Demand Economic Concepts

Demand Overview

• Demand defines consumer willingness to purchase goods at various prices.

Law of Demand

• As PRICE increases, DEMAND decreases.
• As PRICE decreases, DEMAND increases.
• Demand Curve: Slopes downwards from left to right.

Elasticity of Demand

• Elastic Demand: Sensitive to price changes.
• Inelastic Demand: Insensitive to price changes.

Factors Affecting Elasticity

1. Availability of Substitutes:
   • Fewer substitutes → inelastic demand (e.g., gasoline).
   • Many substitutes → elastic demand (e.g., fast food).
2. Relative Importance:
   • Necessities → inelastic (e.g., mortgage).
   • Luxuries → elastic (e.g., entertainment).
3. Necessities vs. Luxuries:
   • Necessities (food) → inelastic.
   • Luxuries (jewelry) → elastic.
4. Change over Time:
   • Initial monopolies → inelastic.
   • Emergence of alternatives (e.g., Netflix) → elastic.

Change in Demand (Determinants)

• Non-price factors shift the demand curve:
  • Shift left → less quantity demanded.
  • Shift right → more quantity demanded.
• Movement along the curve is due to price changes.

Effects on Demand

1. Substitution Effect: Price changes in substitutes influence demand.
2. Change in Income: More income → increased demand for luxuries; less income → decreased demand for luxuries.
3. Complementary Products: Price changes in complements affect demand (e.g., hot dogs and buns).
4. Change in Attitude: Shifts in consumer attitudes (e.g., fashion) impact demand.