Demand

Quantity Demanded (Qd)

The amount of a good consumers are willing and able to buy at a specific price. Qd is a point on the curve.

Demand/Demand Curve

The relationship between price and Qd of a certain good.

Law of demand states that

As the price of a good increases, the demand of a good decreases

Why is the demand curve downward sloping?

1. Substitution effect - if good A’s price increases then good B’s demand will increase because good B is a substitute of good A. Thus the Qd of good A decreases.

2. Income effect - as price rises, you are less able to afford that good —> Qd decreases (& vice versa)

3. Law of diminishing marginal utility - as you consume more of one thing, the happiness you get decreases.

Determinants/Shifters:

1. Tastes & Preferences

2. Income

3. Price of related goods

4. No. of consumers

5. Future expectations

Tastes & Preferences

Example: an influencer states that wearing jeans is not in style anymore. Thus, the demand for jeans decreases as tastes & preferences have changed

Income

2 types of goods:

1. Normal good: when income increases, demand for this good increases e.g. expensive yacht

2. Inferior good: when income increases, demand for this good decreases e.g. cheap clothing

Price of related goods

Substitutes:

Pasta and rice are substitutes of each other. Pasta’s price increases thus rice’s demand increases as it is cheaper. Leading to a fall in demand for Pasta.

Complementary:

A desk and chair are complementary goods. These are goods that are usually bought together. If the price of a desk increases, it becomes more expensive to buy both a desk + chair. Thus, demand for chairs decrease.

No. of consumers

If there are more consumers, there is more demand. If there are less consumers, there is less demand.

Future expectations

If people expect the prices of a good to be expensive next month, demand for that good will increase for this month. Demand for that good next month will decrease.

A change in price causes ______

a movement along the curve NOT a shift in the curve

If demand decreases, then the demand curve _____

shifts to the left

If demand increases, then the demand curve _______

shifts to the right