1.2.2 Demand

• What's the law of demand?

  The law of demand states that, all else being equal, as the price of a good or service decreases, the quantity demanded increases, and vice versa.
• When does Movements Along a Demand Curve happen?

  Movements along a demand curve occur when the quantity demanded changes due to a change in the PRICE of the good or service, while other factors remain constant.
• When does Shifts on a Demand Curve happen?

  -Shifts of a demand curve occur when factors other than price cause a change in the quantity demanded at every price level.

  
  

  -A shift indicates a change in overall demand, not just a response to price changes.
• Factors That May Cause a Shift in the Demand Curve (Conditions of Demand)

  Income:

  
  

  As consumer income changes, the demand for goods and services can shift.

  
  

  Normal goods: Demand increases with rising income (e.g., luxury cars).

  
  

  Inferior goods: Demand increases with falling income (e.g., generic brands).

  
  

  Consumer Preferences:

  
  

  Changes in consumer preferences can lead to shifts in demand.

  
  

  Example: An increased awareness of health leads to a shift towards healthier food choices, increasing the demand for organic produce.
• Factors That May Cause a Shift in the Demand Curve (2)

  Prices of Related Goods:

  
  

  Complementary goods: A decrease in the price of one good increases the demand for its complementary good (e.g., peanut butter and jelly).

  
  

  Substitute goods: An increase in the price of one good increases the demand for its substitute (e.g., Coke and Pepsi).

  
  

  Tastes and Preferences:

  
  

  Trends and fads can influence demand, as can changes in cultural or social factors.

  
  

  Example: The demand for gluten-free products surged with increased health consciousness.
• Factors That May Cause a Shift in the Demand Curve (3)

  Population and Demographics:

  
  

  Changes in the population size or age demographics can affect demand.

  
  

  Example: An aging population may increase the demand for healthcare services and retirement-related products.

  
  

  Expectations:

  
  

  Future expectations about prices, income, or other factors can affect current demand.

  
  

  Example: If consumers expect a future shortage of a product, they may increase their current demand.
• What is diminishing marginal utility?

  The more you have, the less you want

  Or

  DMU states that as a consumer consumes more units of a good or service, the additional satisfaction (utility) derived from each additional unit decreases.

  This reflects the idea that people value the first unit the most and subsequent units less.
• Diminishing Marginal Utility and Its Influence on the Shape of the Demand Curve

  The law of diminishing marginal utility contributes to the downward-sloping shape of the demand curve.

  
  

  As price decreases, consumers are willing to buy more because the marginal utility of each additional unit exceeds the price.

  
  

  Example: If a consumer enjoys ice cream, the first scoop provides high utility, but by the fifth scoop, the satisfaction gained from each additional scoop decreases.