The Law of Demand There is an inverse relationship between price and quantity demanded For example: When the price goes down for milk the quantity price will increase
Substitution effect
Changes in price motivate consumers to buy relatively cheaper substitutes goods.
Income effect
Changes in price affect the purchasing power of consumers’ income
The Law of diminishing marginal utility
As you continue to consume a given product, you will eventually get less addition utility (satisfaction) from each unit you consume
The 5 Shifters of demand-
Tasted/Preferences
Number of Consumers
Price of related goods
Income
Expectations
Price Changes the Quantity demanded
(Moves along the curve)
The Five Shifters change the demand
(Moves along the entire curve
Normal Goods-
Income and the demand for the product are directly related
Inferior Goods-
Income and the demand for the product are Inversely related
What Happens to the demand for a product when the price decreases?
Demand stays the same but the quantity demanded increases
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