vaibhav
Define Demand:
The quantity demanded of a good or service is the amount that consumers plan to buy during a given time period at a particular price.
Demand is the relationship between price and quantity demanded, other things remaining the same.
Mathematical presentation: Linear Demand: p = a - bQd
Note that the quantity demanded of a good or service is not necessarily the quantity actually bought.
Sometimes the quantity demanded is greater than the amount of goods available, -excess demand-, or it may be less than the amount of goods available, -excess supply.
Factors that affect Demand:
The price of the good
The prices of related goods
Income
Expected future prices
Population
Preferences
Demand Curve- Movement along the curve
Demand curves slope downward (negative slope) because as the law of demand states, “Other things remaining the same, the higher the price of a good, the smaller is the quantity demanded.”
If there is a change in the price of a good, while everything else remains the same, the quantity demanded changes and there is a movement along the demand curve.
Changes in Demand- Shift of Demand Curve
A decrease in demand shifts the demand curve left while an increase shifts the demand curve to the right. Demand Decreases if : Demand Increases if:
The price of a substitute falls The price of a substitute rises
The price of a complement rises The price of a complement falls
Income falls (for normal goods*) Income rises (for normal goods)
The price of the good is expected to fall The price of the good is expected to rise
The population decreases The population increases
*Normal good: A good for which demand increases as income increases.
Inferior good: A good for which demand decreases as income increases. p Q
D1
D2 p Q
D2
D1
2
Define Supply:
The quantity supplied is the amount of