1.3 demand

Theory: Law Of Demand

= prices increase lead to less consumers + a decrease leads to more consumers

demand basics

demand only changes in the market price of the product itself cause a movement along the demand curve

commodity: a basic good/raw material that can be bought, sold or traded in commerce, typically interchangeable with other goods of the same type

→gold→iron→oil→sugar→wheat

I N D I V I D U A L demand

the quantity of a good or service that one consumer is willing and able to buy at different prices over a given period of time

e.g. imagine you are a consumer buying coffee.

at £3 per coffee, you are willing and able to buy 2 coffees per week.

that's your individual demand — the demand of one consumer.


M A R K E T demand

the total quantity of a good or service that all consumers are willing and able to buy at different prices over a given period of time

e.g.Now imagine there are 100 consumers in the market.

At £3 per coffee:

  • You demand 2

  • Consumer B demands 3

  • Consumer C demands 1

  • etc.

If all 100 consumers together demand 250 coffees per week, then:

Market demand = 250 coffees per week at £3.

Market demand = sum of all individual demand.



changes in demand


factors causing demand curve to shift

Population

Advertising

Substitutes

Interest rates

Fashion trends

Income

Complementary goods

Income

  • Income ↑ → demand for normal goods ↑ → shift right

  • Income ↑ → demand for inferior goods ↓ → shift left

Prices of substitutes

  • Price of substitute ↑ → demand for the good ↑ → right

  • Example: Tea price ↑ → demand for coffee ↑

Prices of complements

  • Price of complement ↑ → demand for the good ↓ → left

  • Example: Printer price ↑ → demand for printer ink ↓

Tastes and preferences

  • Product becomes more popular → demand ↑ → right

  • Becomes less popular → left

Advertising and branding

  • Successful advertising → demand ↑ → right

Population / number of consumers

  • More consumers → market demand ↑ → right

  • Fewer consumers → left

Expectations of future prices/income

  • If consumers expect prices to rise → they may buy more now → demand ↑ → right

  • If they expect their future income to fall → current demand may decrease → left


eod + cod

both are movements along the same demand curve caused by a change in the good’s own price

expansion of demand

  • a fall in price causes quantity demanded to increase

contraction of demand

  • a rise in prices causes quantity demanded to decrease


types of demand

d e r i v e d : demand comes from demand for another good/service

→labour

→new homes increases the demand for steel

c o m p o s i t e : one good has multiple uses

→butter

→milk chocolate

→cheese

j o i n t : goods are demanded together

→fish + chips

→smartphones + apps

→flight + taxis

e f f e c t i v e : demand backed by willingness and ability to pay

→buying a car


types of goods

n o r m a l : goods for which demand increases when consumer income decreases

→restaurant meals

→holidays

i n f e r i o r : goods for which demand decreases when income increases

→supermarket value-brand food

→public transport

g i f f e n : inferior goods for which demand increases when their price increases

→staple food such as rice or bread

l u x u r y : expensive, non-essenial items that people buy to show wealth or status when they have extra money

→luxury handbags

→luxury watches

v e b l e n : a luxury item where demand goes up as the price goes up,which breaks normal economics rules

→luxury holidays

→luxury watches