Economics Chapter on Demand

Demand Fundamentals

• Demand represents the quantity of goods or services consumers are both willing and able to purchase within a specific timeframe.
• Purchasing power is essential; merely having the desire for a product does not constitute demand if individuals cannot afford it.

Law of Demand

• Price and quantity demanded are inversely related: rising prices lead to decreased demand, while falling prices lead to increased demand.

Factors Affecting Demand

Price

• Price changes alone affect the quantity demanded; the entire demand curve remains fixed while movement occurs along the curve based on affordability.

Income

• For normal goods: Increased income leads to higher demand at all price points, shifting the demand curve to the right. Decreased income results in lower demand, shifting the curve to the left.
• For inferior goods: Demand increases when income decreases, as consumers opt for cheaper alternatives.

Population

• An increase in population boosts demand overall, shifting the demand curve to the right. A decrease results in diminishing demand, shifting the curve to the left.

Tastes and Preferences

• Changing consumer preferences can shift the demand curve: increased popularity of a product pushes the curve to the right, while decreased interest pushes it to the left.

Demographics

• Variations in demographics, such as aging populations or shifts in cultural backgrounds, can alter demand levels across different products, resulting in shifts of the curve left or right.

Price of Substitutes

• If the price of a substitute rises, the demand for the original good increases as consumers switch, shifting the demand curve right (e.g., Xbox price rises, increasing PS5 demand).
• Conversely, if the price of a substitute falls, the demand for the original good declines, shifting the curve left (e.g., lower McDonald's prices decreasing Hungry Jacks demand).

Price of Complements

• Rising prices of complementary goods decrease demand for the original good, shifting the curve left (e.g., higher PS5 game prices reduce PS5 console sales).
• If complementary goods see a price drop, demand for the associated good rises, shifting the curve right (e.g., cheaper PS5 games boosting PS5 console sales).

Expected Future Prices

• Anticipation of rising prices leads consumers to buy more now, shifting demand right. For example, fuel purchases may surge just before expected price hikes.
• If a price drop is predicted, consumers might delay purchases, shifting demand left.

Explore the fundamental concepts of demand in this quiz. Understand how the quantity of goods and services consumers are willing to buy fluctuates based on their purchasing power and price changes. Test your knowledge on factors that affect demand and the law of demand.