Demand-demand for a
good /service is
inshapeof a vice in a given
period of time
Effective demand >
-
only if demand for product is backed
by willingness ability to the market price does,
·
a
a up +
pay
demand becomes effective/realized/actual
·
Basic law of demand >
-
demand varies inversely with price - lower price-products more affordable for consumers
.
↳
potential (latent) demand is not yet expressed in the market
Demand curve :
price +
quantity demanded
price, of coffee
only changes in price demand
·
market cause a movement
along a curve .
·
P2
A a higher price leads to a contraction of quantity demanded
C
a lower price leads to an expansion of quantity demanded
d
quantity of coffee
Q2 Q . Q3
UTILITY THEORY Y MARGIAL UTILITY THEORY
utility ->
the pleasure/satisfaction obtained from consumption of a product
additional pleasure/satisfaction obtained unit of something
marginal utility the from consuming one extra
.
>
-
diminishing marginal utility good-while keeping consumption
>
the law of
·
person increases consumption of of all
-
as a a
other products constant -
there is a decline
marginal utility derived from consuming
each additional unit of the good-so the value of the unit diminishes over time
total utility -> the total satisfaction from a given level of consumption
Standard economic diminishing marginal units declines
theory believes in the idea of returns i e
. the
marginal utility of extra as
more .
is consumed
the paradox of value :
value in use
I.e
drinking water to
satisfy your thirst
value in
exchange what a resource can be sold for in exchange for other products.
·
:
INCOME
+ SUBSTITUTION EFFECTS OF A PRICE CHANGE
income effect : substitution effect :
A fall in price A fall in price makes it
increases the real
purchasing power of the of good X
relatively cheaper
consumers compared to substitutes
·
This allows people to
buy more with a given budjet Some consumers will switch to good X leading to
higher
For normal demand rises with increase in demand
goods ,
an
real income
·
Much depends on whether products are close substitutes
.
Non-Price Determinants of Demand
r
changing price of a substitute good / service in competitive demand
changing price compliment products joint demand
i
.
2 of a
->
.e
. in
3
. in income consumers
changes the real of
ability purchase goods & services increases
-
>
When real income goes , our
up to
causing on outward demand shift.
,
>
- but when incomes fall ,
demand falls (except for inferior goods
. in the distribution of income equal distribution of income total demand
relatively
4
changes a more can increase because
>
-
poorer consumers spend a higher proportion of their income .
. a
5 the effects of
advertising marketing
6
. interest rates demand (eg affecting the
. cost of credit
7
.
changes in the size and population
age of a
8 . Seasonal factors for some goods/services
+ eg .
Christmas trees .
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