Law of Demand

1. LAW OF DEMAND
The higher the price, the lower the
quantity demanded, ceteris paribus.
-Microeconomic Principles and Tools
O’Sullivan-Sheffrin
Michael A. ALonzo

2. OBJECTIVES
1. To explain the concept of the Law of
Demand.
2. To identify and understand the different
determinants of demand.
3. To explain and understand the different types
of goods in an economic market.

3. Microeconomics
• The study of choices made consumers and
how their choices affect the market for goods
and services.

4. Take Note
• Utility. The satisfaction a product yields.
• marginal utility ( MU ). The additional
satisfaction gained by the consumption or use of
one more unit of a good or service.
• Law of Diminishing Marginal Utility.
The more of any one good consumed in a given
period, the less satisfaction (utility) generated by
consuming each additional (marginal) unit of the
same good.

5. DEMAND SCHEDULE FOR PANDESAL
PRICE
(Php)
QUANTITY
DEMANDED
5 10
4 20
3 30
2 40
1 50

6. Why Downward sloping?

7. SUBSTITUTION EFFECT
Changes in price motivate
consumers to buy relatively
cheaper substitute products.

8. INCOME EFFECT
Changes in price affect the purchasing power
of the consumers’ income.

9. LAW OF DIMINISHING MARGINAL
UTILITY
• The more of any one good consumed in a given
period, the less satisfaction generated by consuming
each additional unit of the same good.

10. 5 SHIFTERS OF DEMAND
(Determinants)
1. TASTES/PREFERENCES
2. NUMBER OF CONSUMERS
3. PRICE OF RELATED GOODS
4. INCOME
5. EXPECTATIONS

11. SUBSTITUTES AND COMPLEMENTS
SUBSTITUTES:
Two goods that are related in
such a way that an increase in
the price of one good increases
the demand for the other good.
COMPLEMENTS:
Two goods that are related in such a way
that an increase in the price of one good
decreases the demand fort he other.

12. INCOME
NORMAL GOOD INFERIOR GOOD
Income and the demand for the product
are directly related.
Income and the demand for the product
are inversely related.

13. EXPECTATIONS
if you think that the price for a particular good
will decrease…
• Buy less or buy more today?
• Demand will shift LEFT OR RIGHT?

14. IMPORTANT!
CHANGE IN QUANTITY DEMANDED
VS
CHANGE IN DEMANDMovement from
A to B is
a change in quantity
demanded.
(Price changed from
3 to 2, quantity
demanded
increases.) Movement from A to C
is a change in demand.
(Price doesn’t change,
quantity demanded
increases.)

15. Q: What happens to demand when price
increases?
A: Nothing, demand curve stays the same.
Q: What happens to the quantity demanded if
price increases?
A: Decreases