demand

• Demand


  The quantity of a good or service consumers are willing and able to buy at a given price in a given time period
• Demand has to be effective in economics for it to exist
• Effective demand


  Consumers have to be both willing and able to buy something
• Law of demand


  There is an inverse relationship between price and quantity demanded
• As price increases


  Quantity demanded decreases
• As price decreases


  Quantity demanded increases
• The demand curve is downward sloping to illustrate the inverse relationship between price and quantity demanded
• Ceteris paribus


  All other factors remain unchanged
• Contraction of demand


  When price increases, quantity demanded decreases and we move up the demand curve
• Extension/Expansion of demand


  When price decreases, quantity demanded increases and we move down the demand curve
• Income effect


  As prices go up, our income can't stretch as far, so we are less able to buy the same quantity
• Substitution effect


  As prices go up, other goods become more price competitive, so we switch our consumption towards them
• The income effect and substitution effect explain the inverse relationship between price and quantity demanded
• Non-price factors increase


  Demand curve shifts right
• Non-price factors decrease


  Demand curve shifts left
• Non-price factors that can shift the demand curve

  • Population
  • Advertising
  • Substitutes
  • Income (normal vs inferior goods)
  • Fashion and taste
  • Interest rates
  • Complements
• Movement along the demand curve is caused by a change in the price of the good itself
• Shift of the demand curve is caused by a change in non-price factors