Demand

• Demand- Amount of goods and services, consumers are willing and able to buy at different price over a period of time, ceteris paribus
• Law of demand - As the price rises, quantity demanded falls, as the price falls, quantity demanded increases, ceteris paribus
• Market- A place (virtual or physical) where buyers and sellers meet. They carry out an exchange
• Competitive Market- Many firms act independently and no frims is powerful enough to control the price of goods and services. The price is determined by the market forces of demand and supply.
• Individual Demand- various goods or services, consumers are willing and able to buy at different prices over a period of time, ceteris paribus
• Market demand- Sum of all indivdual demands of a product in a specific industry
• Movements in a demand curve- A movement is only caused by a change in price
• Shifts in a demand curve- A shift is only caused by a change in a non-price determinants. They are: RIPEN

  • Related products (Substitutes and compliments)
  • Income
  • Preference and taste
  • Expectations of future prices
  • Number of consumers
• Inferior goods- Low quality goods such as second hand cars, bus tickets
• Substitute goods- Goods that are used as a substitute for other goods. such as tea for coffee
• Complimentary goods- Goods which are consumed together. Such as bread and butter.
• Law of demand is based on 3 key assumptions: Income effect, substitution effect and law of diminishing
• Income effect- is the change in a consumer purchasing power resulting from a change in the price of goods and services: so if the price of a good increases, the purchasing power of the consumer will decrease with the same income
• Substitution effect- The change in quantity demanded due to a change in relative prices between two or more goods. If the price of one product rises, then the consumer may switch to another cheaper alternative
• Law of diminishing marginal utility- States that as additional products are consumed, the utility gained from the next unit is lower than the utility gained from the previous unit.
• Marginal utility- The addditional utility (satisfaction) recieved from consuming an additional unit of a particular good
• Utility- satisfaction recieved from consuming or gaining a product
• Changes in real Income- A direct relationship between income and demand for goods/services. Income increases, demand increases
• Real Income- Income that has been adjusted to inflation
• Changes in taste/ preference- A direct relationship: If people like this good more, demand decrease and vice versa
• Changes in price of related goods- Direct relationship between price of good A and demand for good B
• Changes in price of complementary goods- Inverse relationship between price of good A and demand for good B
• Changes in number of consumers- A direct relationship between changes in population sizes and demand for a good or service. - Demand will also change to the age distribution in a country as different ages demand different goods/services
• Future price expectations- If consumers expect the price of goods/services to increase in the future, they will purchase it now and demand will increase. If consumers expect the price of goods/services to decrease in the future, they will wait to purchase it later and demand will decrease