Definition
- Different quantities of a product consumers are willing and able to buy at each possible price during a given period of time, ceteris paribus
- Desire backed by purchasing power
Demand Curve
- Always negative due to Law of Demand
- Law of Demand states that an inverse relationship exist between price of a good and the quantity demanded of the good, ceteris paribus
Movement and Shifts in Demand Curve Movement in Demand Curve - Change in quantity demanded arising solely from change in price of good, ceteris paribus
Shifts in Demand Curve
- Changes in demand caused by several non-price determinants
- Factors:
a) P ( Change in Price of Related Good)
(i) Substitute
- Alternatives that satisfy same consumer wants
- When price of A decrease, demand of A increase, thus demand of B decrease
(ii) Complements
- Good jointly demanded to provide satisfaction
- When price of A decrease, demand of A increase, thus demand of B increase too
b) T ( Change in Taste and Preferences)
(i) Fashion or Fad
- Demand usually high for fashionable goods
(ii) Advertising
- Effective advertising creates demand/wants
(iii) Government Policies
- Taxes and Incentives
(iv) Seasons, Festivals and Weathers
c) I ( Change in consumer income)
- Affordability or ability of consumers to buy good
(i) Normal Good
- Demand for the good is positively related to change in income
(ii) Inferior Good
- Demand for the good is negatively related to change in income
- However, concept of normal and inferior good differs for people
d) D ( Change in Demographics)
(i) Size
- Larger the population size, larger the potential demand
- But potential demand also influenced by purchasing power of population
(ii) Age/Sex
- Taste and preferences of consumers influenced by composition of population
e) E ( Change in consumers' expectations)
(i) Change in expected income
- Rise in pay = more willing to spend
- Drop in pay = less willing to spend
(ii) Change in expected price
- Price rise in future, demand increase now
- Price drop in future, demand decrease now
(iii) Change in speculative demand
- Purchase of goods meant for profit at a later time
- Different quantities of a product consumers are willing and able to buy at each possible price during a given period of time, ceteris paribus
- Desire backed by purchasing power
Demand Curve
- Always negative due to Law of Demand
- Law of Demand states that an inverse relationship exist between price of a good and the quantity demanded of the good, ceteris paribus
Movement and Shifts in Demand Curve
Movement in Demand Curve
- Change in quantity demanded arising solely from change in price of good, ceteris paribus
Shifts in Demand Curve
- Changes in demand caused by several non-price determinants
- Factors:
a) P ( Change in Price of Related Good)
(i) Substitute
- Alternatives that satisfy same consumer wants
- When price of A decrease, demand of A increase, thus demand of B decrease
(ii) Complements
- Good jointly demanded to provide satisfaction
- When price of A decrease, demand of A increase, thus demand of B increase too
b) T ( Change in Taste and Preferences)
(i) Fashion or Fad
- Demand usually high for fashionable goods
(ii) Advertising
- Effective advertising creates demand/wants
(iii) Government Policies
- Taxes and Incentives
(iv) Seasons, Festivals and Weathers
c) I ( Change in consumer income)
- Affordability or ability of consumers to buy good
(i) Normal Good
- Demand for the good is positively related to change in income
(ii) Inferior Good
- Demand for the good is negatively related to change in income
- However, concept of normal and inferior good differs for people
d) D ( Change in Demographics)
(i) Size
- Larger the population size, larger the potential demand
- But potential demand also influenced by purchasing power of population
(ii) Age/Sex
- Taste and preferences of consumers influenced by composition of population
e) E ( Change in consumers' expectations)
(i) Change in expected income
- Rise in pay = more willing to spend
- Drop in pay = less willing to spend
(ii) Change in expected price
- Price rise in future, demand increase now
- Price drop in future, demand decrease now
(iii) Change in speculative demand
- Purchase of goods meant for profit at a later time