2.2 Demand

Demand

The quantity of goods/services that consumers are willing and able to buy at a given price, at a given time

Law of demand

States that there is an inverse relationship between the quantity demanded and the price of a good/service (as P ↑, QD ↓)

Individual demand

The demand for a product by a consumer

Market demand

The demand for a product by all consumers in a market

Joint demand

Goods which are interdependent/demanded together e.g playstation and playstation games

Competitive demand

Demand for goods that are in competition with each other

Composite demand

Demand for a good that has multiple uses

Movements along the demand curve (extension/contraction)

Caused by changes in price

Shifts of the demand curve (increase/decrease)

Caused by changes in income, tastes, fashions, the price of competiton, price of compliments, population, advertising, legislation, social factors, the distribution of income, interest rates, unforeseen circumstances

Ceterus Paribus

All other things remain equal

Extension/contraction

Movement along the demand curve only caused by changes in the price of a good

Shift to the left/right

Demand curve shifts to a new curve caused by various factors

Income effect

A fall in prices increases the real purchasing power of consumers

This allows people to buy more with a given budget

For normal goods, demand rises with an increase in real income

Substitution effect

A fall in the price of good X makes it relatively cheaper compared to substitutes

Some consumers will switch to good X, leading to higher demand

This mostly depends on whether the products are close substitutes e.g. Coke and Pepsi

Seasonal demand

This refers to fluctuations in output and sales related to the seasonal time of the year e.g. Easter chocolate in spring

Derived demand

Demand for a factor of production used to produce another good or service e.g. steel for cars

Exceptions to the law of demand

Goods of ostentatious consumption (snob goods), goods affected by consumer expectations, inferior/giffen goods, addictive/demerit goods

Goods of ostentatious consumption/snob goods

These goods are demanded simply because they are expensive, therefore as price rises, demand rises too e.g. Gucci bag

Goods affected by consumer expectations

If goods rise in price and are expected to keep doing so, the demand for them will rise e.g. property, wine, stocks

Inferior/giffen goods

As income rises, the demand for the good will fall e.g. Tesco own brand beans

Demerit/addictive goods

As price rises, quantity demanded does not fall as consumers continue to buy e.g. alcohol, cigarettes