Demand is defined as the amount of goods and/or services consumers are willing and able to buy in a given period of time at a given price, ceteris paribus (other things remaining constant), also known as effective demand.
Demand can be illustrated by the following…
| Price per unit ($) | Quantity demanded (units) |
|---|---|
| 10 | 80 |
| 20 | 70 |
| 30 | 60 |
| 40 | 50 |
| 50 | 40 |
![[Pasted image 20230206125242.png]] The Law of Demand states that in a given time period, the quantity demanded of a product is inversely related to its price, ceteris paribus.
Individual demand refers to the demand for a good or service by an individual consumer. Market demand refers to the sum of the individual demand for a good or service by all the consumers in the market.
Change in the price of a good can increase or decrease the quantity demanded of said good, and cause a movement along the curve.
Change in non-price demand factors can increase or decrease the demand of said good, causing a shift in the entire curve.
Non-price demand factors include…
A substitute is an alternative product that can replace another because it can satisfy the same want. This is also known as competitive demand.
Some examples of these include Coke and Pepsi, 7-Up and Sprite, and taxis and Ubers.
For substitutes, if the price of one good changes, the demand for the substitute good will change in the same direction.
For example, if the price of Coke increases, the demand for Pepsi will increase.
A complementary product is one that must be used at the same time with another to satisfy the same human wants. This is also known as joint demand.
Some examples of these include bread and butter, coffee and sugar, DVDs and a DVD player.
For complements, if the price of one good changes, the demand for the complementary good will change in the opposite direction.
When a good is in derived demand, it is demanded for its contribution to the manufacture of another product.
Examples include steel and cars, bricks and buildings, and paper and books.
For two goods in derived demand, a change in demand for the final good causes a similar change in the demand for the resource used to produce it.
A good is a normal good when demand for it increases in response to an increase in consumer income (demand for the good varies directly with income). Most goods are normal goods. Therefore, an increase in income leads to a rightward shift in the demand curve, and a decrease in income leads to a leftward shift.
For normal goods, when income (purchasing power) changes, demand will change in the same direction.
There are two main types of normal goods, luxury goods and necessities. Luxury goods have a larger change in demand when income changes.
While most goods are normal, there are some goods where the demand falls as consumer income increases; the good is then an inferior good (the demand for the good varies inversely with income) Examples of inferior goods are second-hand clothes and used cars.
As income increases, consumers switch to more expensive alternatives (new clothes, new cars and cars or airplanes rather than travelling by bus), and so the demand for the inferior goods falls. Thus, an increase in income leads to a leftward shift in the demand curve and a decrease in income produces a rightward shift.
They have an upward sloping demand curve. These goods have ’snob appeal’, and are known as ostentatious goods. They are not wanted for the good themselves but to display one’s wealth. Examples include jewellery, luxury cars, and paintings.