Law of Demand

• Concept: If the price of a good falls, people buy more of it. If the price rises, people buy less.
• Why? Because of substitution effect (people switch to cheaper goods) and income effect (lower prices make people feel richer).

Example:

• If pizza costs $10, people buy 100 pizzas.
• If price drops to $6, demand rises to 150 pizzas.

Graph:

• Price on Y-axis, Quantity on X-axis.
• Demand curve slopes downward (left to right).

Key Insight: Demand curves always slope downward due to inverse relationship between price and demand.