Economics Lecture: Demand

Introduction

• Lecturer: Mr. Clifford of AC/DC Econ
• Topic: Demand and its characteristics

Law of Demand

• Definition: Inverse relationship between price and quantity demanded.
  • Price decreases → Quantity demanded increases
  • Price increases → Quantity demanded decreases
• Demand Schedule: Shows price and corresponding quantity demanded
• Demand Curve: Downward sloping curve indicating the law of demand

Reasons for Downward Sloping Demand Curve

1. Substitution Effect
   • Price of a good decreases → Consumers switch from substitutes to the cheaper good (e.g., milk instead of juice)
   • Price of a good increases → Consumers switch to substitutes
2. Income Effect
   • Price decreases → Increased purchasing power → Consumers buy more
   • Price increases → Decreased purchasing power → Consumers buy less
3. Law of Diminishing Marginal Utility
   • As consumption increases, the additional satisfaction (utility) gained from each additional unit decreases
   • Explains the necessity for price decreases to encourage more consumption

Changes in Demand

• Movement Along the Curve: Caused by price changes
• Shift of the Curve: Caused by factors other than price
  • Decrease: Curve shifts left
  • Increase: Curve shifts right

Determinants of Demand (Shifters)

1. Tastes and Preferences
   • Positive studies increase demand (shift right)
   • Negative studies decrease demand (shift left)
2. Number of Consumers
   • More consumers increase demand
   • Fewer consumers decrease demand
3. Price of Related Goods
   • Substitutes
     • Price increase in substitute → Demand increase for the good
     • Price decrease in substitute → Demand decrease for the good
   • Complements
     • Price decrease in complement → Demand increase for the good
4. Income
   • Normal Goods
     • Income increase → Demand increase
     • Income decrease → Demand decrease
   • Inferior Goods
     • Income increase → Demand decrease
     • Income decrease → Demand increase
5. Expectations of Future Prices
   • Expect price decrease → Demand decrease
   • Expect price increase → Demand increase

Key Concepts

• Change in Quantity Demanded
  • Movement along the demand curve due to price changes
• Change in Demand
  • Entire demand curve shifts due to the five shifters

Conclusion

• Question: What happens to demand when price goes down?
  • Answer: Demand stays the same; only quantity demanded changes
• Next Topic: Supply, laws of supply, and supply curve shifters

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