1.3.2 The demand curve

Demand

Total quantity of a good or service that consumers are willing and able to purchase at a certain price at a certain time

Law of demand

As price increases, quantity demanded decreases

Law of diminishing marginal utility

Utility gained from consuming one more unit is less that the utility gained from consuming the previous unit

• Utility gained decreases as more units are purchased

• As additional utility decreases, consumers are less willing to pay for each unit pf a good

Movement in demand curve causes

Changes in price

Causes of shifts in demand curve

• Changes in price of substitutes and complementary goods

• Changes in real income

• Advertising

• Changes in tastes

• Changes in size and age distribution of population

PRATSA

Changes in price of substitutes and complementary goods

If complements become cheaper, people buy more of both goods (bought together)

• Complement cheaper = Demand shifts right

If substitutes become cheaper, people buy less of the good (bought in place of eachother)

• Substitute cheaper = Demand shifts left

Change in real income

If real income decreases, people can afford less and there fore purchase less, decreasing consumption

• Decrease real income = Demand shifts left

Advertising

Increasing/good advertising encourages people to buy more of a good

• Advertising = Demand shifts right

Taste

If goods become in style/trendy, purchasing increases

• Become in style = Demand shifts right

Size and age of population

If the size of a population increases, the demand of all goods increase

• Population increases = Demand shifts right

If an age group becomes more dominant in a population, goods targeted towards that age group increase in demand

• Age group size increases = Demand for good targeted towards age group shifts right