1. Law of Demand
MARKET ECONOMY

2. Demand
 When you buy something, why do you think it sells
at that particular price?
 All consumers (you and me) individually and
collectively have a great influence on the price of all
goods and services.
 Demand: the amount of good or service that
consumers are able and willing to buy

3. The Market
 A Market represents the freely chosen actions
between buyers and sellers of goods and services.
 In a market economy, individuals (buyers and
Sellers) decide for themselves the answers to the
WHAT? HOW? WHOM? Economic questions.

4. “The Law of Demand”
 In order for something to sell, two things need to
happen
 A) A buyer needs to be able to buy something
 B) A buyer needs to be willing to buy something
 BOTH have to happen, or the Demand for that item
does not exist
 The Law of Demand states:
 As price goes up, quantity demanded goes down
 As price goes down, quantity demanded goes up

5. Three Economic Rules that Effect Quantity
Demanded and Price
 Rule #1. Real income effect
 Rule #2. Substitution effect
 Rule #3. Diminishing Marginal Utility

6. Real Income Effect
 Individuals cannot keep buying the same quantity of
a product if its price rises while their income stays
the same.

7. Substitution Effect
 If two items satisfy the same need, and the price of
one rises.. People will buy the other.

8. Diminishing Marginal Utility
 Utility is the power that any good or service has to
satisfy your wants.
 Based on utility, people decide what to buy and how
much they are willing and able to pay.
 When you buy something you decide the amount of
satisfaction, or use, you think you will get from a
good or service.
 However Diminishing Marginal Utility states that
the additional satisfaction a consumer gets from
purchasing one or more unit of a product will lessen
with each additional unit purchased.