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The Economist's Perspective
Demand is a function of:
- Price
- Income
- Preference
- Price of other goods
- Expectation about the future
Demand is a function of:
- Price
- Income
- Preference
- Price of other goods
- Expectation about the future
![Picture](/uploads/9/7/9/3/97934000/editor/price-tag.jpg?1484073998)
Price
- Price of the product
- Price of substitude produts
- Price of complementary goods
![Picture](/uploads/9/7/9/3/97934000/published/paycheck.gif?1484074030)
Disposable Income
- State of the income
- Employment/ unemployment
- Inflation
- Interest/ mortage rate
- Wage rates
- State of the income
- Employment/ unemployment
- Inflation
- Interest/ mortage rate
- Wage rates
![Picture](/uploads/9/7/9/3/97934000/images.jpg?250)
Use of Credit
- Availability
- Interest rates
- Credit terms
![Picture](/uploads/9/7/9/3/97934000/published/c-fit-fl-progressive-q-80-w-636.jpg?1484074105)
Willingness to spend
- Consumer confidence
- Future expectations of standard of living
- Conpetition for purchases
- Existing purchases
- Consumer confidence
- Future expectations of standard of living
- Conpetition for purchases
- Existing purchases
Demand
- As price rises so the quantity demanded falls
- As price falls so the quantity demanded rises
- Sensitivty to price changes varies
- If demand is inelastic it means that the consumers are not very sentitve to the price change
- If demand is elastic consumers are very sensitive to the price changes - as a result a price in price will lead to a disproportionately large fall off in demand
- As price rises so the quantity demanded falls
- As price falls so the quantity demanded rises
- Sensitivty to price changes varies
- If demand is inelastic it means that the consumers are not very sentitve to the price change
- If demand is elastic consumers are very sensitive to the price changes - as a result a price in price will lead to a disproportionately large fall off in demand
Consumer Income
- We distinguish between:
- Money or nominal income - money received
- Real income - the purchasing power of real income after allowing the changes in price
- Disposable income - income left after conpulsory deductions
- Discretionary income - income for discretionary expenditure
- i.e. income that we can use as we please after for allowing regular commitments such as mortgage payments and uility bills
- As income rises so does the demand for goods and services
- Income Elasticity for Demand (YED) refers to the responsiveness of demand to changes in income
- Luxuiouy products have a high YED - they are very elastic with respect to income
- Basic necessities have a low YED - they are very inelastic with respect to income
- We distinguish between:
- Money or nominal income - money received
- Real income - the purchasing power of real income after allowing the changes in price
- Disposable income - income left after conpulsory deductions
- Discretionary income - income for discretionary expenditure
- i.e. income that we can use as we please after for allowing regular commitments such as mortgage payments and uility bills
- As income rises so does the demand for goods and services
- Income Elasticity for Demand (YED) refers to the responsiveness of demand to changes in income
- Luxuiouy products have a high YED - they are very elastic with respect to income
- Basic necessities have a low YED - they are very inelastic with respect to income