The Demand For Goods and Service

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  • Created on: 18-09-14 20:11

Demand For Goods And Services

When Economists refer to demand they always refer to effective demand which is desire backed up by the ability to pay. Most People can exercise an effective demand for the goods that fulfil our basic wants, but most of us cannot purchase all the goods we want.


Individual and Market Demand                                                                                                    When economists refer to demand they mean market demand, This is the quantity of a good or service that all the consumers in the market wish to, and are able to, buy at different prices. However individual demand refers to the quantity that the individual (eg. You or I) wishes to buy. Market demand is the sum of all the consumers in the market.


The ‘Law’ of Demand                                                                                                                          This states that as a good’s price falls more of that good is demanded, therefore there is an inverse relationship between price and quantity demanded. But remember that in economics a law is not as strong as it is in a natural science subject. In a social science law there may always be exceptions.


Market demand Curve                                                                                                                     

Demand for goods varies on the time period being looked at e.g. weekly demand is different from daily, monthly and annual demand. Always remember that quantity is short for ‘Quantity demanded per period of time’.


Shifts Of Demand                                                                                                                                                          When drawing a market demand curve to show how much of the good or service a household plan to demand at various possible prices, we assume that all the other variables that may also have an effect on demand are constant. This is called the Ceteris Paribus assumption. Ceteris Paribus means all other things being equal. Variables whose values remain constant or unchanged when drawing a demand curve are disposable income, tastes or fashion. The variables (apart from the price) whose values determine planned demands are often called the conditions of demand.


The Conditions of Demand                                                                                                                   The main conditions of demand are:

-Prices of substitute goods

-Prices of complimentary goods

-Personal income or personal disposable income

-Tastes and preferences

-Population size


If any of the conditions of demand change, the position of the demand curve changes, this results in either a rightwards or leftwards shift. A


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