Factors Affecting Demand

Factors Affecting Demand

· The individual Demand Curve illustrates the price people are willing to pay for a particular quantity of a good.

· The market demand curve will be the sum of all individual demand curves.
It shows the quantity of a good consumers plan to buy at different prices

· A change in price causes a MOVEMENT ALONG the Demand Curve,

· E.g. if there is an increase in price from p2 to p1 then there will be a fall in demand from Q2 to Q1

d
Shifts in the Demand Curve

This occurs when, even at the same price, consumers are willing to buy a higher quantity of goods. This will occur if there is a shift in the conditions of demand.
Diagram: Shift in Demand


demand

A shift to the right in the demand curve can occur for a number of reasons:

1. An increase in disposable income, this can occur for a variety of reasons such as higher wages and lower taxes

2. An increase in the quality of the good e.g. computers are now more powerful

3. Advertising can increase brand loyalty to the goods and increase demand

4. An increase in the price of substitutes, e.g. if the price of Kodak films increase the demand for Fuji films will increase

5. A fall in the price of complements. E.g. a lower price of Play Station 2 will increase the demand for compatible games.

6. Weather: In cold weather there will be increased demand for fuel and warm weather.

7. Expectations of future price increases.



Evaluation:

· For some luxury goods income will be an important determinant of demand. e.g. if your income increased you would buy more CDs but probably not salt.

· Advertising is important for goods in which branding is important, e.g. coca cola but not for bananas

Extra on Demand


· Effective demand: This occurs when a consumers desire to buy a good can be backed up by his ability to afford it.

· Derived demand: This occurs when a good or factor of production such as labour is demanded for another reason

· A giffen good is a good where an increase in price of a basic item leads to an increase in demand, because very poor people cannot afford any other luxury goods.

· An ostentatious good, is a good where an increase in price leads to an increase in demand because people believe it is now better