Demand People often think of demand as simply wanting something…a car, a home, new clothes or shoes. However, in a Free Market System, desire is not enough, so… Demand: is the desire, ability and willingness to buy a product. In a Free Market economy, individuals – sole proprietors and firms act in their own best interests to answer the WHAT, HOW and FOR WHOM questions. However, knowledge of demand is important for good planning if any person or firm is to succeed.

Factors affecting demand When you made your graphs showing demand for a particular product, you can see that the price of the product often affects the quantity demanded. However, sometimes something happens that causes the demand curve itself to shift…where people are willing and able to buy different amounts of the product at the same price. Factors Income: As incomes rise, generally people are often willing and able to buy more of a product at all price levels. When income decreases, so does the demand at every price. Tastes: Advertising, news reports and trends affect consumer tastes. New or superior products/technology affect taste.

Factors affecting demand Substitutes: Some products are known as substitutes because they can be used in place of a particular product: butter and margarine are classic examples of substitutes…others would be like Coca Cola and Pepsi, or Cheetos and Takis. Consumers will often buy one over another if the price changes up or down . Complements: Are related goods…they are the opposite of substitutes. An example would be Computers and software. Generally when people buy a computer, they usually purchase some software to go with it. Buying a cell phone might lead you to buy a case for the phone…another complement. Expectations: Changes in expectations can cause a change in demand. The rumor that a new technology will allow you to do something better than how you do it now, may cause you to stop buying a product and make you wait for the new product that will take its place.

Factors affecting demand Number of Consumers: The number of consumers can affect a change in demand. The more consumers there are, the more likely the demand curve will shift to the right…in other words that demand will increase. If consumers leave, then it follows that likely the curve will shift to the left, that there will be less demand.