Topic 2 (Theory of Demand)

Demand definition

Ability and willingness to purchase specific quantities of goods in a given period of time at a particular price

What are free goods?

Goods that have no production cost
eg air, water

What are public goods

Goods that are for common use and will benefits everyone provided by the government
eg streetlights/ public schools

What are economic goods and economic services

Economic Goods - Goods of value that can be seen and touched

Economic Services- Intangible things (with value) that cannot be seen or touched

What is the Law Of Demand

The higher the price of a good, the lower the quantity demanded for that good
The lower the price of a good, the higher the quantity demanded for that good

What is demand schedule and demand curve

Demand Schedule - Table that shows relationship between price of a good and the quantity demanded

Demand Curve - Graph that shows the relationship between price of a product and the quantity demanded

What is individual demand

The relationship between the quantity of a good demanded by a single individual and its price

What is market demand

The relationship between the total quantity of a good demanded by adding all the quantities demanded by all consumers in the market and its price

What are determinants of demand

- Price of good

- Consumers income
- Taste and trends
- Price of related goods
- Population or number of buyers
- Expectation of future prices
- Advertisement
- Supply of money in circulation
- Level of taxation
- Festive seasons and climate

How does ‘Price of Goods’ affect demand

The higher the price, the lower the demand

How does ‘Price of Related Goods’ affect demand

Substitute goods - if price of substitute good increase, demand of good increases

Complementary goods - If price of complementary good increase, demand of good decreases

How does ‘Consumers' income’ affect demand

When income increases, consumers’ demand for more good and services will increase

How does ‘taste and preferences’ affect demand?

If a product becomes more fashionable or trendy, the demand for it will increase
If a product becomes outdated or less trendy , the demand for it will decrease

How does ‘Population or number of buyers’ affect demand

A larger population with high rate of growth increases demand for goods and services

How does ‘advertisements’ affect demand

Increases awareness of product to consumers which increases the demand for these products

How does ‘Festive season and climate’ affect demand

During festive seasons, different products will have higher demand

How does ‘level of taxation’ affect demand

The higher the level of taxation , the lower the purchasing power of consumers which result in a decrease in demand

How does ‘supply of money in circulation’ affect demand

The larger the supply of money in circulation, the higher the demand for goods and services because consumers have more money to spend

What causes changes in quantity demanded

A (movement) along the fixed demand curve

Changes in price
( other factors are constant)

What causes changes in demand

A (shift) in the demand curve

Changes in other external non-price factors
(price remains constant)