ECONOMICS TOPIC 3 LESSON 1

The law of demand says that when a good’s price is lower, the quantity demanded, or the amount people are willing to buy, is greater. When the price is higher, the quantity demanded is lower. All of us act out this law of demand in our everyday purchasing decisions. 

The substitution effect takes place when a consumer reacts to a rise in the price of one good by consuming less of that good and more of a substitute good.

If you buy fewer slices of pizza without increasing your purchases of other foods, that is the income effect.

To have demand for a good, you must be willing and able to buy it at the specified price. In other words, demand means that you want the good and can afford to buy it. 

A market demand schedule shows the quantities demanded at various prices by all consumers in the market. A market demand schedule for pizza would allow a restaurant owner to predict the total sales of pizza at several different prices.

The market demand curve in Figure 3.2 can predict how people will change their buying habits when the price of a good rises or falls. For example, if the price of pizza is $3 a slice, the pizzeria will sell 200 slices a day.

This market demand curve is only accurate for one very specific set of market conditions. It cannot predict changing market conditions.