Topic 6: Demand

• Demanding an expensive phone because your friend has one is an example of ineffective demand.
• The main elements of effective demand are: income, price, time.
• The size of the household income affects the demand, as income increases, demand increases regardless of the price.
• The Theory of Demand explains the concepts of demand, differentiates between a change in demand and a change in quantity demanded, illustrates an individual demand curve, and plots a market demand curve.
• A situation in which buyers and sellers are brought together to trade, the medium of exchange may be barter/money.
• Through the forces of demand (buyers) and (supply) sellers prices are set in the market.
• There are different types of demand: Desired demand, Effective Demand, Market demand, Individual Demand, and Derived Demand.
• The market demand curve is the horizontal sum of the individual demand curves.
• Market demand refers to the sum of all individual demands for a particular good or service.
• Individual demand curve represents the consumption behavior of a particular consumer.
• Graphically, individual demand curves are summed horizontally to obtain the market demand curve.
• Exceptions to the law of demand include Giffen goods, conspicuous consumption, emergencies, expectations of future price changes, change in fashion, and keeping up with trends.
• Changes in expectations: If buyers expect that the price of a good will be increasing in the future, they are likely to buy more today, causing an increase in demand. If buyers expect that the price of a good will be decreasing in the future, they are likely to buy less today, causing a decrease in demand.
• Season, religion/tradition, and population: These factors can also influence demand for certain goods.
• Price of other goods: Substitutes are goods that present the consumer with alternative choices, and if the price of one good increases, the demand for the substitute is likely to rise. Compliments are goods that are generally related and bought together, so if the price of one good increases, the demand for the compliment may decrease.
• Inferior good: Goods that have an inverse relationship between quantity consumed and consumer's income, where an increase in consumer income leads to a decrease in demand and vice versa.
• A shift in the demand curve, either to the left or right, is caused by any change that alters the quantity demanded at every price.
• A change in quantity demanded is represented by a movement along the demand curve and is caused by a change in the price of the product.
• A tax that raises the price of a product results in a movement along the demand curve.
• A demand curve shifts either to the left or to the right. A rightward shift indicates an increase in demand, while a leftward shift indicates a decrease in demand.
• The demand curve has a downward slope from left to right.
• Movements along the demand curve are brought about by a change in price of the good or service under consideration and by nothing else.
• The only factor that affects Quantity Demanded is price, causing a movement along the demand curve. A change in demand is brought about by a shift in the demand curve, which happens because of a change in a factor other than price.
• Changes in consumers' income may affect demand in two ways: for normal goods, there is a positive relationship between quantity consumed and consumers' income, meaning that as consumers' income increases, demand increases and vice versa.
• Desired demand: Expressed preference for a particular good or service that a consumer cannot satisfy due to lack of money, availability, or awareness.
• Effective demand: The ability and willingness of a consumer to purchase a commodity at various price levels over a period of time.
• Quantity demanded: The number of units of a good or service consumers are willing and able to buy at a specific price over a certain period of time.
• Law of demand: Inverse relationship between price and quantity demanded, where as price increases, quantity demanded falls, and as price falls, quantity demanded increases.
• Reasons for the inverse relationship: Substitution effect, income effect, and the law of diminishing marginal utility.
• Demand schedule: Table showing the different quantities of a good that a consumer is willing and able to buy at various price levels over a given period of time.
• Demand curve: Graphical representation of the interaction between price and quantity demanded.