Chap 4

• Factors affecting demand


  • Income
  • Advertising
  • Population
  • Tastes and fashion
  • Prices of substitutes
  • Prices of complements
  • Interest rates

  
• Normal goods


  When income rises, demand also rises because more money is available to spend
• Inferior goods


  When income rises, demand falls because consumers switch to more expensive/branded products
• Inferior goods


  • Supermarket "own label" brands
• Advertising


  Increased advertisement affects people and increases demand
• Companies usually spend a lot for advertising
• Population


  Increase in the population increases demand
• Demand affected by population structure

  • Age distribution
  • Gender
  • Geographical distribution
  • Ethnicity/culture/migration
• Tastes and fashion


  Changes in tastes of consumers and fashion will create different demand patterns
• Tastes and fashion


  • Fidget spinners
• Prices of substitutes


  If prices of a product's substitute increase, demand of that product will increase
• Prices of complements


  If prices of complementary goods increase, demand of the product will decrease
• Interest rates


  If interest rates increase, it becomes more expensive to borrow, so demand will decrease
• A change in any of the factors affecting demand will cause the demand curve to shift to the left or right
• Demand curve shift


  • An increase in income will shift the demand curve to the right
  • A decrease in income will shift the demand curve to the left
• Complementary goods


  Goods purchased together because they are consumed together
• Substitute goods


  Goods bought as an alternative to another but perform the same function