DEMAND

Definition:
qtty of a good/sevrice consumers are willing + able to buy @ certain price, @ certain time
PED:
Def: how much demand of a product changes -> PED over 1 = elastic -> a change in price affects
the demand a lot.
Formula: % change in qtty demanded / % change in price
Determinants
cloness of subsitutes -> less subs = less elastic
necessity of the product (food = inelastic)
proportion of income spent on the good (smaller price = more elastic)
the period i time in which it is calculated
YED:
Def: how much the demand for a product changes when there is a change in the consumer's
income
Formula: %change in qtty demanded of the product / % in income of the consumer
what does it tell us?
if YED is <0
inferior good, increase in income means a small fall in demand ( inelastic )
if YED is 0-1
necessity, inelastic
if YED > 1
luxury, elastic
Cognitive biases that effect demand
Availability
the tendency for people to base their judgments on information that is readily available to them.
(trends + recent info)
anchoring
A given value of something (an anchor) is used as a reference for future choices, place too
much value on it. When prices drop on that anchor item, you feel better
framing
How information is presented to us (positive manner -> think more positively about the product)
social conformity
The way others behave influences our own. (wanting to fit in)
status quo/inertia
When you have a large number of choice you decide to stay with what you're used to.
loss aversion
tendency to prefer avoiding loss to acquiring gains. ("Buy one now before stock runs out!")
hyperbolic discounting
the tendency for people to increasingly choose a smaller-sooner reward over a larger-later
reward as the delay occurs sooner rather than later in time
Non price determinants of demand
Income
For normal goods
when incomes go up, demand goes up as people can buy more. normal goods -> cinema
tickets
For inferior goods
if income goes up then demand fo the good will go down as people now have the money to
buy higher priced version of the product
Price of related goods
substitutes
two products are substitutes for each other and the price of one of them changes price then
there will be a change in demand for the other product. (it will go up)
complements
if products are often bought/sold together and the price of one of them goes down then the
demand for the other will go up.
unrelated goods
If products are unrelated than a change in the price of one won't affect the other
Tastes and Preferences
if a person/the population's taste changes or something is a trend, the demand will go up
 regardless of the price.
Future price expectations
If you expect the price to rise in the near future, you will increase your current demand and vice
versa
Law of demand
How to explain it?
Income effect
if price of a product goes down, people will have more in their "real income"to spend so they
can buy more of the product
Substitution effect
if price goes down, satisfaction stays the same, but now the ratio goes down so you think
you're getting a better deal
"as the price of a product falls then the demand will usually increase, ceteris paribus"