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Extra Notes Demand
Extra Notes Demand
The demand for a good refers to the entire relationship between the price of the good and the
quantity demanded of the good when all other influences on buying plans remain the same.
A demand schedule is a list of the quantities demanded at each different price when all other
influences on buying plans remains the same.
The table below gives the demand
schedule for a good.
Price Quantity
(dollars) demanded
1 50
2 40
3 30
4 20
5 10
A demand curve is a graph of the
relationship between the quantity
demanded of a good and its price when all
other influences on consumers’ planned
purchases remain the same. The figure
illustrates the demand curve resulting from
the demand schedule in the table.
Individual Demand and Market Demand
The market demand is the sum of the demands of all the buyers in the market. At each price,
add the quantity each buyer demands and the sum is the market quantity demanded.
Law of Demand
The price of a good or service affects the quantity people plan to buy. The quantity demanded of
a good or service is the amount that consumers are willing and able to buy during a given time
period at a specified price.
The law of demand states that other things remaining the same, if the price of a good rises, the
quantity demanded of that good decreases; and if the price of a good falls, the quantity
demanded of that good increases.
Changes in Demand
When any factor that influences buying plans other than the price of the good changes, there is a
change in demand and the demand curve shifts. An increase in demand shifts the demand curve
rightward and a decrease in demand shifts the demand curve leftward. Five factors change
demand:
Prices of Related Goods: A substitute is a good that can be consumed in place of another
good (grape jelly and strawberry jelly) and a complement is a good that is consumed with
another good (peanut butter and jelly). A rise in the price of a substitute or a fall in the price of
a complement increases the demand for the good.
Expected Future Prices: A rise in the expected future price of a good increases the current
demand for that good as consumers stockpile now in anticipation of buying less in the future
at higher expected prices. A fall in the expected future price decreases current demand as
consumers delay their purchases in anticipation of taking advantage of lower expected future
prices.
Income: A normal good is a good for which demand increases when income increases and
demand decreases when income decreases. An inferior good is a good for which demand
decreases when income increases and demand increases when income decreases (such as
generic goods, instant ramen noodles, canned meat)
Expected Future Income and Credit: When income is expected to increase in the future or
when credit is easy or inexpensive to get, the demand for some goods increases. This effect is
especially evident with big ticket items.
Number of buyers: The larger the number of buyers, the larger is the demand.
Preferences: Preferences are an individual’s attitudes toward goods and services. If people
“like” a good more, the demand for it increases.