  Until 2 minute mark. CHAPTER 2: DEMAND & SUPPLY 2.1 – The Role of Demand

 Demand  The relationship between the various possible prices of a product and the quantities of that product consumers are willing to purchase  Law of Demand  There is an inverse relationship between a product’s quantity demanded and its price The Role of Demand

 The demand schedule shows that as the price of a quantity falls, you are willing to purchase more of it  The demand curve D depicts this inverse relationship between price and quantity demanded An Individual’s Demand Schedule and Curve

 Demand Schedule  A table that shows possible combinations of prices and quantities demanded of a product  Demand Curve  A graph that expresses possible combinations of prices and quantities demanded of a product The Demand Curve

 Although rare, the relationship between a product’s price and demand can be direct and not inverse. TRUE or FALSE? True! When a product’s high price is seen as a status symbol, the demand curve will have a positive (upward) slope. E.g. the quantity demanded of a designer shirt may rise when its price rises Is it possible for the law of demand to be broken? “Veblen Effect” – Conspicuous Consumption

 Market Demand  The sum of all consumers’ quantity demanded for a product at each price  Changes in Demand  In order to study the relationship between price and quantity, all other factors affecting these variables must be assumed constant  These “other factors” are demand factors – can cause an increase or decrease in demand. The 5 main demand factors are:  Number of buyers in a market  Their average income  The prices of other products  Consumer preferences  Consumer expectations Market Demand and Changes

 When the number of buyers in a market increases, the quantity demanded increases at every possible price  Each point on the demand curve therefore, shifts to the right, from D to D2.  When there’s a decrease in the number of buyers, the amount demanded decreases at every possible price, shifting the curve from D to D1 Changes in Demand

 Number of Buyers  More buyers = increase in demand  Less buyers = decrease in demand  Income  Products whose demand changes directly with income are known as normal products  Products whose demand decreases with increased income are inferior products (e.g. second hand suits) 5 Demand Factors

 Prices of Other Products  Substitute Products are products that can be consumed in place of one another  e.g. butter and margarine – if the price of butter increases, the demand for butter drops and demand for margarine increases  Complementary Products are consumed together  e.g. cars and gasoline – if the price of cars increases, the demand for gasoline falls 5 Demand Factors Cont’d

 Consumer Preferences  Heavily influenced by current fashion or advertising  e.g. a significant shift in consumer concern over nutrition causes an increase in demand for nutritious foods  Consumer Expectations  Expectations consumers have about future changes in prices and their own incomes affect their current purchases  e.g. if you see that the price of silver keeps increasing, you are more willing to buy more silver now 5 Demand Factors Cont’d

Change in quantity demanded: Move up and down same curve Change in Quantity Demanded and Change in Demand Change in demand: Shift in entire demand curve