Demand

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  • Demand
    • the quantity of a good or service consumers are willing to buy at a particular price & point in time
    • reflects an inverse relationship between price & quantity demanded
    • Demand Curve
      • graph reflecting the price consumers are willing to pay & quantity consumers are willing to buy
      • graph with 2 axis
        • vertical line: price
        • horizontal line: quantity number
    • Factors Affecting Price
      • equilibrium price & quantity will be changed by any condition which shifts the demand curve
    • Changes Affecting Quantity Demanded
      • movement along the demand curve
        • result of price changes are known as expansion/extensions or contraction in demand
        • if a factor other than price changes demand curve shifts left or right
        • shift to left = decrease in demand
        • shift to right = increase in demand
      • when only price changes, the quantity demanded changes but no change in intensity of demand so demand curve doesn't shift
      • if price of a good increase there will be a contraction in demand due to more consumers  being excluded from the market
      • if price of a good decreases there will be an expansion in demand due to more consumers  being included in the market
    • Non-Price Factors Affecting Demand
      • real incomes (purchasing power) of consumers is an important condition
        • as real income rises people can afford to buy more goods at market price
      • demand curve shifts right (increase in demand)
      • higher real incomes lead to increase in demand for 'normal goods'
      • ability of credit affects demand for consumer durables (eg. motor vehicles & electrical appliances
      • reduction in interest  rates stimulates Aggregate Demand while a credit squeeze (increase in interest rates) shifts the demand curve left
      • advertising
        • producers advertising products hope to induce buyers to purchase more at the same price
        • shifts demand curve to the right & makes it more inelastic
    • Changes in Price of Other Goods
      • changes in price of one good will affect the demand for other products
      • substitutes: various brands of the same product  are close substitues, so an increase (or decrease) in the price of one will result in more (or less) of the other being demanded
      • complimentary goods: a reduction in price of one good leads to an increase in demand for another  good used in conjunction with the original good
      • technology change affects position of the demand curve
      • tastes & fashion
      • weather & seasonal conditions
      • age & sex distribution of the population

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