Demand
- Created by: ekenny5
- Created on: 05-10-20 15:25
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- Demand
- the law of demand
- as price increases, demand decreases
- this is a shift along the demand curve
- increase in demand(decrease in price) is an EXPANSION
- decrease in demand (increase in price) is a CONTRACTION
- this is a shift along the demand curve
- as price increases, demand decreases
- effects
- income effect
- a fall in price increases the real purchasing power of consumers. they can buy more with the same budget
- for normal goods, demand rises with a rise in (real) income
- for inferior goods, the demand decreases with an rise in (real) income
- a fall in price increases the real purchasing power of consumers. they can buy more with the same budget
- substitution effect
- if X and Y are similar goods, a decrease in the price of X could lead to a fall in demand for Y. consumers will buy X over Y as they are substitutable
- income effect
- shifts in the demand curve
- Population (increase in pop. increases demand and vice versa)
- Advertising and marketing
- Substitute goods (see substitute effect)
- Income of consumers (see income effect)
- Interest rates/income tax.(disposable income effects)
- Fashion and social changes
- Compliment goods(eg cereal and milk)
- Utlity
- the measure of satisfaction we get from purchasing and consuming a good or service
- total utility
- total satisfaction from a given level of consumption
- marginal utility
- the change in satisfaction from consuming an extra unit
- the idea of diminishing return i.e. marginal utility declines and more is consumed
- seasonal demand
- seasonality fluctuates in output and sales related to seasons of the year
- eg easter eggs at easter
- jewelry stores may sell 80-90% of their products over the xmas period
- slippers at xmas
- seasonality fluctuates in output and sales related to seasons of the year
- factors influencing demand
- social factors
- social awareness - eg knowing health risks from smoking
- changing in social norms and behaviours eg recycled bags
- social pressures/peer pressure. what others are doing
- emotional factors
- can affect demand for healthcare and insurance
- bingedrinking and eating during personal insecurity
- antiques with emotional attatchment
- social factors
- derived demand
- demand for a factor of production used to produce another good or service
- examples are steel and wood. eg increased construction would increase demand for wood, as it is used in construction
- composite demand
- have more than one use
- a demand rise for one of the goods using the product could lead to a fall in production for the other products
- eg milk. if the demand for cheese rises, more cheese is produced so the milk cannot be used for the production of other goods such as yoghurt
- also oil used in transport, plastic production ect
- eg milk. if the demand for cheese rises, more cheese is produced so the milk cannot be used for the production of other goods such as yoghurt
- a demand rise for one of the goods using the product could lead to a fall in production for the other products
- have more than one use
- types of goods
- normal goods
- when disposable income increases, demand for these goods increases
- eg cars, holidays, kitchens (white goods)
- for normal goods, demand rises with a rise in (real) income
- eg cars, holidays, kitchens (white goods)
- when disposable income increases, demand for these goods increases
- inferior goods
- when income increases demand decreases
- these are goods such as own brand rice or beans.
- when income increases, consumers may choose to spend their money on slightly more expensive, branded products
- these are goods such as own brand rice or beans.
- when income increases demand decreases
- normal goods
- the law of demand
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