DEMAND

Non-price factors that affect demand

Disposable Income: amount of money that an individual or household has to spend or save after tax

·       Higher income = higher purchasing power

Price of substitutes: homogenous products that are offered by competitors at a cheaper price

·       Decrease in substitutes prices could decrease the demand of the original product

Price of Complements: two products that are typically consumed together, have a correlation in price and demand (eg. Bread & butter or  cereal & milk)

·       An increase in price for the product, should expect a fall in demand for complementary product

Preferences and tastes: heavily influenced by marketing and promotion (eg. Apple vs android)

Interest Rates: when the cost of borrowing increases it will lead to a fall in disposable income

Changes in population: population growth leads to high demand for residential properties in areas

·       Changing demographics  affects demand for particular goods and services (eg. Genz vs Baby boomers)

Consumer Sentiment: consumer perception about their future income levels or job prospects

Government Intervention: using taxes and subsidies, laws (eg. Smoking)

Law of Demand: as the price of a product increases, the total quantity demanded decreases and as the price decreases, the total quantity  demanded increases, has an inverse relationship (as one goes up, the other goes down)

Shifting of the demand curve

 Shifting of the demand curve: change in demand occurs when the price remains unchanged (non-price factors)

Shifts when lower quantity is demanded

A DECREASE in quantity results in a shift of the demand curve to the LEFT

An INCREASE in quantity results in a shift of the demand curve to the RIGHT

Bad Left, Good Right

Movement of the demand curve

Movement along the demand curve: demand changes because price changes

Movement DOWNWARDS along the demand curve/line is called an EXPANSION in demand: caused by a fall in price

Movement UPWARDS along the demand curve/line is called a CONTRACTION in demand: caused by a rise in price

Bad Left, Good right