Ch 3 - Demand 

• Market: where buyers and sellers get together to trade
  • Housing market (goods and services)
  • Stocks (shares)
  • Factor (factors of production)
  • International markets (international currencies)

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• Demand: the quantity of a product which consumers are willing and able to buy

• Quantity: numerical quantity of a product being demanded

• Effective demand: by purchasing power, the purchaser has the money to pay for the product

• Ineffective demand: do not have purchasing power

  • Law of demand: states that as the price of product falls, the quantity demanded will increase

  

• Based on the graph, we can see these trends:

  • When the price goes up, there's a decrease in quantity demanded
  • When price goes down, quantity demanded increases

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• Factors influencing demand (PINTE):

  1. Income: the income of all consumers

     a. Income + demand have a positive relationship:

  • Increase in ability to pay equals increase in demand, If the ability to pay falls then less is demanded (direct relationship)

  • Inferior goods have a negative relationship (customers buy less, inverse relationship)

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1. Price:

   • Substitutes: alternative goods can satisfy the same want and need
     • A change in the price of one has an impact on the demand
   • Complements: goods which have a joint demand as they enhance the satisfaction derived from another good
     • A change in the price/availability of either will have an effect on the demand for complementary goods

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2. Fashion, taste, and attitude: demand is affected by personal behaviour /preference. As consumer behaviour and preference changes, so does the degree of demand of a good or service.

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• To increase demand:

  • Income rises (normal goods)
  • Price of substitution rises
  • Price of complementary falls
  • Encouraged buying
  • Population likely to buy increases

  

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• To decrease demand:

  • Income drops

  • Substitution falls

  • Compliments rises

  • Buying discouraged

    

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• PINTE:

  • Prices
  • Income
  • Number of buyers
  • Taste/preference
  • Expectations

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• Movement along the Demand curve:

  • Rise in price = drop in demand
  • Drop in price = increase in demand

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• A demand shift can shift:
  • Left (decrease demand)
  • Right (increase demand)

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• Based on the graph, we can tell that these changes occur in the economy:
  • D2: how quantity demanded responds to a change in prices
  • D1 and D2: shows how demand responds to a change in a non-price factor

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• Bounded rationality: theory that consumers have limited rational decision making driven by cognitive ability, time constraint, and imperfect information

  • Profit: total revenue - total costs
  • Status quo: overwhelming amount of choices
  • Complementary goods: demand decreases, quality demand decreases
  • Substitute goods: demand increases, quality demanded decreases

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• Basic rules of movement along the demand curve and what it means:

  • decrease in price = expansion in demand = increase in quality demanded
  • increase in price = contraction in demand = decrease in quantity demanded

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