• Markets: Bring together buyers (“demanders”) and sellers (“suppliers”).Markets vary in size, range, geographic scale, location, types and variety of human communities, as well as the types of goods and services traded. Mutual or voluntary exchanges take place in markets. The exchanges will take place between firms and households.
• Demand: A schedule or a curve that shows the quantities of a product that consumers are willing and able to purchase at corresponding prices during a specified period of time. Demand shows the quantities of a product that will be purchased at various possible prices, ceteris paribus (all other things equal).
  ® Unless “time” is specified, we do not know the demand is large or small

**Demand is different from quantity demanded;

• Quantity demanded : amount of good or service that buyers desire to purchase at a particular price during some period. Quantity demanded changes according to the price. Quantity demanded is basically a point on the demand curve, while demand is the actual curve.
• Determinants of Demand: (TOEISS - look down this page)

• Law of Demand: Assuming that everything else remains the same, ceteris paribus, as the price of a product increases, the quantity demanded of the product decreases and vice versa.
  
  • Price and Quantity Demanded are inversely related.

• The Demand Curve: In economics the demand curve can be defined as the graph depicting the relationship between the price of a certain commodity, and the amount of it that consumers are willing and able to purchase at that given price. The demand curve is mostly downward sloping as it shows that as prices decrease, the consumer is willing to buy more of that good.

• The quantity demanded must include a specific time period in order to be meaningful. For example, if it simply says, "a consumer will buy a CD for $10," it means nothing. We only know if the demand is large or small if the time period is mentioned; for instance, "a consumer will buy a CD every week for $10."

• The downward slope of the curve reflects the law of demand.
  

• A table represents various amounts of a particular product that consumers are willing and able to purchase at certain prices.

• Rationale behind law of demand:
  • The law of demand is consistent with common sense. People buy more of a product at a low price than at a high price. Price is an obstacle that deters consumers from buying. The higher that obstacle, the less of a product they will buy; the lower the price obstacle, the more they will buy. The "sales" that businesses have shows their belief in the law of demand.
  • Law of Diminishing Marginal Utility
    • Buyers derive less utility, or happiness, from each successive unit of product consumed - e.g. you get the most marginal utility from your first Ipod, but as you continue to get more of the same model, the marginal utility of each additional Ipod naturally decreases
    • Therefore, the more you have of a good, the less you are willing to pay for more of that good, or the less each additional unit is worth.
  • Income effect
    • Lower prices increase the purchasing power of buyers' income for normal goods
    • If a person has an income of $30 (nominal income), he could buy 5 shirts that cost $6 each. But if the price of shirts decrease to $5 each, then he could now buy 6 of them (real income) with the same income. The nominal income is the amount of money you earn, and as a price decreases, your real income (the amount you can buy) increases and vice versa.
      
  • Substitution effect
    • If the price of a particular product increases, buyers will substitute toward the now relatively less-expensive product.
      
    • e.g. If the price of Ben and Jerry increases, buyers will buy more of Hagen-daaz because Hagen-daaz will now be the cheaper one out of the two brands of ice cream.

• Market Demand:
  • By adding the quantities demanded by all consumers at each of the various possible prices, then individual demand is changed to market demand.

• Change in Demand: when the demand curve shifts left or right due to a change in one or more of the determinants of demand. Change in Demand is never caused by a change in price. Usually, when graphing a demand curve, these factors are assumed to be constant (other things equal). However, when they change, the curve shifts, which is why these determinants are also called demand shifters.A change in demand means that for the same price, customers are now willing to buy more of a certain product.
  • an increase in demand shifts the curve to the right
  • a decrease in demand shifts the curve to the left

• Change in demand may be caused by these following determinants of demand (TOEISS):
  • Taste (consumer preferences)
    • ex: A bakery makes blueberry pie and apple pie. Demand for blueberry pie will increase if consumers prefer blueberry pie, and demand for apple pie will decrease as a result.
      
  • Other related goods:
    • Substitutes: The increase in the price of one good, will increase the demand for the other
      
      • ex: when iPod is more expensive than Zen, the demand for Zen increases; when iPod is cheaper than the Zen, the demand for the iPod increases.(There is a direct relationship between substitute goods)
        
    • Complementary: When the increase in the price of one will decrease the demand for the other. These are jointly demanded goods
      
      • ex: when the price of contact cleansing solution decreases, the demand for both the solution and contacts would increase. (There is an inverse relationship between complementary goods)
  • Expectations:
    • An expectation of higher future prices may cause customers to buy now
    • An expectation of higher sell prices later prompt speculators to buy property
      
    • ex:in a stock market, speculators invest in companies that they believe will be the most profitable expectation of higher prices in the future will cause increase current demand of a product/service/resource b/c consumers want to “beat” the projected rise
  • Income
    • An increase in income causes an increase in demand because the consumers' purchasing power increases
    • Superior/ normal goods: Products whose demand increases as income increases (direct relationship)
      • ex: after receiving a salary raise, a woman might buy a new outfit to award herself
    • An exception is inferior goods, products whose demand decreases as income increases
      • ex: as consumers get wealthier, they no longer buy used books because they can afford new ones

Size of Market

• More potential consumers equates to a greater potential demand for certain products.
  
• Ex: US Baby Boomers are moving into retirement; therefore, health insurance and medical care demands increase

Special Circumstances

• Natural disasters or any unexpected situations that might affect demand
  • Ex: During summer, a chill comes along for a week, disrupting the sale of ice creams
  • Ex: News report toxic material found in corn canes, as a result, consumers stop buying corn canes
  • Ex: Hurricane Katrina caused people to flee from their homes, consumers started buying caravans in large amounts