Demand 1.2.1

Demand  curve (for a good or a service) - the quantity that customers are willing and able to buy at a given price in a given period of time.

Demand - the willingness and/or ability of consumers to purchase goods at a given price

☆BASIC LAW OF DEMAND☆
Demand varies inversely with price - lower prices make products more affordable for consumers.

Causes of Changes in Demand

• PRICE - For more (normal goods), a fall in price should result in an increase in demand. The extent of the change depends on the price elasticity of demand.

• INCOMES  - As incomes rise, demand should normally rise. However, for inferior goods, demand will fall as consumers choose better alternatives that are now affordable. The extent of the change depends on the income elasticity of demand.

• FASHIONS, TASTES & PREFERENCES - Demand for products that are fashionable or trendy will experience sharp fluctuations

• ADVERTISING & BRAND - A key purpose of advertising and branding is to stimulate demand.

• EXTERNAL SHOCKS - A sudden and often significant change in the external environment. E.g. a loss of consumer confidence in a product or brand.

• SEASONAL FACTORS - For most products there will be seasonal peaks and troughs in production and / or sales. E.g. Demand for plants at garden centres is linked to the planting season.

Examples of External SHOCKS

☆ A loss of consumer confidence in a product or a brand
☆ New entrant to the market (competition)
☆ Economy slump / recession
☆ Natural disasters

A high price might put some customers off you don't perceive it as a good value for money compared with cheaper alternatives. Conversely a product price to cheaply made her customers to associate low prices with poor quality.

Demand foremost products and services is closely related to the disposable incomes of customers.
When the economy is growing consumers have higher disposable incomes. However in an economic downturn lowering comes translate into less demand or consumers will try switching their spending onto other products to save.

Changing price can have both income and substitution effects

Income effect - the change of demand of a good or service brought on by change in consumers income.

Substitution effect - as prices rise are income decreases consumer to replace more expensive items with less costly alternatives.

Compliments - a goods demand is increased when the price of another good is decreased conversely the demand for a good is decreased when the price of another good increased. Compliments are for example cereal and milk, you need milk with your cereal to eat it.

Income effect
☆ a fall in price increases the purchasing power of customers.
☆ this allows customers to buy more with a given budget
☆ for normal goods demand rises with an increase in incomes.

Substitution effect
☆ a fall in the price of good X makes it relatively cheaper compared to substitutes.
☆ some customers would switch to good X leading to higher demand
☆much depends on whether products are close substitutes or not

Examples of how demand is impacted :

(DEMAND DECREASE) Milk causes baldness article is released and this will lead to a decrease in the demand of milk 14 price to decrease or less companies will be bought. This causes a shift left on the demand curve.

(DEMAND INCREASE) milk improves hair article is released and this will lead to an increase in demand of milk forcing the price to increase on the increased quantities bought.

Price for substitute increases (almond milk) this will mean that the cheaper version (regular milk) will increase it's demand due to substitute price increasing leading to almond milk having a decrease in demand. Reverse is true as well.

Compliments, if the price of Cheerios full the demand will increase for Cheerios. But they need milk for so the demand will increase regardless of their price.

Normal Good > income and the demand for the product are directly related. E.g Increase in income means demand for milk will increase

Inferior Good > income and the demand of the product are inversely related. E.g Increase in income, demand may fall as they have the ability to buy a better substitute like almond milk. Or decrease in income will cause a decrease in demand as people may not buy milk at all.

☆Price change only affects clients demand (quantity demanded) only moves along the curve. ☆
☆Shifters of demand such as taste preferences affects demand overall and moves the entire curve. ☆