1.1 Demand

Demand definition

various quantities of a good or service that consumers are willing and able to buy at a different possible prices during a particular time period, ceteris paribus.

law of demand

As the price of a good or service decreases, the quantity demanded increases, and vice versa (inverse relationship), ceteris paribus.

ceteris paribus

isolates relationship between two variables by assuming that all other factors remain constant

law of diminishing marginal utility

as more of a good is consumed the additional satisfaction gained from each extra unit decreases. Consumers will only buy more of the good if its price falls.

Income effect

the change in quantity demanded resulting from a change in a goods price which affects consumers purchasing power, assuming constant income. It indicates that as the price of a good decreases, the consumer's real income increases, allowing them to purchase more.

substitution effect

the change in quantity demanded that occurs when consumers substitute a good with other goods due to a change in its price, while other prices remain constant

Market demand

sum of all individuals demand for goods and services = total quantity demanded by all the consumers

shift of a demand curve

when any non-price determinants of demand changes. These factors influence demand not the price itself.

movement along the demand curve

the price of the good or service itself changes, ceteris paribus which results in a change in quantity demanded for that good or service.

Non price factors of demand

1. change in income

2. changes in consumer preferences

3. price of related goods

4. population size

5. seasonal changes

changes in income

as our income increases we buy more normal goods, rather then inferior goods causing their demand to decrease

changes in tastes and preferences

Government policies, Ad campaigns, trends - effect the demand curve

prices of related goods

are the prices of substitutes or complementary goods that can influence the demand for a product

Population size / demographic

larger population higher demand

seasonal changes

consumer preferences are affected by time of the year, or celebrations like easter during these seasons