The law of demand states that there is a negative relationship between the price of a good and the quantity purchased. It is merely a reflection of the basic postulate of economics: when an action becomes more costly, fewer people will choose it. An increase in the price of a product will make it more costly for buyers to purchase it, and therefore less will be purchased at the higher price. The availability of substitutes—goods that perform similar functions—underlies the law of demand. No single good is absolutely essential; everything can be replaced with something else. A chicken sandwich can be substituted for a cheeseburger. Wheat, oats, and rice can be substituted for corn. Going to the movies, playing tennis, watching television, and going to a football game are substitute forms of entertainment. When the price of a good increases, people will turn to substitutes and cut back on their purchases of the more expensive good. This explains why there is a negative relationship between price and the quantity of a good demanded.
- In the video, what happens to the price, when there is no demand for hula-hoops?
- What causes the demand to change?
- Once there is a lot of demand, what happens to the price?
- In economics, there is a distinction between changes in demand (based on price) and changes in quantity demanded. Is the video an example of a change in demand, or a change in quantity demanded? Explain your answer.
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Wiley Miller. 15, Mar. 1993, Supply and Demand [Digital image}. Retrieved from , <gocomics.com>.