OCR Alevel Economics topic 2.2 (demand)

this is part of paper 1, microeconomics

what is demand?

the quantity of a good or service that consumers are willing and able to buy at a given price in a given time period

what does a demand curve show?

the relationship between price and quantity of product/service demanded

what can this relationship be described as?

inversely proportional

what does changing price do?

it causes a movement along the demand curve!

what does a change in any other factor cause?

a shift along the demand curve.

what is the neumonic to remember the factors that cause a shift in demand

PASIFIC

what does PASIFIC stand for?

population, advertising, substitutes, income, fashion and tastes, income tax, complements

how does population cause a shift in demand?

there’s more people to demand goods and services, meaning a shift to the right (or vice versa) especially essentials. There’s more people willing and able to buy a given product at a given time = more demand

how does advertising cause a shift in demand?

makes more people aware of the product and therefore maybe they’re more willing and able to buy it. Higher product knowledge = more demand = shift to the right.

how does price of substitutes make demand shift?

when one product’s price is raised, people may be less likely to buy that product as they’re no longer willing and able, demand falls. They may buy another brand’s version of that product. E.g. if coke prices rise, then people may buy pepsi as a substitute!

how does income make demand shift?

income has a positive relationship with demand, as one rises, the other will rise too

what’re the 2 types of good relating to income and demand?

inferior and normal goods

what’s an inferior good?

a good that isn’t bought as much when income rises. E.g. budget brand washing powder instead of a fancy brand and vice versa. E.g. fast food or public transport

what’s a normal good?

a good bought more when income rises and vice versa. As income rises, demand for these goods increases

how does fashion and taste make demand shift

if a product is trending, people are more likely to be willing and able to buy it, in order to fit in with trends. Therefore demand increases and shifts right. E.g. labubus are trending, and so lots of people or buying them or products adjacent to them

how does interest rates make demand shift?

affects the demand of goods that users need to borrow for to be able to buy. E.g. jewellery or furniture. So if interest rates are down, it makes it easier for people to be willing and able to buy these goods, therefore demand goes up.

how does complements cause a shift in demand?

if the price of 1 compliment increases then people may be less likely to buy the corresponding product. E.g. if the price of tennis balls increases, people are less likely to buy racquets. If the price of road tax increases, less people will buy cars??

what is individual demand?

the demand of one individual or firm

what is market demand?

total quantity demanded by all consumers- the aggregate of all individual demand.

what is composite demand?

demand for a multi purpose good e.g. oil or water

what is joint demand?

goods that’re demanding together- e.g. complements like car petrol

what is competitive demand?

a market where many substitutes for one type of product exists and one good can be purchased instead of another e.g. toothpaste