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Law of DemandThere is an inverse relationship between a product’s quantity demanded and its price

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Mr. Buffone loves Iced Cappucino’s. At a $1.69, he buys 2 a week. If the price ever rises or decreases, will his purchase pattern differ?

Mr. B’s Demand Schedule for Iced Cappucino’s

Price (per iced cap) Quantity Demanded (per week)

$1.99 1

$1.69 2

$1.19 3

If the price drops to $1.19, I might buy

more Iced Cappucino’s per

week.

If the price increases to

$1.99, I will likely purchase fewer

Iced Caps!

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Mr. Buffone’s Demand Curve for Iced Cappucino’s

The demand curve shows that as the price of Iced Cappucino’s falls, Mr. Buffone is willing to purchase more. The demand curve “D” depicts this same inverse relationship between price and quantity

demanded. A fall in price from $1.69 to $1.19,

causes quantity demanded to rise from 2 Iced Cappucino’s to 3 Iced Cappucino’s.

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The Demand Curve The demand curve is drawn by

placing the price of iced cappucino’s on the vertical axis and the quantity demanded on the horizontal axis.

The downward slope reflects the law of demand: an increase in the product’s price, decreases the quantity demanded and vice versa.

A change in quantity demanded produces a movement along the demand curve.

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Changes in Demand There are factors that may cause

the entire demand curve to shift -- demand determinants.

There can be an increase or decrease in Demand:

Increase in Demand: an increase in the quantity demanded of a product at all prices(D2).

Decrease in Demand: a decrease in the quantity demanded of a product at all prices (D3).

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What Causes an Increase/ Decrease in Demand

1. More/Fewer Consumers (Population increase or decrease - Barrie)

2. More/less income of consumers (As income increases, consumers

increase their demand and vice versa.)

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What Causes an Increase/ Decrease in Demand

3. Prices of other goods. A. Substitutes: rise or fall of the price of

a substitute (as the price of Coca Cola increases, people will demand more Pepsi.)

B. Complement: rise or fall in the price of a complement (as hot dogs decrease in price, people will demand more buns.)

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What Causes an Increase/ Decrease in Demand

4. Expectations of consumers in the future

- rise or fall in income - rise or fall in prices (consumers will buy

more if they expect prices to increase)

5. Advertising (change in consumer tastes) creating demand.