Demand and supply

• individual demand - the quantity demanded of a good or service by individual consumers at different prices at a set point in time.
• market demand - refers to the aggregate quantity of goods and services demanded by all at a set point in time
• derived demand - applies to factors of production, it is the demand for a good not for its own sake but for the production of another product e.g. palm oil
• Composite demand - applies where goods have more than one use, and increase in demand for one product can lead to a fall in supply for another product
• Joint demand - refers to complementary goods that are brought and sold together e.g. printer and ink
• effective demand - the willingness and ability of consumers to purchase such goods/services at different prices
• demand schedule - a table that gives the quantities of a good/service that would be demanded by consumers at different prices
• Market demand

  Aggregate quantity demanded of a good or service by all in the market at different prices at a specific point in time
• Joint demand


  Complimentary goods that are brought or sold together or consumed together
• More than one curve on a graph indicates multiple factors affecting demand
• At higher prices, consumers are generally willing to purchase less
• The law of demand states that as the price of a good/service falls, the quantity demanded will rise and vice versa
• Demand curve


  A graph showing the relationship between the price of a good or service and the quantity demanded
• Law of Demand - states that as the price of a good/service falls, then the quantity demanded will rise. When the price of a good/service rises, the quantity demanded will fall.
• The Demand Curve

  • at higher prices, consumers are generally willing to purchase less than at lower prices.
  • The demand curve is said to have a negative slope from left to right, this is because price and quantity demanded have an inverse relationship.
• The Law of Demand states that as the price of a good/service increases, the quantity demanded will fall, as the price of a good/service decreases, the quantity demanded will increase.
• A change in price causes a movement along the curve, any change in anything else that affects demand causes the curve to shift right or left depending on if the change in factor works in favour of the good. If the quantity demanded increases, the curve shifts right, if the quantity demanded decreases, the curve shifts left.
• Demand Function

  Dx = f(Px, Pog, G, E, T, U, Y)
• Px - Price of good
• POG - Price of other good
• G - Government Intervention
• E - Expectations for the Future
• T - Tastes and Trends
• U - unplanned Circumstances
• Y - Income
• • Factors in the Demand Function are factors that cause the demand curve to shift either left or right
  • The price remains the same any time the shift occurs.
  • When one factor changes, we assume all other factors stay the same
  • This is called the Ceterus Paribus Environment
• • we start at a price of P on the curve D1 with the quantity demanded of Q1
  • insert scenario as to why shift occurred e.g shift in consumer tastes
  • As a result curve has shifted left from D1 to D2, but price remains at P
  • Quantity has reduced from Q1 to Q2

  
• • We start at a price of P on the curve D1 with the quantity demanded of Q1
  • Insert Scenario as to why shift occurred
  • As a result our curve has shifted right from D1 to D2, but price remains at P
  • Quantity has increased from Q1 to Q2

  
• POG - price of other good

  Complimentary goods - Goods that are consumed together, the use of one involves the use of the other, e.g. cars and fuel

  Substitute goods - goods which satisfy the same needs and can be used as an alternative to each other, e.g. Lyons and Barry's Tea.
• Y - Income

  A normal good is a good with a positive income effect. A rise in Income will cause more of it to be demanded. A fall in income will cause less of it to be demanded.

  An Inferior Good is a good with a negative income effect, A rise in Income causes a decrease in demand, A fall in income causes an increase in demand.

  E.g. Heinz vs own brand ketchup
• T - Tastes/ Trends

  • If the movement of tastes/trends move in favour of a good, demand for the good will increase causing the demand curve to shift to the right. E.g. The shift in consumer taste to move towards healthier options
  • If the movements of tastes/Trends were to move not in favour of a good, the demand for the good would decrease causing a shift to the left. E.g. demand for Nokia, as people switched to more modern phones.
• E - Expectations for the future

  Demand for a good will increase and the curve will shift right if consumers expect:

  • The price of good x to be higher in the future. e.g. property
  • A scarcity of good x in the future. e.g. hand sanitizer during covid
  • Their incomes to be higher in the future. e.g. a promotion

  Demand for a good will decrease if the consumer expects:

  • Price of good x to be lower in the future. e.g. black friday sale
  • Incomes to be lower in the future, e.g. increase in tax
• G - Government Intervention

  • If the government implement programmes or taxation to discourage the consumption of a good, then demand for the good would decrease and the demand curve will shift left. E.g. Demerit goods, cigarette tax
  • If the government were to implement programmes or subsidies to incentivise and encourage the consumption of a good, demand would increase and the demand curve would shift right. E.g. EV cars, Solar Panels.
• U - Unplanned Circumstances

  Is an unforeseen event that occurs that is not the fault of any party.

  • If there is a sudden heatwave - an unplanned factor, This may increase demand for products such as sunscreen and a decrease in demand for products such as home oil.
• Availability of Credit / Rates of Interest

  The availability and willingness of financial institutions to lend at low interest rates has a big impact on demand

  • reduction in lending and rise in the cost of credit - will cause a movement to the left of the demand curve for many goods, e.g. property, cars
  • A Rise in Lending and a fall in the cost of credit - will cause a movement to the right of the demand curve for many goods. e.g. property, cars
• Population

  • A fall in market size/ population - can result in a movement of the demand curve to the left. e.g. rise in emigration causing less demand for public transport
  • A rise in market size/population - can result in the demand curve shifting to the right. e.g. rise in immigration causing high demand for property
• Exceptions to the law of demand

  • snob goods/Veblen goods
  • Giffen Goods
  • Goods Demanded, which is affected by expectations
  • speculation in stocks
  • Goods of an addictive nature
• Snob/Veblen goods - the high price makes the more attractive to those who can afford to purchase them. It is seen as a status symbol and sought after (conspicuous consumption). A price drop may reduce attraction. e.g. birken bags
• Giffen goods - these are essential items with few/no substitutes purchased by those low on incomes. A rise in price means demand for good also rises. e.g. staple goods like rise for poorer families
• Goods that are affected by expectations

  E.g. Housing - if property prices fall during a recession, buyers may defer the purchase due to high expectations of even lower future prices. When property prices rise, there may be an expectation that prices will continue to rise so that demand will be high