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CHAPTER 2 > DEMAND AND SUPPLY (Definition of Demand (Ceteris Paribus…
CHAPTER 2 > DEMAND AND SUPPLY
Definition of Demand
Ability and Willingness To Buy
Particular Time
Ceteris Paribus
Holding other factors constant while some other factors change.
Determinants of Demand
Internal Factors
Price Of Goods
The higher the price, the lower the demand
The price of the product depends on the cost of production, which in turn will determine the quantity that will be purchased by the consumer
Service Policies or Terms of payment
Better customer service and terms of payment by credit instead of cash will increase sales
Profit Margin
A higher profit margin will lead to an increase in the price of the product and reduce its demand
External Factors
Price of Related Goods
The demand for a product is also affected by a change in the price of related goods.
a)
Substitute Goods
Goods or services that can be used in place of another product or service
Change in the price of a substitute product affects the demand for the product in the same direction in the price change
b)
Complementary Goods
Individual and Market Demand
Individual Demand
Relationship between the quantity of product demanded by a single individual
Market Demand
Relationship Between the total quantity of product demanded by all consumer
The combination of individual demands
Law of Demand
The higher the price of product, the lower the quantity demanded
The lower the price of product, the higher the quantity demanded