Unit 2.1 - Demand

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The tendency of buyers to replace a product that has become relatively dearer with one that has become relatively cheaper.HL

substitution effect

real incomeHL

The effective purchasing power of consumers, which varies with price changes. When prices fall, real income rises, allowing consumers to buy more goods; conversely, rising prices decrease real income, limiting purchasing capability.

rival/substitute productsHL

Rival or substitute products are those that consumers can choose between. When the price of one product falls, consumers may opt for it over higher-priced alternatives, illustrating the substitution effect in demand.

substitute productsHL

Products that can replace one another in consumption. A rise in the price of one good makes consumers switch to the cheaper alternative, so demand for that alternative rises — the substitution effect.

The graphical representation showing the inverse relationship between price and the amount of a product that consumers are willing to purchase over time.

demand curve

The specific amount of a good or service that consumers are willing to buy at various price points.

quantity demanded

Downward-sloping

A characteristic of the demand curve, which is conventionally drawn as a linear line that slopes downward. This illustrates that as the price of a good increases, the quantity demanded decreases, and vice versa, reflecting the inverse relationship between price and quantity demanded.

Vertical (y) axis / Horizontal (x) axis

The axes used in a demand curve diagram, where price is represented on the vertical (y) axis and quantity demanded on the horizontal (x) axis. Correct labeling of these axes is crucial for accurately interpreting the relationship between price and quantity demanded.

inverse correlation

A relationship in which two variables move in opposite directions. Along a demand curve a rise in price brings a fall in quantity demanded, and a fall in price a rise, which is why the curve slopes downwards.

The aggregation of all buyers' desires for a product across price levels.HL

market demand

non-price determinants (RIPEN)HL

Non-price determinants of demand, remembered by the acronym RIPEN, include related products, income, preferences, expectations of future prices, and the number of consumers. Changes in these factors cause shifts in the demand curve rather than movements along it.

Any place where transactions take place between buyers and sellers.

market

Factors that influence the quantity demanded aside from the price of the good, including related products, consumer income, preferences, future price expectations, and the number of consumers.

non-price determinants of demand

The aggregate of all individual demand for a product at each price level.

market demand curve

individual demand

The total quantity of a product that one consumer is willing to buy at various price levels, which contributes to the overall market demand.

transactions

The exchanges that occur between buyers and sellers in a market, which can include various types such as stock trades or currency exchanges. The market demand curve aggregates all individual demand at each price level, illustrating the total demand in the market.

additional unitHL

The extra satisfaction derived from consuming one more unit of a good or service. According to the law of diminishing marginal utility, as more units are consumed, the additional utility gained from each subsequent unit tends to decrease.

satisfactionHL

The pleasure or utility gained from consuming goods and services. As consumption increases, the satisfaction derived from each additional unit typically decreases, affecting consumer demand.

A change in any non-price factor that affects demand for a product results in this.

shift of the demand curve

A decrease in the quantity demanded due to a rise in the product's price.

contraction in demand

A leftwards shift of the entire curve representing consumer desire for a product, resulting from negative changes in factors other than price.

decrease in demand

An increase in the quantity demanded resulting from a decrease in the product's price.

expansion in demand

Expansion (extension) of demand

An increase in the quantity demanded for a product following a decrease in its price, represented as a movement along the demand curve. This concept is crucial for understanding how demand responds to price fluctuations, as opposed to shifts caused by other factors.

Increase in demand

A shift of the demand curve to the right, indicating that more consumers are willing to purchase a product at all price levels. This can occur due to factors like an increase in population or effective advertising strategies, independent of price changes.

Movement along the demand curve

A change in the quantity demanded of a good or service resulting from a change in its price, illustrated by movement along the demand curve. This contrasts with shifts in the demand curve, which are caused by non-price factors affecting demand.

Products that are demanded together and enhance each other's use.

Complements

Products that can replace each other in consumption and compete for demand.

Substitutes

Products that consumers buy more of as their income increases.

Normal goods

Products that have a negative relationship with income elasticity of demand.

Inferior goods

The sales of one product influence the demand for another product.

The price of related goods

Branding

The strategy of creating a unique image and identity for a product, which can significantly influence consumer preferences and purchasing decisions. Strong brands can evoke confidence and loyalty, leading to higher demand for their products.

Complements (complementary goods)

Products that are jointly demanded because they complement each other, such as cars and petrol. The demand for one good can be affected by the price changes of its complementary good, highlighting the interdependence between related products.

brand loyalty

A consumer's preference for specific brands, which significantly influences their spending decisions. Strong brand loyalty leads to higher demand for products from brands like Apple and Nike, as customers feel more confident and perceive lower risks in their purchasing choices.

future price expectations

Consumer beliefs about the future prices of goods, which can affect current demand; if prices are expected to rise, demand may increase now.

number of consumers

The total count of individuals in a market who are willing to purchase a product, which can shift the entire demand curve.

related goods

Products whose demand is interconnected, meaning the demand for one can affect the demand for another, either as substitutes or complements.

tastes and preferences

The changing desires and inclinations of consumers that can significantly impact the demand for various goods and services.

The amount of money a customer pays in order to purchase a good or service.

price

The change in quantity demanded resulting from a change in real purchasing power due to price changes.

income effect

The principle stating that the quantity demanded of a product will fall if the price increases, and vice versa.

law of demand

The quantity of a good or service that customers are willing and able to buy at given prices in a particular period of time.

demand

Effective demand

A concept describing the quantity of a good or service that consumers are both willing and able to purchase at a specific price. Effective demand combines desire with the financial capacity to make the purchase, distinguishing it from mere wants, such as desiring an expensive item without the means to buy it.