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Demand

Demand. Demand refers to the buyer side of the market. In this section, let’s explore the basic topics about demand. Note: don’t worry about the supply side of the market here. Demand.

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Demand

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  1. Demand Demand refers to the buyer side of the market. In this section, let’s explore the basic topics about demand. Note: don’t worry about the supply side of the market here.

  2. Demand Demand, in general, refers to how much of a product consumers want during a particular time period. The amount consumers want is influenced by, among other things, 1) the price of the product, 2) the consumer desire or taste and preference for the product, 3) the level of prices of other goods, 4) the level of consumer income, 5) the number of consumers in the market.

  3. The law of demand The price of the product is a major influence of how much of a product consumers want. The relationship between the price and how much consumers want is elevated to a LAW in economics. The law of demand is our summary statement about how the price of a product influences how much we want. The law is a statement that the price and quantity demanded are inversely related. Inversely here means, and note the order of terms used, if the price (think of price moving first) of the product moves in one direction the quantity demanded moves in the opposite direction.

  4. Change in demand If any of the items from our list from 2 to 5 should change, then we say there is a change in demand. Economists treat items 2 through 5 differently than the price item. If the price should change we say there is a change in the quantity demanded. The logic behind this difference is the desire to use graphs as an aid to economic understanding. The graphs used most often are of only two dimensions. Q and P are the two primary variables of interest. Other variables (like consumer income), called factors or determinants, may be of interest and so a different term is used to indicate those situations. The determinants of demand are associated with the demand curve shifting.

  5. A change in quantity demanded P As the price changes from, say, P1 to P2 we call the change in Q from Q1 to Q2 a change in the quantity demanded. P1 P2 D Q Q1 Q2

  6. A change in demand P At a given price, if a determinant of demand should change (here increasing the demand)we call the change in Q from Q1 to Q2 a change in the demand. P1 D2 D1 Q Q1 Q2

  7. change in demand in a graph P As a consumer if you think about items 2 through 5 in our earlier list, when you see those items as being stable you then have a certain demand for the product. In a graph this means you demand curve is located at a certain place. Let’s say yours is at D1. D1 D2 P1 P2 Q Q1 Q2 If the price should fall from P1 to P2 the movement from Q1 to Q2 is called a change in the quantity demanded - we move along the curve. If an item from our list 2 to 5 should change(and we started at P1) the movement from Q1 to Q2 is called a change in demand - the curve shifts.

  8. Demand shifters What follows are the items 2 through 5 from our list and we see how each leads to a shifting of the demand curve. P An increase in demand has the curve shift right A decrease in demand has the curve shift left D Q

  9. Digression What happens to amount of corn grown the more rain we get (ignoring in our story too much rain)? You would say the more rain the more corn. When you talk about two variables changing and the change is in the same direction on both, then you can use a shorthand language and just say the two variables are directly related, or positively related. If the variables move in opposite directions, then the variables are said to be inversely related, or negatively related.

  10. Impact of a taste change • Many things may cause a change in taste and preference: advertising, news or information and technological change are just a few. • taste and demand are directly related.

  11. Impact of price of related goods • There are two types of goods in this regard-complements and substitutes. • What’s a complement? A good used with another good.The price of a complement and demand for the good in question are inversely related. • The price of a substitute and demand for the good in question are directly related.

  12. Are coffee and donuts substitutes for, or complements to, each other? I say complements and therefore if the price of donuts goes up (oh no, say it ain’t so) then the demand for coffee would fall. Are butter and margarine substitutes for, or complements to, each other? I say substitutes and therefore if the price of butter rises then the demand for margarine will rise.

  13. Impact of income • There are two types of goods in this regard-normal and inferior. • A normal good is one where income and demand are directly related and an inferior good is one where income and demand are inversely related. • Can you classify a cassette and a CD as a means to play music? Are they both normal?

  14. Impact of the number of consumers The number of consumers and the demand are directly related. The are more determinants of demand. The ones listed here are generic. If you pay attention to the detail here you can use the same logic in more specific situations. (But, when we get to a test you can not earn points by making up other ideas. We will use this list this term.)

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