The Demand For Goods and Services

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  • Created on: 11-03-13 18:15
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The demand for goods and services
Demand - The quantity of a good or service that consumers are willing to and able to buy at given
prices in a given period of time. For economists, demand is always effective demand.
Market demand - The quantity of a good or service that every consumer in a market is willing and
able to buy.
Individual demand is the quantity that a particular, such as your or I, would like to buy. The relationship
between market and individual demand is simple. Market demand is just the sum or addition of the
demand of all consumers in the market.
The `Law' of demand
The `Law' of demand states, that as a good's price falls, more is demanded. There is therefore an
inverse relationship between price and quantity demanded.
The market demand curve
The demand curve illustrates the `Law' of demand. If the price starts off high, for example at P1,
household demand is Q1. But if the price falls to P2, demand increases to Q2.
Shifts of demand
When a market demand curve is drawn, we assume that all other variables that may also influence
demand are held unchanged or constant. This is the Ceteris Paribus assumption. Ceteris Paribus
means `other things being equal'.
The variables whose values determine planned demand are often called the conditions of demand.
Conditions of demand ­ A determinant of demand, other than the good's own price, that fixes the
position of the demand curve.
The conditions of demand
The main conditions of demand are:
The price of substitute goods
The price of complementary goods
Personal income
Tastes and preferences
Population size
An Increase in demand leads to a rightward shift of the demand curve.
A decrease in demand leads to a leftward shift of the demand curve.

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The diagram shows an increase in demand because following a rightward shift in demand, more of
the good is demanded at all prices. For example, at a price of P1, the quantity demanded increases
from Q1 to Q2. Conversely, a leftward shift of demand (known as a decrease in demand) causes the
quantity demanded to fall at all prices.…read more

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A few goods may have an upward-sloping demand curves. These are Veblen goods, goods for which
price is an indicator of quality, goods in speculative demand and, possibly, Giffen goods. A Giffen
good is a highly inferior good that forms a large part of the total spending of extremely poor people.…read more


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