1. Definition of Demand
Demand refers to the willingness and ability of consumers to purchase a good or service at a given price over a specific period.
2. The Law of Demand
Law of Demand: When the price of a good increases, the quantity demanded decreases, and when the price decreases, quantity demanded increases (ceteris paribus—other factors remain constant).
Demand Curve: Downward-sloping from left to right, showing the inverse relationship between price and quantity demanded.
3. Factors Affecting Demand (Determinants of Demand)
Price Factor (Causes Movement Along the Demand Curve)
Increase in Price → Contraction of Demand (move up the curve, lower quantity demanded).
Decrease in Price → Expansion of Demand (move down the curve, higher quantity demanded).
Non-Price Factors (Cause Shifts in the Demand Curve)
Income Levels:
Higher income → More demand for normal goods, less demand for inferior goods.
Lower income → Less demand for normal goods, more demand for inferior goods.
Prices of Related Goods:
Substitutes: A rise in the price of one good increases demand for its substitute (e.g., if Pepsi price rises, demand for Coca-Cola increases).
Complements: A rise in the price of one good decreases demand for its complement (e.g., if fuel prices rise, demand for cars may fall).
Tastes and Preferences: Trends, advertising, or health factors influence demand.
Population Size & Structure: More people = higher demand; changes in age groups affect demand (e.g., aging population = higher demand for healthcare).
Expectations of Future Prices: If consumers expect prices to rise, they buy more now (increasing current demand).
Seasonal Factors: Some products have higher demand during specific seasons (e.g., demand for ice cream rises in summer).
4. Individual Demand vs. Market Demand
Individual Demand: Demand of one consumer.
Market Demand: Total demand from all consumers in a market.
5. Shifts vs. Movements in the Demand Curve
| **Cause** | **Effect on Demand Curve** |
|----------------------------------------------|--------------------------------------|
| Change in price of the good itself | Movement along the demand curve |
| Change in income | Shift in demand curve |
| Change in price of related goods (substitutes/complements) | Shift in demand curve |
| Change in population size | Shift in demand curve |
| Change in preferences or trends | Shift in demand curve |
| Future price expectations | Shift in demand curve |