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1.4 Demand

3 min readdecember 27, 2022

J

Jeanne Stansak

I

Isabela Padilha Vilela

J

Jeanne Stansak

I

Isabela Padilha Vilela

Unit 1 - Demand

Definition of Demand

is defined as the different quantities of goods and services that consumers are willing and able to purchase at various price levels.

Demand vs. Quantity Demanded

is a the amount of a good or service that is desired at a particular price level.

Below is a , is one point on the curve (i.e. A, B, or C) and is the entire line with all of the points that make it up.

https://firebasestorage.googleapis.com/v0/b/fiveable-92889.appspot.com/o/images%2F-0Vt2KI4jriBn.png?alt=media&token=6cedaaf1-d344-4026-b20b-ec8272202d18

Law of Demand

The states that the relationship between the price level and the of a good or service is inverse. As the price level rises, consumers are less willing or less able to purchase the same quantity, and, therefore, buy less. As the price level falls, consumers are more willing or more able to purchase a greater quantity, and, therefore, buy more.

In summary:

  • When price level increases ⬆️, the quantity of a good demanded decreases ⬇️.
  • When price level decreases ⬇️, the quantity of a good demanded increases⬆️.

Using the graph above, when the price rises from P1 to P2, the decreases from 9 units to 7 units. Also, when the price drops from P3 to P2, the increases from 3 units to 7 units.

💡The only thing that changes the is the price of the good or service.

Let's take a look at another graph:

https://firebasestorage.googleapis.com/v0/b/fiveable-92889.appspot.com/o/images%2F-ZljUkbTaNLQg.webp?alt=media&token=7a819a63-5efa-48b5-b660-368c75d02820

It is possible to observe at point 🅱️ that the quantity is 800, while the "price per can" is $40.

But, if the price increases from $40 to $60 as observed by point 🅰️, the quantity of cans demanded decreases to 400.

Therefore, price level and are inversely related.

Determinants of Demand

Determinants are factors that can cause the entire to increase or decrease (shift to the right or shift to the left). When there is an increase in (see graph below), the will shift right. At every price level, there is an increase in the . When there is a decrease in (see graph below), the will shift left. At every price level, there is a decrease in .

https://firebasestorage.googleapis.com/v0/b/fiveable-92889.appspot.com/o/images%2F-Md6Dgavbpg21.png?alt=media&token=4f956c89-73b8-4945-8df5-d63340bc3ec9

There are several determinants of that cause the shift to the right (increase in ) or the shift to the left (decrease in ). We are going to use the acronym I-N-S-E-C-T as a way to remember all of the determinants.

The INSECT Acronym

  • I =

  • N =

  • S =

  • E =

  • C =

  • T =

💡 are goods consumed together. This means that they have a joint .

https://firebasestorage.googleapis.com/v0/b/fiveable-92889.appspot.com/o/images%2F-6E9qMKt1BcRq.svg?alt=media&token=ada6fd2b-81c2-469b-bc14-5b1c2c16beae

will increase (shift right) if:

  • I = increases ⬆️

  • N = increases ⬆️

  • S = ' prices increase ⬆️

  • E = Expectation of Future Price increases ⬆️

  • C = ' prices decrease ⬇️

  • T = for that good increase (for example, through advertising!) ⬆️

https://firebasestorage.googleapis.com/v0/b/fiveable-92889.appspot.com/o/images%2FSupply-demand-left-shift-demand-W8MWSfN7aS5F.png?alt=media&token=9ce1de52-ec74-4363-9115-89631b630d5a

will decrease (shift left) if:

  • I = decreases ⬇️

  • N = decreases ⬇️  

  • S = ' prices decrease ⬇️ 

  • E = Expectation of Future Price decreases ⬇️

  • C = ' prices increases ⬆️

  • T = for that good decrease ⬇️

Key Terms to Review (11)

Complements

: Complements are goods or services that are typically consumed together because they enhance each other's value. When the price of one complement increases, it tends to reduce demand for both complements.

Demand

: Demand refers to the quantity of goods or services that consumers are willing and able to buy at various prices during a specific period. It represents the relationship between price and quantity demanded.

Demand Curve

: The demand curve illustrates the relationship between the quantity demanded of a good or service and its price. It shows that as prices decrease, consumers are willing to buy more of the good or service.

Expectations of Future Price

: Expectations of future price refer to consumers' predictions about whether prices will rise or fall in the future. These expectations can influence current buying decisions.

Income

: Income refers to the money earned by individuals or households through various sources such as wages, salaries, investments, etc., during a specific period.

Law of Demand

: The law of demand states that as the price of a good or service increases, the quantity demanded decreases, and vice versa.

Number of Buyers/Consumers

: The number of buyers or consumers refers to the total count of individuals or households who are potential purchasers or users of a particular product.

Quantity Demanded

: Quantity demanded refers to the specific amount of a good or service that consumers are willing and able to purchase at a particular price, during a given period.

Shift in Demand Curve

: A shift in the demand curve occurs when there is a change in the quantity demanded at every price level. It represents a change in consumer preferences, income levels, or other factors affecting demand.

Substitutes

: Substitutes are goods or services that can be used in place of each other. When the price of one substitute increases, consumers tend to demand more of the other substitute.

Tastes and Preferences

: Tastes and preferences refer to the individual's subjective likes and dislikes when it comes to consuming goods and services. It is influenced by factors such as culture, upbringing, personal experiences, and advertising.

1.4 Demand

3 min readdecember 27, 2022

J

Jeanne Stansak

I

Isabela Padilha Vilela

J

Jeanne Stansak

I

Isabela Padilha Vilela

Unit 1 - Demand

Definition of Demand

is defined as the different quantities of goods and services that consumers are willing and able to purchase at various price levels.

Demand vs. Quantity Demanded

is a the amount of a good or service that is desired at a particular price level.

Below is a , is one point on the curve (i.e. A, B, or C) and is the entire line with all of the points that make it up.

https://firebasestorage.googleapis.com/v0/b/fiveable-92889.appspot.com/o/images%2F-0Vt2KI4jriBn.png?alt=media&token=6cedaaf1-d344-4026-b20b-ec8272202d18

Law of Demand

The states that the relationship between the price level and the of a good or service is inverse. As the price level rises, consumers are less willing or less able to purchase the same quantity, and, therefore, buy less. As the price level falls, consumers are more willing or more able to purchase a greater quantity, and, therefore, buy more.

In summary:

  • When price level increases ⬆️, the quantity of a good demanded decreases ⬇️.
  • When price level decreases ⬇️, the quantity of a good demanded increases⬆️.

Using the graph above, when the price rises from P1 to P2, the decreases from 9 units to 7 units. Also, when the price drops from P3 to P2, the increases from 3 units to 7 units.

💡The only thing that changes the is the price of the good or service.

Let's take a look at another graph:

https://firebasestorage.googleapis.com/v0/b/fiveable-92889.appspot.com/o/images%2F-ZljUkbTaNLQg.webp?alt=media&token=7a819a63-5efa-48b5-b660-368c75d02820

It is possible to observe at point 🅱️ that the quantity is 800, while the "price per can" is $40.

But, if the price increases from $40 to $60 as observed by point 🅰️, the quantity of cans demanded decreases to 400.

Therefore, price level and are inversely related.

Determinants of Demand

Determinants are factors that can cause the entire to increase or decrease (shift to the right or shift to the left). When there is an increase in (see graph below), the will shift right. At every price level, there is an increase in the . When there is a decrease in (see graph below), the will shift left. At every price level, there is a decrease in .

https://firebasestorage.googleapis.com/v0/b/fiveable-92889.appspot.com/o/images%2F-Md6Dgavbpg21.png?alt=media&token=4f956c89-73b8-4945-8df5-d63340bc3ec9

There are several determinants of that cause the shift to the right (increase in ) or the shift to the left (decrease in ). We are going to use the acronym I-N-S-E-C-T as a way to remember all of the determinants.

The INSECT Acronym

  • I =

  • N =

  • S =

  • E =

  • C =

  • T =

💡 are goods consumed together. This means that they have a joint .

https://firebasestorage.googleapis.com/v0/b/fiveable-92889.appspot.com/o/images%2F-6E9qMKt1BcRq.svg?alt=media&token=ada6fd2b-81c2-469b-bc14-5b1c2c16beae

will increase (shift right) if:

  • I = increases ⬆️

  • N = increases ⬆️

  • S = ' prices increase ⬆️

  • E = Expectation of Future Price increases ⬆️

  • C = ' prices decrease ⬇️

  • T = for that good increase (for example, through advertising!) ⬆️

https://firebasestorage.googleapis.com/v0/b/fiveable-92889.appspot.com/o/images%2FSupply-demand-left-shift-demand-W8MWSfN7aS5F.png?alt=media&token=9ce1de52-ec74-4363-9115-89631b630d5a

will decrease (shift left) if:

  • I = decreases ⬇️

  • N = decreases ⬇️  

  • S = ' prices decrease ⬇️ 

  • E = Expectation of Future Price decreases ⬇️

  • C = ' prices increases ⬆️

  • T = for that good decrease ⬇️

Key Terms to Review (11)

Complements

: Complements are goods or services that are typically consumed together because they enhance each other's value. When the price of one complement increases, it tends to reduce demand for both complements.

Demand

: Demand refers to the quantity of goods or services that consumers are willing and able to buy at various prices during a specific period. It represents the relationship between price and quantity demanded.

Demand Curve

: The demand curve illustrates the relationship between the quantity demanded of a good or service and its price. It shows that as prices decrease, consumers are willing to buy more of the good or service.

Expectations of Future Price

: Expectations of future price refer to consumers' predictions about whether prices will rise or fall in the future. These expectations can influence current buying decisions.

Income

: Income refers to the money earned by individuals or households through various sources such as wages, salaries, investments, etc., during a specific period.

Law of Demand

: The law of demand states that as the price of a good or service increases, the quantity demanded decreases, and vice versa.

Number of Buyers/Consumers

: The number of buyers or consumers refers to the total count of individuals or households who are potential purchasers or users of a particular product.

Quantity Demanded

: Quantity demanded refers to the specific amount of a good or service that consumers are willing and able to purchase at a particular price, during a given period.

Shift in Demand Curve

: A shift in the demand curve occurs when there is a change in the quantity demanded at every price level. It represents a change in consumer preferences, income levels, or other factors affecting demand.

Substitutes

: Substitutes are goods or services that can be used in place of each other. When the price of one substitute increases, consumers tend to demand more of the other substitute.

Tastes and Preferences

: Tastes and preferences refer to the individual's subjective likes and dislikes when it comes to consuming goods and services. It is influenced by factors such as culture, upbringing, personal experiences, and advertising.


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© 2024 Fiveable Inc. All rights reserved.

AP® and SAT® are trademarks registered by the College Board, which is not affiliated with, and does not endorse this website.