Page 3 - Economics and Personal Finance
P. 3
Section 1 Understanding Demand
Objectives Guiding Question
■ Explain demand. How does the law of demand affect the
■ Describe how the substitution quantity demanded?
effect and the income effect Copy this table and fill it in as you read.
influence decisions. Demand
■ Identify demand schedules.
As the price of a good As the price of a good
■ Interpret a demand curve using goes up . . . goes down . . .
demand schedules. Quantity demanded goes
Law of demand
down
People buy less of a
Substitution effect
substitute good
consumers feel poorer,
income effect so consumption of that
good goes down
◗ Economics and You If you have ever bought something,
demand
the desire to own something and you can understand demand. Suppose you are shopping at the
the ability to pay for it local mall. After visiting many stores, you find a watch you really
law of demand like. But the watch costs a little more than you want to pay.
consumers will buy more of a Otherwise, it is perfect. You decide that you just have to have it. If
good when its price decreases you want the watch and you can pay for it, you have demand for
and less when its price increases
that good.
Principles in Action Price changes always affect the quantity
Reading Strategy
Text Structure demanded. The Economics & You feature shows how a change in
Preview this section. price serves as an incentive to buy something else instead.
Notice the headings, features, What is demand?
and boldfaced words.
Demand has two parts. First, consumers must be willing to buy.
Then, they must have the ability to pay. Wanting something does
not create demand. Suppose you go to an auto show and see a
$50,000 sports car you like. You probably do not have $50,000
to pay for it. According to economists, you have not added to
demand. In the same way, you might have $50,000. But if you are
not willing to spend it on the sports car, demand is not affected.
What is the law of demand?
The law of demand is simple. It says that when the price of a
good goes up, the quantity demanded goes down. If the price goes
down, demand generally goes up. Producers are aware of this law.
They know that if their prices rise too high, consumers will stop
buying their goods and services.
176 DemanD
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