1.2.1 Demand

Demand

The number of good/services customers are willing to buy at a given price

Effective demand

When customers are willing and able to buy the product/service at a given price

Demand curve

A graphical representation of the relationship between price and quantity demanded

The relationship between price and quantity demanded

• An inverse relationship

• As price increases, quantity demanded decreases

• As price decreases, quantity demanded increases

• The demand curve slopes downwards from left to right

What does a change in price lead to?

A movement along the demand curve

What does a change in a non-price factor lead to?

A shift of the demand curve to the left or right

Non-price factors affecting demand

• Price of substitutes (people go for the cheaper alternative)

• USPS (if the product is unique/niche)

• Income of consumers (if income increases, demand for certain goods will also increase)

• Changes in consumer preferences (as certain products become more fashionable, there is an increase in demand)

• Price of complementary products (if price of them is rackets increased, the demand for tennis rackets would fall)

• Advertising and branding (if successful, leads to an increase in demand, however, if reputation is damaged, demand can decrease)

• Seasonality (demand for childcare increases during school holidays)

• External shocks (unexpected events that a re outside of a business’s control but have a direct impact on the level of demand, COVID-19)

• Demographics (if the structure or size of a country’s population changes, then the demand for products will also change)

Normal good

A good which demand goes up as income rises (eating out at restaurants, branded clothing like Nike, branded food products)

Luxury good

Goods which demand is very responsive to a change in income (designer handbags, sports cars, first- class flights)

Necessity good

A good which demand is very unresponsive to a change in income (public transport, basic food items like bread and milk)

Inferior good

A good which a lower quantity is demanded as income rises (instant noodles, frozen meals, second-hand clothing)