9/5: Market Demand and Demand Curves — Key Concepts

Market structure and types of markets

Input (factor) markets vs output markets: firms as buyers in input markets; households as sellers.
Input markets subtypes: Labor markets, Capital markets, Land market.
Output markets: households are buyers; firms are sellers; goods/services conferred (e.g., desks, milk, airplanes).
Competitive market foundation: many buyers and sellers; no single actor can affect market price.

Demand = willingness and ability to buy a good at a given price; quantity demanded is the amount buyers are willing to purchase at a specific price.
Demand schedule: table mapping price to quantity demanded.
Demand curve: graph of the same relationship; convention in this course places price on the y-axis and quantity demanded on the x-axis; the quantity demanded is a function of price, e.g. Q_d = f(P).
Market demand = sum of individual quantities demanded at each price: Qd^{market}(P) = \sumi Q_d^{(i)}(P)

Law of demand: price and quantity demanded move in opposite directions (downward-sloping demand).
Substitution effect: higher price induces movement to relatively cheaper substitutes.
Income effect: higher price reduces real purchasing power, reducing quantity demanded.

Movement along the demand curve: caused by a change in price; quantity demanded changes while the curve itself stays the same.
Shift of the demand curve: caused by non-price factors; the relationship between price and quantity changes, so the entire curve moves left or right.

Prices of related goods:
- Substitutes: rise in substitute price -> demand for the good increases.
- Complements: rise in complement price -> demand for the good decreases.
Expected future price:
- If prices are expected to rise, current demand increases.
- If prices are expected to fall, current demand decreases.
Income and expected future income:
- Normal goods: demand increases with income.
- Inferior goods: demand decreases with income.
Note: other non-price factors can shift demand; the curve shifts, not the price–quantity relationship along the curve.

Substitutes vs. complements (e.g., Coke vs Pepsi; ice cream with buns).
Market aggregation example: market demand is the sum of individual demands across all buyers.
BOGOs and purchasing timing illustrate how expectations about future prices affect current demand.

Demand curve as the maximum willingness to pay for each quantity (marginal benefit) in the market.

Demand as a function: Q_d = f(P)
Movement vs. shift:
- Movement along: price changes → changes in quantity demanded.
- Shift: non-price factors change overall demand (curve shifts to the right/left).