Demand (Economics)

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Demand (Economics)

  1. 1.  The relationship between price and quantity demanded  Quantity of goods and services that people are willing to buy at alternative prices at a given period of time  2 essential elements: 1) desire to buy 2) ability to buy
  2. 2.  An increase in the price of a good lowers the quantity demanded of the good; a decrease in the price of a good raises the quantity demanded of the good  Inverse relation between the price of a good and the quantity demanded
  3. 3.  The consumer’s desire to buy something is backed up by a willingness and an ability to pay for a good or service
  4. 4.  Exists when there is a willingness to purchase a good or service, but the consumer lacks the real purchasing power to be able to afford the product  It is affected by persuasive advertising where the producer is seeking to influence consumer tastes and preferences
  5. 5.   Consumers choose between different goods and services so as to maximize total satisfaction Considers: 1) satisfaction they get from buying and consuming an extra unit of a good or service 2) market price that they have to pay to make this purchase
  6. 6.  It is caused by changes in the willingness and ability of consumers to buy a particular product at a given price
  7. 7.      changing price of a substitute changing price of a complement change in the income of consumers change in tastes and preferences changes in interest rates
  8. 8.  Normal Goods - more is demanded as income rises, and less as income falls  Inferior Goods - cheaper and poor quality substitutes for some other good
  9. 9.  Highly inferior goods that people on low incomes spend a high proportion of their income on  When price falls, they are able to discard the consumption of these goods (having already satisfied their demand) and move onto better goods  Demand may fall when the price falls  Tend to be the very basic (ex: rice, potatoes, etc.)
  10. 10.  Some goods are the luxurious items where satisfaction comes from knowing the price of the good  A higher price may be a reflection of quality and people on high incomes are prepared to pay this for the “snob value effect”  ex: perfume, designer clothing, cars, etc.

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