1.2.2 Demand

• Demand


  The quantity of a good or service that consumers are able and willing to buy at a given price during a given period of time
• Demand varies with price

  The lower the price, the more affordable the good and so consumer demand increases
• Movements along the demand curve

  1. At price P1, a quantity of Q1 is demanded

  2. At the lower price of P2, a larger quantity of Q2 is demanded (expansion of demand)

  3. At the higher price of P3, a lower quantity of Q3 is demanded (contraction of demand)
• Only changes in price will cause movements along the demand curve
• Shifting the demand curve

  1. Price changes do not shift the demand curve

  2. A shift from D1 to D2 is an inward shift in demand, so a lower quantity of goods is demanded at the market price of P1

  3. A shift from D1 to D3 is an outward shift in demand, more goods are demanded at the market price of P1
• Factors that shift the demand curve (PIRATES)

  • Population
  • Income
  • Related goods
  • Advertising
  • Tastes and fashions
  • Expectations
  • Seasons
• Derived demand


  The demand for one good is linked to the demand for a related good
• Composite demand


  The good demanded has more than one use
• Joint demand


  Goods are bought together
• Diminishing marginal utility


  As an extra unit of the good is consumed, the marginal utility, i.e. the benefit derived from consuming the good, falls. Therefore, consumers are willing to pay less for the good.
• The demand curve is downward sloping, showing the inverse relationship between price and quantity