The reason for the law of demand comes from two concepts the quantity demanded

The reason for the law of demand comes from two

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The reason for the law of demand comes from two concepts (the quantity demanded increases): The income effect = as a good becomes cheaper, our purchasing power (real income) improves. - we can afford to buy more goods for our given (unchanged) actual income. The substitution effect = as a good becomes cheaper relative to other goods, we substitute away from the more expensive goods and toward the cheaper good, and buy more. The demand curve is affected by other factors, called non-price determinants: Income of buyers (Y) Tastes of buyers (t) Number of buyers (N) Price of related goods (P R ) Expectations of future price changes (P E ) Therefore, Q D = f( P, Y, t, N, P R , P E ), where P is the price determinant (a change will cause a movement along the same demand curve) and the non-price determinants are the other factors (a change in any of these will cause the entire demand curve to shift). Change in demand = shift in demand curve: when quantity demanded changes even if price stays the same. - Shift to the right = an increase in demand. - Shift to the left = a decrease in demand.
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1. Income: Affects the ability to pay, and therefore tends to have a positive effect on demand.
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