Determinants of demand

Competitive market

Competitive market - a market in which a large number of buyers and sellers possess good market information and can easily enter or leave the market.

Market

Market - a voluntary meeting of buyers and sellers

Equilibrium price

Equilibrium price - the price at which planned demand for a good or service exactly equals planned supply

Supply

Supply - the quantity of a g/s that firms are willing and able to sell at a given price in a given period of time

Demand

Demand - the quantity of g/s that consumers are willing and able to buy at a given price in a given period of time. For economists, demand is always effective demand. 

Effective demand

Effective demand - the desire for a g/s backed by an ability to pay

Market demand

Market demand - the quantity of a g/s that all the consumers in a market are willing and able to buy at different market prices.

Condition of demand

Condition of demand - a determinant of demand, other than the good’s own price, that fixes the position of the demand curve. 

Causes of shifts in demand

Causes of shifts in demand

Population

Advertising

Substitutes

Income

Fashion and trends

Interest rates 

Complementary goods 

Movement caused by

A change in price causes a movement along the curve (either contraction or extension) 

Normal good

Normal good - a good for which demand increases as income rises and demand decreases as income falls 

Inferior good

Inferior good - a good for which demand decreases as income rises and demand increases as income falls. 

Reasons for upward sloping demand curves

Reasons for upward sloping demand curves: 

* Speculative demand: if the price of a good e.g. housing, shares or a foreign currency starts to rise, people may speculate that in the near future the price will rise further so demand is likely to increase. IN case of rising house prices, young people who which to become first-time buyers may scramble to buy houses as they fear they will never be able to afford a house. 
* Good for which consumers use price as an indicator of quality: consumers may lack accurate information about the quality of some goods they wasn’t to buy eg second hand cars and computers, therefore a potential buyer may demand more as a good’s price rises, believing that a high price means high quality
* Veblen goods: some companies try to sell their goods based on the fact that they cost more than those of their competitors. Veblen goods are goods of exclusive or ostentatious consumption. Sometimes called a positional good, though strictly a positional good is so scarce that few people can ever acquire it. Some people want to consume Veblen goods such as Ferrari cars, as a signal of their wealth. 

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