econs -demand

• Demand


  Concerned with the behaviour of buyers
• Consumers (households)


  Buyers of goods and services in the product markets
• Firms (businesses)


  Buyers of factors of production in factor markets
• Individual demand


  Indicates the various quantities of a good or service the consumer is willing and able to buy at different possible prices during a particular time period, ceteris paribus
• Willing


  Means the consumer wants to buy the good
• Able


  Means the consumer can afford to buy it
• Law of Demand


  There is a negative causal relationship between the price of a good and its quantity demanded over a particular time period, ceteris paribus
• Law of Demand


  • As the price of a good rises, people buy less of it, ceteris paribus
  • The income effect: when the price of a good rises, consumers are not willing to buy as much of the good because their real income or purchasing power has decreased
  • The substitution effect: when the price of one good rises, other goods become more attractive to buyers because they are relatively cheaper
  • The law of diminishing marginal utility: as consumption of a good increases, marginal utility decreases with each additional unit consumed. This shows that a consumer will only be willing to buy an extra unit of a good if its price falls.
• Factors affecting demand


  • Price of the commodity
  • Prices of related commodities
  • Buyers' disposable incomes
  • Buyers' tastes and preferences
  • Buyers' expectations for the future
  • Demographic changes
• If the price of a commodity changes

  The demand for it will change
• An increase in price

  Will result in a contraction of demand, due to the law of demand
• A change to a factor other than price

  Affects the entire demand curve
• When income increases


  Consumers will normally purchase more of a good
• Normal goods


  Demand for them will increase when income increases
• Inferior goods


  Demand for these goods will decrease when income rises
• If the price of butter rises


  The quantity demanded for butter will also fall and consumers will increase their demand for different types of spreads
• If the price of computers increases

  The quantity demanded will decrease, as will demand for computer software
• Expectations of a future price rise

  Will increase demand now and shift the curve to the right
• Changes to the age and gender distribution of the population


  Can change demand in the longer term