Demand and the demand curve
- Demand is the quantity of a good consumers are willing and able to buy at each price, over a period of time.
- The law of demand: as price falls, quantity demanded rises (and vice versa), so the demand curve slopes downwards from left to right.
- A change in the good's own price causes a movement along the demand curve: an extension (more demanded) or a contraction (less demanded).
Shifts in demand
- A change in anything else shifts the whole demand curve: right for an increase in demand, left for a decrease.
- Factors: income (for normal goods, more income means more demand), tastes and fashion, advertising, the price of substitutes (such as a rise in the price of tea increasing demand for coffee), the price of complements (such as a rise in the price of printers reducing demand for ink), and population.
Types of goods
- Substitutes are goods that can be used instead of each other, such as butter and margarine.
- Complements are goods used together, such as cars and petrol.
- Normal goods see demand rise as income rises; inferior goods see demand fall as income rises (such as value-brand products).
Key terms
- Demand
- The quantity consumers are willing and able to buy at each price.
- Demand curve
- A graph showing quantity demanded at each price.
- Extension of demand
- More being demanded because the price falls.
- Contraction of demand
- Less being demanded because the price rises.
- Substitutes
- Goods that can be used instead of each other.
- Complements
- Goods used together.
- Normal good
- A good whose demand rises as income rises.