Theory of Demand~~~~ Part 1

Note: This is a VERY long chapter that includes many other mini-topics, so I 'might' split it into two posts~~~

Ceteris paribus- If all of the other factors were kept constant.
Substitute goods- An alternative good or goods that are competitive in demand.
Complement goods- Goods in joint demand
Demand, or dd for short, is the quantities of G&S that consumers are willing AND able to buy at varying prices over a period of time, if ceteris paribus was applied.

Factors that determines the dd, Price of G&S, financial ability to pay, attitude towards the product, availability and attitude towards the G&S and population.

How do they determine the quantity of demand???
Price of G&S- Considering ceteris paribus, the lower the price of a G&S, the higher the quantity of demand (Qd). If a price of a product was lower, than more people would be able to afford it. For example, if Mark budgets were $10, and he wish to buy a bar of chocolate that cost $6 each, he could only afford one bar of chocolate. However if the bar of chocolate was lower, $5 each, Mark can now afford to buy TWO bars of chocolate(good for Valentines, eh? XP), thus an increase in Qd.
If the price of the G&S is lower than the substitute product, than people change from buying it's substitute or visa versa.

Credits to Wiki~~~.
If the price of Coca-Cola were to increase from P1 to P2, the Qd would decrease from Q1 to Q2. Pepsi, being it's substitute, would have a shift in the Demand Curve to the right. This shifts shows that, even if Pepsi were to maintain it's original price, the Qd would increase.

A shift in the Demand Curve would be caused by factors other than cost.

Financial ability to pay- Strictly speaking, no money, no talk. If there is an increase in income, than the consumers would have more buying power, thus an increase in dd. This will cause a shift in the dd curve. This means that, given that the product maintains it's price, the Qd would increase. However some firms may take advantage of this and increase the price of their G&S in away that the Qd would still remain the same even AFTER the increase from P1 to P2. Ceteris paribus is applied.

For every given price, there is an increase in Qd

Attitude towards the product- This refers to our preferences for the G&S which in influenced by the quality and reputation of the product.

Availability and attractiveness- This involves substitute goods and complement goods. How substitute goods affects the DD curve was stated before. Complement goods also affects the DD curve. This is because when buying one product, there is demand for it's complement goods. For example, by buying a full drum set, there is demand for drumsticks, the complement good.

Population- Assuming there is an increase in population, there will also be an increase in demand. Logical...


As we have seen, the DD curves has all been downward sloping, but there are some cases where the DD curves are upwards sloping, where the higher the price, the more the Qd. These normally applies to Speculative goods and Goods with snob appeal.

Speculative goods- If consumers notices the price increasing, they may assume the price would increase further in the future, so they buy more. If the price decreases, they may start to sell. For example, Samuel notices that the price of wood is increasing, thus he buys as many as he can before it reaches at a price where he can't afford. With this, he can sell his furniture's at a higher price(inflation). However, the moment he realizes the price of wood decreases, he starts selling his furniture's before they lose their value.

Proof from 'Economics' by Anderton

Goods with snob appeal- This refers to branded goods such as Rolex. Since they are branded, they confer status on the buyer. Since they are expensive only a few can afford them. However if the price were to decrease, more people can afford them and the G&S may have lost it's prestigious, giving it a downward slope DD curve

In my opinion, it is very important to see the trend of prices, whether increasing or decreasing, as it may determine what you wish to buy, taking into factor of ceteris paribus.

In conclusion, there are many factors that affects the DD curve and each has their own amount of impact on Qd, ceteris paribus.