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