Definition of Demand
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
Quantity demanded is the amount of a good or service that is desired at a particular price level.
Below is a demand curve. Quantity demanded is one point on the curve (i.e. A, B, or C) and Demand is the entire line with all of the points that make it up.
Law of Demand
The law of demand states that the relationship between the price level and the quantity demanded of a good or service is inverse. As the price level rises, consumers are less willing and able to purchase the same quantity, and, therefore, buy less. As the price level falls, consumers are more willing and able to purchase a greater quantity, and, therefore, buy more.
The Law of Demand causes the demand curve to be downward-sloping for 3 reasons:
Using the graph above, when the price rises from P1 to P2, the quantity demanded decreases from 9 units to 7 units. Also, when the price drops from P3 to P2, the quantity demanded increases from 3 units to 7 units.
💡The only thing that changes the quantity demanded is the price of the good or service.
Determinants of Demand
Determinants are factors that can cause the entire demand curve to increase or decrease. When there is an increase in demand (see graph below), the demand curve will shift right. At every price level, there is an increase in the quantity demanded. When there is a decrease in demand (see graph below), the demand curve will shift left. At every price level, there is a decrease in quantity demanded.
There are several determinants of demand that cause the shift to the right (increase in demand) or the shift to the left (decrease in demand). We are going to use the acronym I-N-S-E-C-T as a way to remember all of the determinants.
💸 Unit 1: Basic Economic Concepts
1.0Unit 1: Basic Economic Concepts
1.1Basic Economic Concepts: Scarcity
1.2Resource Allocation and Economic Systems
1.3Production Possibilities Curve (PPC)
📈 Unit 2: Supply and Demand
2.4Price Elasticity of Supply
2.6Market Equilibrium and Consumer and Producer Surplus
2.7Market Disequilibrium and Changes in Equilibrium
2.8The Effects of Government Intervention in Markets
⚙️ Unit 3: Production, Cost, and the Perfect Competition Model
3.6Firms' Short-Run Decisions to Produce and Long-Run Decisions to Enter or Exit a Market
📊 Unit 4: Imperfect Competition
4.1Introduction to Imperfectly Competitive Markets
💰 Unit 5: Factor Markets
5.2Changes in Factor Demand and Factor Supply
5.3Profit-Maximizing Behavior in Perfectly Competitive Factor Markets
🏛 Unit 6: Market Failure and Role of Government
6.1Socially Efficient and Inefficient Market Outcomes
6.3Public and Private Goods
6.4The Effects of Government Intervention in Different Market Structures
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