Demand + Demand Curve

• Demand in economics is defined as the quantity of a good or service consumers are willing and able to buy at a given price in a given time period.
• The law of demand states that there is an inverse relationship between price and quantity demanded, meaning that as the price increases quantity demanded decreases, and if the price decreases quantity demanded increases.
• The law of demand can be illustrated on a diagram using a demand curve, which is downward sloping because it shows the inverse relationship.
• The demand curve can be put onto a diagram to show the relationship between price and quantity demanded.
• When price increases, quantity demanded decreases, this is known as a contraction of demand.
• When price decreases, quantity demanded increases, this is known as an extension of demand.
• The income effect explains the inverse relationship when prices increase, as consumers have less purchasing power.
• Inferior goods are those for which demand decreases as incomes rise, such as fast food, public transport, and holidaying at home.
• Interest rates can affect the demand for goods or services if consumers need to borrow to buy them, for example, in the case of housing, cars, and holidays.
• Fashion and taste can affect demand, making us buy more of a good or service if it becomes fashionable.
• A complementary good is often bought with another, such as printer ink, which shifts to the left when the price of printers goes up.
• Normal goods are those for which demand increases as incomes rise, such as luxury cars, fine dining, and designer clothing.
• A movement along the curve will happen if the price of the good itself changes, but if non-price factors affect demand for a good or service, then a shift of the demand curve occurs.
• The substitution effect explains the inverse relationship when prices decrease, as consumers switch to a cheaper alternative.
• If the price of a substitute goes up, more people are going to be willing and able to buy the other good instead, which will shift the demand curve for the other good from d1 to d2.
• A substitute is a good that's a rival good to something else or it's a good that's in competition with something else, such as coke and pepsi.
• The substitution effect explains that when prices go up, other goods and services become more price competitive, causing us to switch our consumption towards buying those goods and services instead, which is why demand contracts for this good or service.
• The basic law of demand states that when price increases, quantity demanded decreases, and when price decreases, quantity demanded increases.
• If the price of a substitute goes down, fewer people want to buy the other good, more people will be willing and able to buy the other good, decreasing demand from d1 to d3, shifting the demand curve for the other good to the left from d1 to d3.
• The income effect explains that when prices go up, there is a contraction of demand and a fall in quantity demanded, as our income can't stretch as far and the purchasing power of our income can't go as far.
• Good advertising affects all willingness to buy something, so good advertising will shift the demand curve from d1 to d2, increasing demand from q1 to q2 regardless of the price.
• Population can affect demand if there is a greater population, there'll be more demand for a certain good or service, which will shift the demand curve to the right from d1 to d2.
• Bad advertising, such as a bad report or a bad news article about something, can cause the demand curve to shift left as we become less willing to buy from d1 to d3.
• Non-price factors such as population and advertising can affect demand independent of price.