Demand is the quantity of a good or service that consumers are willing and able to buy at a given price, during a specific period. It is a key concept in economics because it helps explain how resources are allocated in a market.
Imagine a grocery store with a single checkout line. The price of a pack of apples is \$2. If the price drops to \$1, more shoppers will want to buy apples, so the line gets longer. This line length is like the quantity demanded. The higher the price, the shorter the line – fewer people want to buy apples. This simple picture shows how price influences demand.
The demand function can be written as:
\$Qd = f(P, I, T, Ps, L)\$
Where:
When a new smartphone model is released at a high price, only a few consumers can afford it, so the quantity demanded is low. If the price is reduced by a discount, more people will buy it, increasing the quantity demanded. This demonstrates the inverse relationship between price and quantity demanded.
| Factor | Effect on Demand |
|---|---|
| Price of the good (P) | ↓ → ↑ (inverse relationship) |
| Consumer income (I) | ↑ → ↑ for normal goods, ↓ for inferior goods |
| Tastes & preferences (T) | Change → shift demand curve |
| Prices of related goods (P_s) | Substitutes ↑ → ↓, Complements ↑ → ↑ |
| Number of consumers (L) | ↑ → ↑ (more buyers) |
1️⃣ If the price of a movie ticket rises, will the quantity demanded increase or decrease?
2️⃣ How does an increase in consumer income affect the demand for luxury cars?
3️⃣ What happens to demand when a cheaper substitute (e.g., a new streaming service) becomes available?