Karthikeyan

What is Demand?

• Demand = when customers are willing and able to pay for a product.(If you only want it but can’t afford it, that’s not real demand — that’s just desire.)

• Quantity demanded = how much people will buy at each price level.

Law of Demand

• When price increases → demand decreases

• When price decreases → demand increases

• This is called an inverse relationship between price and demand.

Reasons for the Law of Demand

1. Real Income Effect –When prices fall, people can buy more with the same income.

2. New Customers –Lower prices mean more people can afford the product.

Determinants of demand

1 . Habits, Fashions and Tastes

• People’s likes and preferences change over time.

• When something becomes fashionable or trendy (like smartphones or sneakers) → demand increases.

• When something becomes unfashionable or outdated (like old clothes or old phone models) → demand decreases.

  2. Income –

  
  

  When people earn more, they buy more goods and services.

  
  

  Example: People in the USA buy more than people in poorer countries like Vietnam.

  3. Substitutes and Complements –

  • Substitutes = products that can replace each other (like Pepsi and Coke).→ If Coke’s price drops, people buy less Pepsi.

  • Complements = products used together (like tennis balls & racquets).→ If racquet prices go up, people buy fewer tennis balls too.

  4. Advertising –Ads encourage people to buy products. Example: Apple and McDonald’s spend millions on ads to increase demand.

  5. Government Policies –

  • Taxes (like on alcohol or cigarettes) → increase price → lower demand.

  • Subsidies (like for schools or electric cars) → lower price → higher demand.

  6. Economy –In a boom, people spend more .In a recession, demand drops. Example: In 2008, many people lost jobs, so demand fell everywhere.