MARKET 1 Lecture Notes - Lecture 17: Excess Supply, Diminishing Returns, Spontaneous Order
Document Summary
The law of demand: the price of a good and the quantity demanded of it are inversely (negatively) related, ceteris paribus. Four ways to represent the laws of demand (1) in words (2) in symbols (3) in a demand schedule. A demand schedule: the numerical representation of the law of demand (4) as a demand curve. A downward-sloping demand curve: the graphical representation of the inverse relationship between price and quantity demanded specified by the law of demand. 1st reason, people substitute lower priced goods for higher priced goods. 2nd reason, the law of diminishing marginal utility: over a given period, the marginal (additional) utility or satisfaction gained by consuming equal successive units of a good will decline as the amount consumed increases. In addition, the more utility/ satisfaction you receive from a unit of a good, the higher price you are willing to buy it. Therefore, they will buy larger quantities of a good only at lower prices.
