2.2 Demand

• Notional Demand

  Reflects a consumer's wants, which are theoretically unlimited, so the term does not reflect any actual demand that exists in a real-life market
• Effective Demand

  When a consumers' desire to buy a product is backed up by an ability to pay for it
• Demand

  The quantities of a product that purchasers are willing and able to buy at various prices per period of time, other things remaining the same
• Factors influencing demand

  • Price
  • Your income
  • Prices of other goods
  • Your preferences
• Price and quantity demanded

  There is an inverse relationship between the price of a product and the quantity demanded
• Law of demand

  There is an inverse relationship between the price of a product and the quantity demanded, ceteris paribus (all other things being equal)
• Ceteris paribus

  A Latin phrase meaning 'all other things being equal'
• Demand curve

  Shows the relationship between the quantity demanded and the price of a product
• Demand schedule

  The data that is used to draw the demand curve for a product
• Demand curve

  • There is an inverse relationship between price and quantity demanded
  • Assumptions: Ceteris Paribus
  • It is possible to use the market demand curve to extrapolate the expected quantity demanded at any given price
• Movement along a demand curve

  1. Only the price changes

  2. Increase in price causes a contraction of demand

  3. Decrease in price causes an expansion of demand
• Types of demand

  • Joint
  • Competitive
  • Composite
• If demand is affected by factors other than price the demand curve will shift
• Non-price factors that can influence demand

  • Consumer Income
  • The prices of other products
  • Consumer preferences - Tastes and fashion – and other influences
• Income

  Money (or some equivalent value) that an individual or business receives, usually in exchange for providing a good or service or through investing capital
• Disposable income

  Income after taxes on income have been deducted and state benefits have been added
• Real disposable income


  Income after taxes on income have been deducted and state benefits have been added and the result has been adjusted to take into account changes in the price level
• Normal Good

  Goods for which an increase in income leads to an increase in demand
• Inferior Goods

  Goods for which an increase in income leads to a fall in demand
• Substitute goods

  Goods that compete with one another, consumers regard them as alternatives
• Price of a good increases

  Demand for a substitute good is likely to increase and vice versa