>Changes in Population </li></ul><ul><li>Changes in Income </li></ul><ul><li>Changes in Tastes and Preferences </li></ul><ul><li>Substitutes </li></ul><ul><li>Complementary goods- are two different goods that go together (i.e. camera and film) </li></ul>
  7. 7. Elasticity <ul><li>Elasticity A concept dealing with consumers 'responsiveness to an increase or decrease in price of a product </li></ul><ul><li>Elastic Demand a situation in which rise and fall in a product’s price greatly affects the amount that people are willing to buy </li></ul>
  8. 8. Review <ul><li>What is a Marketplace? </li></ul><ul><li>Ans. freely chosen actions between buyers and sellers of goods and services </li></ul><ul><li>What is the Law of Demand? </li></ul><ul><li>Ans. The law of demand says as the price of an item goes up people will buy less. </li></ul><ul><li>The Law also says as the price of an item comes down people will buy more </li></ul>
  9. 9. Review <ul><li>What is Determinants of Demand? </li></ul><ul><li>Ans. Changes in population, income, tastes, substitutes, and complementary goods </li></ul><ul><li>What is Credit? </li></ul><ul><li>Ans. is receiving funds today for items; you will repay the money in the future </li></ul><ul><li>What is principal? </li></ul><ul><li>Ans. The amount you borrowed </li></ul><ul><li>What is interest? </li></ul><ul><li>Ans. The amount you pay for borrowing </li></ul><ul><li>What is disposable income? </li></ul><ul><li>Ans. Money left over after taxes </li></ul>
  10. 10. Review <ul><li>What are the factors of production? </li></ul><ul><li>Ans: Land, Labor, Capital, Entrepreneurship, and Technology </li></ul><ul><li>What is opportunity cost? </li></ul><ul><li>Ans. is the value of the thing you gave up </li></ul>

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