Demand
Market
Buyers and sellers interact here to carry out economic transactions
Local
National
International
Demand Curve
Law of Demand
Product Market
Factor market
Shoes, phones etc.
Labour, oil, factories etc.
Quantities of a product that consumers are willing and able to buy at various prices in a given time period
Graphical Representation of a demand schedule
Assuming other things constant, there is an inverse relationship btw price and quantity demanded of the good
Individual demand schedule/curve
Demand schedule of individual buyer
Market demand
Sum of amount demanded at each possible price by all individual buyers
Horizontal summation of individual demand schedules or curves of all consumers in market
Movement along the Demand Curve
Change in price (Law of Demand)
Income effect
Substitution effect
Due to an increase in the price of the good, the given money income can buy fewer units of the goods
Purchasing power of money income of consumers has fallen
Occurs when there is a rise in price
Consumers buy fewer units, switch to cheaper substitutes
Shifts of the Demand Curve
Non-price factors
Change in income
Change in price of related goods
Change in taste and preferences
Change in consumer expectations
Government legislation
Change in population size/demographics
Changes in weather/season
Increase --> Increase demand for normal goods
Increase --> Decreased demand for inferior products
Extent of shift depends on sensitivity of the demand to change in income
More responsive demand is to income changes, shift will be greater
Substitutes
Complements
Alternative products that satisfy similar wants/needs
Decrease in price of substitute --> Decrease in demand of normal product
Range of substitutability narrow or broad
Narrow: Different product brands
Broad: Different product groups
Goods use jointly together to satisfy a particular want
The closer two goods are as substitutes/complements, the greater the change in the demand for the good concerned
Unfavourable change in consumer product --> Less desirable --> Fall in demand
New products may affect consumer taste
Regarding future prices/income
Prompt them to buy more or less of a good in the current period
Increase in demand for goods in requirement
Increase --> Increase in no. of consumers --> Increase in demand
E.g. climate colder, demand for heating increases
Other factors
Credit facilities
Income distribution
Exchange rate
Interest rate
Increase cause decrease in demand (higher costs of borrowing)