Demand
- Created by: Amy Kirkness
- Created on: 10-11-12 06:54
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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
- movement along the demand curve
- 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
- real incomes (purchasing power) of consumers is an important condition
- 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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