How prices are determined - demand for goods and services

Complex description of demand

The number of customers who are able + willing to buy products / services during a given timer period. Implying the customers desire to acquire the good/ service and the willingness + ability to pay for it.

Demand curve

A graphic representation between product price and the quantity of the product demanded (downwards from left to right)

Demand curve movement

Refers to changes in price that affect the quantity demanded

Demand curve shift

Fundamental changes in the balance of supply + demand that alter the quantity demanded for the same price.

Willing 

This assumes that the consumer wants to buy the product

Able

This suggests that the consumer has the means to buy the product

Specific price

A particular price

Specific point in time

Refers to a specific point in time, suggesting that demand occurs in 1 time frame.

Individual demand

Demand for the product or service by an individual at a range of prices

Market demand

Aggregation of all individual demand, adding up all quantity demanded at different prices by all prices

Movement in demand

Used to show the resulting demand as a result of a change in price

Shift 

When there’s a change in any factor that changes demand other than price

A shift in the demand curve to the right means?

An increase in demand

A shift in the demand curve to the left means?

A decrease in demand

Causes of shift in the demand curve

• Competition

• Economic situation

• Complements

• Substitutes

• Trends

• Price expectations

• Income

• Population / demographic

• Marketing

How does competition shift the demand curve?

Increased competition may push suppliers to include value added options such as free delivery / free maintenance servicing

How does economic situation shift the demand curve

A financial crisis or recession can lead to a fall in demand for many goods and services. Conversely, during Covid, temporary tax changes were made for property purchases which eld toa rise in demand for new homes

How do complements shift the demand curve?

If the demand for cars increases, then the demand for fuel will increase automatically

How do substitutes shift the demand curve

A customer may turn to a different product / service that meets their needs. Eg. they may swap from Coke to Pepsi or they may move from Barclays to Starling Bank

How do trends shift the demand curve?

People want the latest item so if a product goes out of fashion, demand can fall drastically.

How does price expectation shift the demand curve?

An anticipated price rise may lead toa short term demand, to try to buy while prices are still low. Ivestors may buy goods in anticipation of an increase in value (gold/art/shares/oroperty)

How does income shift the demand curve?

If income rises, then consumers are able to buy more goods and services or will be willing to pay higher prices for goods / services

How does the population shift the demand curve?

Number of people (growing/declining population), growing number of elderly, growing number of gender fluid people. Changes will bring changed demand for different products and / or services

How does marketing shift the demand curve

Demand an be stimulated by ahigh profile Tv ad / celebrity endorsement / social media influencers.