4.1.3.1 - Determinants of Demand

Demand =

The total amount of goods and services that consumers are willing and able to pay at any given price over a given period of time.

Market =

A place or mechanism by which buyers and sellers meet to trade or exchange goods or services

Resource Market =

a market in which households sell and firms buy resources or the services of resources (CELL)

Product Market =

the market in which households purchase the goods and services that firms produce and sell

Free/Competitive Market =

The market forces of supply and demand dictate the price paid (price mechanism)

Notional Demand =

The desire or want for a product

Effective Demand =

When a consumer is willing and ABLE to pay for a good/service

Derived Demand =

When the demand for one good/service is because of the demand for another good/service

Ceteris Paribus

Other things being equal

Rational Choice Theory =

In economics, we assume that all individuals make logical decisions that will maximise their personal benefit i.e. self-interest

Reasons why the Demand Curve is Downward Sloping

• Income Effect = At lower prices, buyer's income appears larger

• Law of Diminishing Marginal Utility = Utility/satisfaction fallls as consumption increases, so price they are willling to pay also falls

• Substitution Effect = If product is now cheaper than an alternative, consumers may switch their spending from alternative to cheaper product

Factors which influence Demand (other than price):

SUITCASED

Seasonality

USPs

Income

Tastes

Complements

Advertising

Substitutes

External Shocks

Demographics

Normal Good =

A good that consumers demand more of when their incomes increase

Inferior Good =

A good that consumers demand less of when their incomes increase