Demand

schedule or curve that shows the various amounts of a product that consumers are willing and able to purchase at each of a series of possible prices during a specified period of time (replace ‘product’ with ‘resource’ and ‘consumer’ with ‘business’ for the resource market definition)

shows the quantities of a product that will be purchased at various possible prices, other things equal

unless a specific time period is stated we do not know whether the demand for a product is large or smalll

Law of Demand

all else equal, as price falls, the quantity demanded rises, and as price rises, the quantity demanded falls

4 explanations:

law of demand is consistent with common sense

diminishing marginal utility - successive units of a particular product yield less and less marginal utility

income effect - a lower price increases the purchasing power of a buyer’s money income, enabling the buyer to purchase more of the product than before; a higher price has the opposite effect

substitution effect - lower price buyers have the incentive to substitute what is now a less expensive product for similar products that are now relatively more expensive

The Demand Curve

measure quantity demanded on the horizontal axis and price on the vertical axis

demand curve - inverse(negative) relationship between price and quantity demanded

Change in Demand

a shift in the demand curve is called a change in demand with an increase in demand 	shown as a shift of the demand curve to the right and a decrease in demand shown as a leftward shift of the demand curve

Tastes

favorable change in consumer tastes (preferences) for a product - a change that makes the product more desirable - means that more of it will be demanded at each price; demand will increase causing the demand curve to shift rightward

unfavorable change in consumer preferences will decrease demand; shifting the demand curve to the left

Number of Buyers

increase in the number of buyers in a market is likely to increase product demand

decrease in the number of buyers will probably decrease demand

Income

normal goods (superior goods) - products whose demand varies directly with money 	income

inferior goods - goods whose demand varies inversely with money income

Prices of Related Goods

substitute good - one that can be used in place of another good

complementary good - one that is used together with another good

Substitutes

when two products are substitutes, an increase in the price of one will increase the demand for the other; a decrease in the price of one will decrease the demand for the other

Complements

if the price of a complement goes up, the demand for the related good will decline

if the price of a complement goes down, the demand for a related good will increase

Unrelated Goods

vast majority of goods are not related to one another and are called independent goods

Consumer Expectations

newly formed expectation of higher future prices may cause consumers to buy now in order to ‘beat’ the anticipated price rises, thus increasing current demand

changes in expectations concerning future income may prompt consumers to change their current spending

Interactive Demand Model

Choose the Determinant

Choose the type of change in the Determinant

For example, choose the “Number of Buyers” Determinant and then choose to “Increase” it, you should see that an increase in the Number of Buyers will increase Demand; thus shifting it to the right.

Manipulate[
Plot[
{Tooltip[-0.05x+5,"Original Demand",LabelStyle->Directive[Bold]],
Tooltip[-0.05x+(5+k d),"New Demand",LabelStyle->Directive[Bold]]},
{x,0,140},
PlotRange->{{0,120},{0,8}},
PlotStyle->{{Thick,Blue},{Thick,Dashed,Red}},
Frame->True,
FrameLabel->{"Quantity demanded ( \!\(\*SuperscriptBox[\(Q\), \(\(D\)\(\\ \)\)]\))","Price ( P )"},
FrameTicks->{{{1,2,3,4,5,6,7,8,9},None},{{20,40,60,80,100,120},None}},
GridLines->Automatic],
{{d,1, "Determinant"},{1->"Tastes",1.00000000001->"Number of Buyers",1.00000000000001->"Income - Normal Good",-1.00000000000001->"Income - Inferior Good",1.000000000000001->"Price of Substitute",-1->"Price of Complement",-1.000000000000001->"Expected Future Price",0->"Unrelated Good"}},
{{k,0,"Change in Determinant"},{2->"Increase",-2->"Decrease",0->"Reset"}},
FrameLabel->{None,None,"How Determinants Shift Demand"}]