money price: of a good is the amount of money needed to buy it.
relative price of a good: the ratio of its money price to the money price of the next best alternative
good—is its opportunity cost.
If you demand something: You Want it, can afford it, and Have made a definite plan to buy it.
quantity demanded: Amount consumers plan to buy, and at a particular price.
law of demand states: Other things remaining the same, the higher the price of a good, the smaller is
the quantity demanded; and … the lower the price of a good, the larger is the quantity demanded.
Why does a change in the price change the quantity demanded?
Substitution effect: When the relative price (opportunity cost) of a good or service rises, people
seek substitutes for it, so the quantity demanded of the good or service decreases.
Income effect: the price of a good or service rises relative to income, people cannot afford all
the things they previously bought, so the quantity demanded of the good or service decreases.
Demand: the entire relationship between the price of the good and quantity demanded of the good.
demand curve: shows the relationship between the quantity demanded of a good and its price when all
other influences on consumers’ planned purchases remain the same.
change in demand: When some influence on buying plans other than the price of the good changes.
When demand increases, the demand curve shifts rightward.
When demand decreases, the demand curve shifts leftward.
Six main factors that change demand are:
The prices of related goods
o Substitute: is a good that can be used in place of another good.
o Complement: is a good that is used in conjunction with another good.
Expected future prices
o If the price of a good is expected to rise in the future, current demand for the good
increases and the demand curve shifts rightward
o normal good: is one for which demand increases as income increases.
o inferior good: is a good for which demand decreases as income increases.
Expected future income and credit
o When income is expected to increase in the future or when credit is easy to obtain, the
demand might increase now.