1.2.2: Demand

• Demand: Ability and willingness to buy a certain good at a certain price at a given moment in time
• Movements along the demand curve are caused by a change in price
• If price increases, there is a contraction in demand and if it decreases there is an extension in demand
• A shift to the left is a decrease in demand, and a shift to the right is an increase in demand
• Factors causing demand curve to shift (PIRATES)

  Population: More people means more demand

  Income: For most goods if income increases, demand increases

  Related goods: If goods are complements increase in demand of one good does the same for another

  Advertising: Good advertising increases demand

  Taste/Fashion

  Expectations

  Seasons: For example ice cream has higher demand in summer
• Marginal utility: Satisfaction gained from consumption of an additional unit
• Law of diminishing marginal utility: Satisfaction derived from consumption of an additional unit of a good will decrease per extra unit consumed
• The reason the demand curve slopes down is the law of diminishing marginal utility, as less satisfaction is derived from higher quantities