Demand depends on

Law of demand → The law of demand states that, all else being equal, as the price of a good or service decreases, the quantity demanded of that good or service increases, and conversely, as the price of a good or service increases, the quantity demanded decreases.

Demand VS Quantity Demand → Think of "demand" as the big picture, showing how many units of a product people want at different prices. "Quantity demanded" is just one specific point on that demand curve, showing how many units people want at a particular price.

Ceteris Paribus → "Ceteris paribus" is a Latin phrase meaning "all other things being equal" or "holding other things constant." In economics, it's used to isolate the effect of one variable while keeping all other variables constant in a particular analysis or scenario.

Classification of goods →

Based on consumer behavior, goods can be classified into several categories:

  1. Normal Goods: These are goods for which demand increases as consumer income rises, and decreases as consumer income falls, assuming other factors remain constant.
  2. Inferior Goods: Demand for inferior goods decreases as consumer income rises, and increases as consumer income falls. These are goods that people tend to buy less of as they become wealthier and can afford more expensive alternatives.
  3. Luxury Goods: These are goods for which demand increases more than proportionally as income rises, so they are associated with higher income levels and are considered non-essential or discretionary purchases.
  4. Necessities: These are goods that are essential for daily living, such as food, clothing, and shelter. Demand for necessities tends to be relatively constant regardless of changes in income.
  5. Complementary Goods: These are goods that are typically consumed together. The demand for one good is positively related to the demand for another. For example, cars and gasoline are complementary goods because people need gasoline to use their cars.
  6. Substitute Goods: These are goods that can be used in place of each other. The demand for one good is inversely related to the price of another. For example, if the price of coffee increases, people might buy more tea instead, making tea a substitute for coffee. Understanding these classifications helps economists analyze consumer behavior, market trends, and the effects of changes in income, prices, and other factors on consumer choices.

Factors that affects demand

Here are some factors that affect demand, along with whether they have a positive impact (increase demand) or not:

  1. Price of the Good: Negative impact - As the price of a good decreases, demand generally increases (law of demand).

  2. Income: Positive impact for normal goods, negative impact for inferior goods - As income rises, demand for normal goods increases, while demand for inferior goods decreases.

  3. Price of Related Goods: - Substitute Goods: Positive impact - An increase in the price of a substitute good leads to an increase in demand for the original good.

  4. Complementary Goods:** Negative impact - An increase in the price of a complementary good leads to a decrease in demand for the original good.

  5. Consumer Preferences and Tastes: Positive impact - Changes in preferences or tastes towards a good can increase demand for it.

  6. Population and Demographics: Positive impact - An increase in population, especially of the demographic that consumes the good, can increase demand.

  7. Consumer Expectations: Positive impact - If consumers expect prices to rise in the future, they may increase current demand to stockpile the good, and vice versa. Advertising and Marketing: Positive impact - Effective advertising and marketing can increase consumer awareness and desire for a product, thus increasing demand.

  8. Seasonal and Weather Effects: Positive impact for seasonal goods - Demand for certain goods may increase during specific seasons or weather conditions.

  9. Government Policies and Regulations: Depends - Government interventions like subsidies or taxes can either increase or decrease demand, depending on their nature and purpose. These factors interact in complex ways and may vary depending on the specific market and circumstances.