Demand

• Demand - the number of units of a good or service that consumers are willing to purchase at a given price.

  Individual demand - the quantity of a good/service one singular consumer is prepared to purchase at a given price

  Market demand - the total quantity of a good/service all consumers in a market are prepared to purchase at a given price

  • Effective demand is the term used to represent the consumers who can actually purchase the product because they have the funds, they want it and are willing to go out and purchase it.
• Factors affecting Demand (1):

  • Change in price of a substitute product - if a Samsung phone drops in price, the Samsung will have an increased demand and the iPhone will have a decreased demand as its price stays the same because of the Samsung's lower price.
  • Change in price of a complementary product - to purchase a gas cooker, your home needs a gas supply. If the price of a gas cooker decreases, an increased demand for the gas supply occurs as you cannot have a gas cooker without a gas supply.
• If the price of a product rises, demand falls as:

  • Consumers can no longer afford the product
  • Consumers switch to a substitute good
  • Consumers think it is no longer worth the higher price

  If the price of a product falls, demand rises as:

  • Consumers can now afford the product compared to before
  • New consumers coming from an alternative brand purchase this
  • Consumers think it is worth the lower price
• Factors affecting Demand (2):

  • Fashion and Taste - consumers will always be influenced to purchase the newest goods and services in fashion or trending at the moment. Fashion and trends always change, leading to a fluctuating demand for these goods.
  • Change in Income - if the consumer's income decreases, the demand for the goods they previously bought (normal goods) decreases while the demand for inferior/cheaper goods increases. Vice versa applies.
• Law of Demand:

  • Price increases -> demand decreases
  • Price decreases -> demand increases

  Exceptions to the Law of Demand:

  • Price increase -> Demand increase - consumers buy expensive goods for the status associated with the expensive good. These expensive goods are known as snob goods.
  • Price decrease -> Demand decrease - when the price of snob goods decrease, their demand decreases. This is because the status associated with the good deteriorates.
• Excess Demand (Demand > Supply) - too much demand for what is supplied. Occurs when the price is below the equilibrium, causing an 'upward pressure' on the price, increasing it.