Section+4.1

In a Market System the interactions between buyers and sellers determines the price and quantity of the goods. Demand: the desire to own something and the ability to pay for it. Law of Demand: Consumers buy more of a good when its price decreases and less when its price decreases Law of Demand is the result of substitution and income effect substitution effect: when consumers react to an increase in a good'd price by consuming less of that good and more of the other good. Income effect: the change in consumption resulting from a change in real income. To have a demand you must be willing and able to buy good for specified price Demand Schedule: a table that lists the quantity of the good persons will buy at each different price. Market demand schedule: a table that lists the quantity of a good all consumers in a market will buy at each different price. Owner of store could find out market demand schedule by adding the quantities demanded by all individual consumers at each price. Demand Curve: a graphic representation of a demand schedule. To create demand curve you put numbers from demand schedule and plot them on graph Always label vertical axis with lowest possible prices at the bottom and highest at the top. Horizontally label quantities with lowest at the left and highest at the right

Pg. 83 1-4

1.) Define and give an example of the income effect. Income effect is the change in consumption resulting from a change in real income. EX. You make more money so you feel richer and buy more pizza 2.) What are three characteristics of a demand curve? Price goes lowest to highest vertcally quantity goes lowest to highest horizontally Demand curve goes down 3.) Explain why the law of demand can apply only in a free market sysytem. It can only apply in a free market system because it depends on people being able to have a choice on what the buy and how much of it they buy. 4.)
 * Cost of CD's || Amount of CD's bought ||
 * $5 || 16 ||
 * $8 || 10 ||
 * $10 || 8 ||