Demand – the quantity of a good or service that people are willing and able to buy at a given price, at a given time.
Market demand – the sum of all individual demands for a particular good or service.
Effective demand – the intent of people who want to buy a product and have the means.
Demand comes from the individual consumers of goods and services, and assuming that they are rational, they maximise their satisfaction.
FACTORS THAT AFFECT DEMAND
- Substitutes are goods that can be consumed in place of another, if the price of the original good goes up then sales of the substitute will rise, shifting the demand curve to the right.
- Complements are products that will usually be consumed together, if a good increases in price, then its complement will have the demand curve move to the left and vice versa.
- Tastes/fashions and how they change. Preferences for a certain good over time will cause demand for that good to change can move the demand curve: to the right with an increase in demand and vice versa.
- Changes in real incomes also affect demand, usually as income increases quantity demanded for most products go up and vice versa, these are known as normal goods. Some goods work in the opposite way, they are inferior goods and are usually cheaper substitutes which are usually chosen when incomes fall.
- Changes in the demographic (size and age distribution of the population) as population increases or decreases, so does demand for most products and as the structure of the population changes so will increase demand for certain products, e.g. if there is an aging population then demand for care homes will increase.
- Advertising is meant to cause people to buy more and is intended to shift the demand curve to the right, which works similarly to branding which works by reinforcing and increasing knowledge of the brand.
These can be remembered by the following acronym:
Complements Advertising Tastes/fashions Substitutes Incomes Demographic