Demand and

its
Determinants

Demand

Last chapter, we discussed Product Markets and

Factor (Resource) Markets
Anytime there is a Market, there are buyers and
sellers.
In any market, the Buyers are the
Demanders
Demand The willingness and the ability to
buy a good (or service or resource) at a range
of prices.
Law of Demand There is an inverse
relationship between the price of a good

Lets try to show this on the

board
iPhone 5

Ice Cream (one scoop)

$20

$40

$60

$80

$100

$120

$3

$140

$4

and on

$.50

$1.50

$1

$2

$2.50

and on

When we graph it, it should look

something like this

Change in Price

It is important to understand that a change in price,

only changes the quantity demanded. It does not
the demand itself.
This is called a shift along the demand curve.

However, there are some things that

cause the actual demand curve to shift.

Demand

Market Size
If there are more consumers, the demand will
increase; if there are fewer the demand will
decrease.
Think about an ice cream store on the beach in winter.

Decrease in Demand
In this example, the price can stay the same, but the
quantity demanded will still go down.

Increase in Demand
We can take the same ice cream store on the beach,
but instead look at the demand for ice cream in the
summer.

Consumer Tastes
If a good becomes more popular, the demand
will increase.
Think about skinny jeans or the iPhone vs. Galaxy

Consumer Expectations
If a good is likely to become more expensive or less, the
demand will increase or decrease.
Cars normally go on sale at the end of summer so dealers can get
ready for new models. Would you expect demand for new cars to
be higher in May, before the sales, or in August, during the sales?

Income
As people make more money or less, the
demand for things generally goes up or down.
Increased income usually increases demand, but
sometimes the opposite is true.
A normal good is something that consumers
demand more of as their income increases.
Like iPhones, or ice cream, or luxury cars

An inferior good is something that consumers

demand less of as their income increases.
Like Ramen noodles or clothes from Good Will

Substitute Goods
Substitutes are goods (or services) that
can be used in place of each other, so
an increase in the demand for one
decreases the demand for the other.
So when the price of a substitute increases,
the demand for the original item will
increase.
And when the price of a substitute drops,
the demand for the original item will drop.

Complementary Goods
Complements are goods that are used
together; so an increase in the demand for
one; increases the demand for the other.
Like cars and gasoline
Or tortilla chips and salsa
This means that if the price for one
changes, the demand will change in the
opposite direction for the other.
For example, if tortilla chips go on sale (P); people
will generally buy more or them. But this means they

So in summary
Demand means how much people will buy of something at
any given price.
A change in price will change the quantity demanded, but not
the demand curve itself. This is a shift along the demand
curve.
There are some things that will cause a shift in the demand
curve such as

Market Size
Consumer Tastes/Expectations
Income Levels
Substitute and Complementary Goods
Im going to add one more Special Circumstances
Like ice cream on a random hot day