[1.1.3a] Demand
Demand
Demand is defined as the quantity of a good or service that consumers are willing and able to buy at a given price over a given time period. Both conditions matter — a consumer who wants a sports car but cannot afford one does not constitute demand in the economic sense.
Demand is a flow: it must always be expressed per unit of time (e.g. 500 units per week). This distinguishes it from a stock, which is simply a quantity held at a point in time.
The Demand Curve
The relationship between price and quantity demanded is shown on a demand curve diagram. Price (P) is on the vertical axis; quantity demanded (Q) is on the horizontal axis. The demand curve slopes downward from left to right — as price falls, quantity demanded rises, and vice versa.
Movement Along vs Shift of the Demand Curve
A change in the price of the good itself causes a movement along the demand curve — the curve does not move. A change in any other factor causes a shift of the whole curve. A rightward shift = increase in demand; a leftward shift = decrease in demand.
Factors That Shift the Demand Curve
Successful advertising increases consumer awareness and desire for a product, shifting demand to the right. A major campaign for a new product typically boosts sales significantly at every price level.
A rise in income generally increases demand for normal goods (rightward shift). For inferior goods (e.g. own-brand products), a rise in income may reduce demand as consumers switch to better alternatives (leftward shift).
Changes in fashion and tastes can rapidly shift demand. Celebrity endorsement or positive media coverage shifts demand right; negative publicity or changing trends shifts it left.
Substitute goods can replace each other (e.g. butter and margarine). If the price of a substitute rises, demand for the original good increases (rightward shift) as it becomes relatively more attractive.
Complementary goods are consumed together (e.g. cars and petrol). If the price of a complement rises, demand for the related good falls (leftward shift) as the combined cost of using both increases.
Demographic changes affect market size and composition. A growing population increases overall demand; an ageing population shifts demand toward healthcare and leisure whilst reducing demand for youth-oriented products.
Key Takeaways
- Demand is the quantity consumers are willing and able to buy at a given price over a given time period.
- The demand curve slopes downward: price and quantity demanded move in opposite directions.
- A change in the price of the good causes a movement along the demand curve.
- A change in any other factor causes a shift of the demand curve.
- A rightward shift = increase in demand; a leftward shift = decrease in demand.