The law of demand states that a good’s price has an important effect on the amount of that good people will buy. The lower the price, the more consumers will buy. Similarly, the higher the price, the less consumers will buy. More people will buy a slice of pizza priced at $1 than at $10. The law of demand results from two patterns of human behavior. The first, known as the substitution effect, says that as the price of a good rises, people are more likely to substitute alternative goods. When the price of pizza becomes more expensive compared to other foods, like tacos, people are more likely to buy those other foods. The result is that the demand for pizza drops. However, if the price of pizza drops, consumers are more likely to substitute pizza for other choices. This causes the demand for pizza to rise.

     The other pattern is known as the income effect. When the price of pizza and other goods rise, people are likely to feel poorer. The income effect takes place when a consumer responds to a price increase by spending more on that good, even though it is more expensive. They spend more, but usually buy less.

     A demand curve illustrates the quantities demanded at each price by consumers in the market. The vertical axis shows price, and the horizontal axis shows the quantity demanded. Because demand rises as prices fall, the demand curve slopes down and to the right.