Market and Demand in Economics – A Comprehensive Guide

Learning Objectives

By the end of this article, SHS students will be able to:

Relate demand concepts to real‐world situations

Understand how everyday choices—like budgeting pocket money or responding to price changes in the market—reflect the underlying principles of demand in society.

Describe what economists mean by “demand”

Explain that demand refers to the quantity of a good or service that consumers are both willing and able to purchase at various prices over a given time.

State and interpret the Law of Demand

Articulate the relationship that, ceteris paribus, as price falls, quantity demanded rises, and as price rises, quantity demanded falls, and illustrate this with simple examples or a demand curve.

Identify and distinguish between the four main types of demand

Recognize complementary (joint), substitute (competitive), derived, and composite demand, and give Ghana-relevant examples for each type.

This content aligns with the new SHS Economics curriculum, providing clear, applied learning targets that guide students through understanding markets, demand theory, and its practical implications.

Introduction to Markets and Demand

Markets are an everyday part of life in Ghana – from bustling city marketplaces to small roadside stalls. A market is any place (physical or virtual) where buyers and sellers meet to exchange goods and services. For example, think of a typical food stall in Accra where a vendor sells fried eggs with toasted bread and drinks. Several customers line up, money in hand, ready to trade their money for a satisfying meal. Sellers come confident that there will be people willing to buy their products, and buyers come because they know they can find what they need. The ability and willingness of buyers to purchase goods at various prices is what economists refer to as demand.

In simple terms, demand is the desire backed by the ability to pay for a product or service. If you have the money and want to buy a new exercise book at the current price, you contribute to the demand for exercise books.

This article will explore the roles of buyers and sellers in a market, explain how demand works (including the important Law of Demand), introduce demand schedules and demand curves, and discuss different types of demand. We’ll use relatable examples from everyday life in Ghana to make these concepts clear. By the end, you’ll understand why prices go up or down and how buyers and sellers respond in a market. Let’s dive in!

The Role of Buyers and Sellers in a Market

Every market is made up of two main groups of people: sellers and buyers. Both play crucial roles in how the market operates.

Role of Sellers in the Market

A seller is anyone who offers goods or services in exchange for payment. Sellers can be individuals (like a farmer selling tomatoes at the market), businesses (like a company selling phones), or even the government (providing services like electricity).

Sellers play several key roles in a market.

First, they make goods and services available for others – without sellers, buyers would have nothing to purchase. They invest time and resources to produce or obtain items and bring them to market, aiming to earn a profit from their sales.
Sellers also help determine prices by negotiating with buyers; in many markets, the price of a commodity is essentially an agreement between what sellers are willing to accept and what buyers are willing to pay.
Additionally, sellers inform and attract buyers to their products through advertising and marketing – for instance, a seller might use radio ads, social media, or attractive signage to let consumers know what is for sale.

In summary, sellers supply the market with products, set or agree on prices, and promote their goods to potential buyers, all in the pursuit of making a rewarding return on their efforts.

Role of Buyers in the Market

Buyers are individuals or organizations that purchase goods and services offered by sellers. In a market, buyers are the demand-side; their purchases signal what is needed or wanted.

Buyers carry out several important roles.

For one, buyers ensure they get good quality and value for their money. They do this by comparing options and giving feedback to sellers about their tastes and preferences (for example, a shopper might tell a tailor that they prefer a certain fabric, guiding the seller’s future offerings).
Buyers also negotiate prices with sellers – haggling is common in many Ghanaian markets, where a buyer and seller discuss to agree on a price both find acceptable. Moreover, through their purchasing decisions, buyers provide information to sellers about how much of a product is desired. If buyers start purchasing larger quantities of hand sanitizers, for instance, sellers learn that demand is high and might stock more.
In essence, when buyers spend their limited income on certain goods, they not only seek personal satisfaction but also help inform sellers on how to allocate resources.
The money that buyers exchange for products becomes revenue for sellers, which in turn helps sellers sustain their business and plan future production. Thus, buyers, by choosing what and how much to buy, influence what sellers produce and how the overall market resources are managed.

(In summary, the market thrives on the interaction between buyers and sellers. Sellers aim to satisfy buyers’ needs at a profit, and buyers seek to maximize their satisfaction given their budget. This dynamic interaction sets the stage for understanding demand in more detail.)

Demand Schedule and Demand Curve

The concept of demand can be visualized in two useful ways: as a demand schedule and as a demand curve. Both of these tools show the relationship between price and quantity demanded, but one is a table and the other is a graph.

Demand Schedule (Table of Prices and Quantities)

A demand schedule is a table that lists the quantity of a commodity that a consumer (or a whole market of consumers) will buy at various prices. It’s a simple way to see how quantity demanded changes when the price changes. For instance, imagine Kojo is a consumer buying oranges. The table below is an example of a demand schedule for Kojo’s orange purchases:

Price of Oranges (Gh¢ per orange)	Quantity Demanded by Kojo (oranges)
1.00 Gh¢	25 oranges
2.00 Gh¢	20 oranges
3.00 Gh¢	15 oranges
4.00 Gh¢	10 oranges
5.00 Gh¢	5 oranges

This demand schedule shows that when the price of an orange is Gh¢1.00, Kojo is willing and able to buy 25 oranges. If the price rises to Gh¢2.00, he’ll buy 20 oranges. At Gh¢3.00, he buys 15, and so on. Demand schedules can be made for an individual (like Kojo) or for an entire market (all consumers combined) during a given time period. The schedule above clearly illustrates that as price increases, the quantity of oranges Kojo demands decreases. Sellers and market analysts use such tables to predict how changes in price might affect sales.

Demand Curve (Graphical Representation)

While a table is useful, a graph can make the pattern even clearer. A demand curve is a graph that plots the same information from the demand schedule. On the demand curve, the price of the commodity is on the vertical (Y) axis and the quantity demanded is on the horizontal (X) axis. If we plot Kojo’s demand schedule on a graph – with price on the Y-axis and quantity of oranges on the X-axis – we get a demand curve for oranges.

A typical demand curve slopes downward from left to right, which means it has a negative slope. In plain language, this downward slope shows that when the price is high, people demand less, and when the price is low, people demand more. For example, on Kojo’s demand curve, the point corresponding to Gh¢1.00 would be at a high quantity (25 oranges), while the point for Gh¢5.00 would be at a low quantity (5 oranges). Connecting these points forms a line slanting downwards. This inverse relationship between price and quantity demanded is a fundamental pattern in economics. Practically, it reflects common sense: if oranges become very cheap, Kojo (and other consumers) might buy a lot more of them; if oranges become very expensive, Kojo buys fewer or might even skip buying them altogether.

It’s important to note that a normal demand curve assumes all other factors remain equal (no changes in income, taste, etc., while looking at the price-quantity relationship). The downward slope of the curve is an illustration of the Law of Demand, which we will discuss next. Sellers and policymakers look at demand curves to forecast buying behavior – for instance, a business might predict how lowering the price of a product could increase the quantity sold by looking at the demand curve.

The Law of Demand and Demand Function

One of the most important ideas in economics is the Law of Demand. This law describes how price influences consumers’ buying behavior, assuming all other factors remain the same (a condition known by the Latin term ceteris paribus, meaning "all other things being equal").

What is the Law of Demand?

The Law of Demand states that, ceteris paribus, when the price of a product rises, the quantity demanded of that product falls, and when the price falls, the quantity demanded increases. In simpler terms, buyers generally purchase more of something when it’s cheaper and less of it when it’s more expensive. This is exactly what we saw in Kojo’s demand for oranges – he buys fewer oranges at higher prices and more oranges at lower prices. The law of demand reflects a common experience: imagine the price of your favorite snack doubles; you might decide to buy it less often or switch to a cheaper alternative. Conversely, if the price drops or there’s a sale, you might stock up because it’s a good deal.

Why does the law of demand hold true? There are a couple of intuitive reasons:

Substitution effect: When a product becomes more expensive, people tend to substitute it with a cheaper alternative. For example, if the price of rice skyrockets, a family might buy more maize or cassava instead.

Income effect: When prices go up, your money can’t buy as much as before – effectively, your purchasing power (income in terms of what it can buy) falls, so you cut back on quantities. When prices drop, your money goes further, so you can afford to buy more.

The law of demand is powerful for businesses and policymakers. Businesses use it to predict how changing the price might affect sales. If a shop owner knows that lowering the price of bread by 10% could significantly increase the quantity sold, they might do so to boost revenue or attract more customers. Policymakers also keep the law of demand in mind, for instance, when taxing goods like cigarettes or fuel – higher taxes lead to higher prices, which usually cause people to reduce their consumption of those items.

Demand Function: An Example (Qd = 30 – 5P)

Economists often use a demand function to describe the relationship between quantity demanded and price mathematically. A simple linear demand function can be written as:

$Q_{d} = a - b P,$

where:

$Q_d$ is the quantity demanded,
$P$ is the price of the good,
$a$ is a constant that represents the quantity demanded when price is zero (theoretically, how much would be demanded if the item were free!),
$b$ is a constant that represents how sensitive the quantity demanded is to price changes (this is the slope of the demand curve).

Let’s use a concrete example to see how a demand function works. Suppose Kojo’s demand for oranges can be described by the function:

$Q_d = 30 - 5P,$

where $Q_d$ is the number of oranges Kojo will buy in a week, and $P$ is the price of oranges in Ghana cedis (Gh¢) per orange. Here, the number 30 is the constant $a$ (if oranges were free at P = 0, Kojo would take 30 oranges), and 5 is $b$ , indicating that for each 1 Gh¢ increase in price, Kojo will buy 5 fewer oranges.

Using this demand function, we can calculate how many oranges Kojo demands at different prices:

**If $P = Gh¢1:** \(Q_d = 30 - 5(1) = 25$ oranges. At a price of 1 cedi per orange, Kojo wants 25 oranges.
**If $P = Gh¢2:** \(Q_d = 30 - 5(2) = 20$ oranges. At 2 cedis each, he will buy 20 oranges.
**If $P = Gh¢3:** \(Q_d = 30 - 5(3) = 15$ oranges.
**If $P = Gh¢4:** \(Q_d = 30 - 5(4) = 10$ oranges.
**If $P = Gh¢5:** \(Q_d = 30 - 5(5) = 5$ oranges.

You can see the pattern: for each extra Gh¢1 added to the price, Kojo’s quantity demanded drops by 5 units. This example illustrates the law of demand in action through a demand function. At a low price (Gh¢1), Kojo is willing to buy a lot of oranges, but as the price increases to Gh¢5, he buys only a few.

The demand function is handy because it not only lets us compute exact quantities for specific prices, but it can also be used to derive the demand curve or schedule. The constant $a = 30$ tells us the hypothetical maximum Kojo would consume if price were zero, and $b = 5$ tells us the rate at which his demand decreases as price rises. Businesses often determine such demand functions through market research and use them to set prices. For example, if Kojo represents the average consumer for oranges, an orange seller can predict how lowering the price from Gh¢3 to Gh¢2 might increase overall sales.

In summary, the law of demand is clearly reflected in this demand function: price and quantity demanded move in opposite directions. Understanding this relationship helps everyone – from a street vendor to a government minister – anticipate how changes in prices can influence buying habits.

Types of Demand

Not all demand is the same. Economists categorize demand into different types based on how goods relate to each other or their purposes. We will discuss four important types of demand: complementary demand, competitive (substitute) demand, derived demand, and composite demand. Each type is explained with practical examples to make the ideas clear.

Complementary (Joint) Demand

Complementary demand (also called joint demand) occurs when two or more goods are used together to satisfy a want. In other words, these goods complement each other – one is not as useful without the other. A classic example is a mobile phone and a SIM card. If you buy a new mobile phone, you also need a SIM card (and airtime or data) to use the phone for calls and internet. The two goods go hand-in-hand. In Ghana, think about gari and beans (yo ke gari, a common meal): people often consume them together. If the price of one complementary good falls, the demand for the other tends to rise because the combined purchase becomes more affordable. For instance, if mobile phones become cheaper, more people will buy phones, and as a result, demand for SIM cards will increase because each new phone buyer needs a SIM card. The reverse is also true: if mobile phones become very expensive, fewer phones are bought, and thus fewer SIM cards are needed. In summary, with complementary demand, two products are linked such that demand for one directly affects demand for the other. Businesses that sell complementary products (like printers and ink cartridges, or cars and fuel) often consider this relationship when setting prices or doing promotions.

Competitive (Substitute) Demand

Competitive demand arises with goods that are substitutes for each other – products that serve a similar purpose, so that a consumer can use one in place of the other. These goods are in competition for the consumer’s money. For example, consider two popular toothpaste brands: Pepsodent and Colgate. Both brands fulfill the same need (tooth cleaning), so they are substitutes. If your local shop runs out of Pepsodent, you might buy Colgate instead, and vice versa. Competitive demand means if the price of one substitute goes up, the demand for the other substitute is likely to increase, because consumers will switch to the cheaper option. For instance, if Pepsodent’s price rises significantly, many shoppers will buy Colgate (or another toothpaste) as a replacement; thus, demand for Colgate will rise when Pepsodent becomes more expensive. Similarly, if Pepsodent suddenly went on a big discount sale (price falls), some people who usually buy Colgate might switch to Pepsodent to save money, causing demand for Colgate to drop. We see substitute demand in many areas of daily life: if kenkey becomes too expensive, people might buy more rice; if trotro (minibus) fares increase, more commuters might consider riding a bicycle or walking. The key point is that substitute goods compete, and consumers will choose the one that offers a better deal, reflecting competitive demand.

Competitive Demand (Pepsodent Toothpaste Against Colgate Toothpaste)

Derived Demand

Derived demand refers to the demand for a good or service that arises not because consumers directly want that item, but because the item is needed to produce another good that consumers do want. In other words, a product has derived demand if its value comes from the demand for something else it helps to produce. A great example in Ghana is cocoa beans. Consumers around the world love chocolate, so there is high demand for chocolate. Cocoa beans themselves might not be immediately consumed by a person (you wouldn’t typically eat raw cocoa beans for a snack), but cocoa is demanded by chocolate manufacturers because it’s an essential ingredient in making chocolate. Thus, the demand for cocoa is derived from the demand for chocolate. If suddenly people want more chocolate (say, during holidays or due to a new chocolate product becoming popular), the demand for cocoa beans from chocolate producers will increase, even though the average person still isn’t directly buying raw cocoa. Another example: the demand for wood is often derived from the demand for furniture or paper. If there’s a boom in construction and people want more wooden furniture, the timber industry sees higher demand for lumber. The concept of derived demand is important in understanding industries that supply raw materials or intermediate goods – their fortunes depend on the demand for final goods down the line. When analyzing a market, remember that a commodity might be in demand not for its own sake, but because it helps create something else that people want.

Composite Demand

Composite demand occurs when a commodity is needed for multiple different uses. In this case, the same good has several distinct purposes, and people demand it for all those reasons combined. A common example is land. Land can be used for farming, for building houses, for setting up factories, for roads, or even for public parks and football fields. Because land has these many uses, the demand for land is composite – people want land for agriculture, real estate development, infrastructure, recreation, etc. Another example is water: it is demanded for drinking, cooking, washing, farming, and industrial processes. If one use of a product becomes very popular, it can increase the overall demand and potentially drive up the price for all uses. For instance, if suddenly there is a high demand for land to build a new housing estate in a town, that might make land more expensive even for farmers who want to buy land for planting crops, because both housing developers and farmers are competing for the same resource. In essence, with composite demand, one item serves many needs. Managing a commodity with composite demand can be tricky – for example, a government has to decide whether to allocate more land for agriculture or for industrial projects, knowing that satisfying one type of demand means the same commodity (land) won’t be available for another use. Understanding composite demand helps in making policies and business decisions, since it reminds us that boosting demand from one angle can impact availability and prices from another angle.

DEMAND (Land is used for different purposes)

Real-Life Case Studies: Demand in Action

To bring these concepts closer to home, let’s look at two real-life scenarios and see how demand works in each. These case studies illustrate how individuals and businesses respond to changes in price and income in everyday life.

Case Study 1: A Student Budgeting for School Supplies

Ama is a senior high school student in Cape Coast who has saved Gh¢50 of her pocket money to buy school supplies for the new term. Her list includes notebooks, pens, and a mathematical set. At the stationery shop, Ama notices that notebooks cost Gh¢5 each. With her Gh¢50 budget, if she bought only notebooks, she could afford 10 notebooks (since 10 × Gh¢5 = Gh¢50). However, she also needs pens and the math set. She decides to allocate her money based on what she needs most and the prices of the items. The demand Ama has for each item depends on its price and her limited budget. Initially, she plans for 5 notebooks (Gh¢25), 10 pens at Gh¢1 each (Gh¢10), and 1 math set for Gh¢15, which exactly uses up her Gh¢50. Now imagine the price of notebooks suddenly drops to Gh¢2.50 each in a back-to-school sale. Ama’s eyes light up – with the price half of what it was, she can now afford to buy more notebooks for the same total amount. She might decide to buy 8 or even 10 notebooks now, because the lower price has effectively increased her purchasing power. This reflects the law of demand: as the price of notebooks fell, Ama’s quantity demanded (her willingness to buy notebooks) rose. On the other hand, if notebooks were to double in price to Gh¢10 each, Ama might only buy 2 or 3 notebooks, or look for second-hand books, because her budget is constrained. Ama’s decision-making is a small-scale example of demand in action. It shows how a student budgets and makes choices: when prices are high, she must cut back, and when prices are favorable, she can satisfy more of her needs. Her experience is similar to how households adjust their consumption – if school fees or food prices go up, families may reduce spending on other items. Ama also illustrates complementary demand: she bought a mathematical set to use along with her math textbook, and she needs both for her studies (complementary goods in education). In summary, a student like Ama constantly experiences demand forces – balancing limited funds against the prices of what she needs or wants.

Case Study 2: A School Canteen Adjusts Prices to Influence Demand

Mr. Mensah runs the canteen at a local senior high school. He sells items like rice bowls, meat pie, kelewele (spiced fried plantains), and drinks to students and teachers. At the start of the term, Mr. Mensah noticed that sales of his rice bowls were low – at a price of Gh¢10 per bowl, only a few students were buying lunch from him. Remembering the law of demand, he decides to experiment by lowering the price to Gh¢8 per bowl to see if more students will buy. The following week, more students line up for rice bowls; some who used to skip lunch or bring food from home are now willing to buy because it’s more affordable. As expected, lowering the price increased the quantity demanded for the rice bowls. Encouraged by this, Mr. Mensah also observes the effect of substitute goods. He sells both meat pies and sausage rolls, which are similar snacks (substitutes for each other). When he slightly raised the price of meat pies from Gh¢3 to Gh¢4 (due to higher cost of ingredients), he noticed that many students switched to buying sausage rolls, which remained at Gh¢3. The demand for meat pies dropped, and demand for sausage rolls rose – a clear example of competitive demand in the school canteen. Additionally, Mr. Mensah experiences derived demand in his operations. For instance, the demand for disposable paper packs and plastic cutlery in his canteen is derived from the demand for the food he sells – he buys more packing materials only because students are buying meals that need to be packaged. At the end of the day, Mr. Mensah’s pricing strategy demonstrates how sellers can influence demand: by adjusting prices, they can find the sweet spot where more customers are happy to buy, which can actually increase overall revenue. It’s a lesson in basic economics for the canteen manager – understanding your customers’ demand can help you serve them better and run a more successful business. The students, on their side, benefit from fair prices and show their preferences clearly through what they choose to buy each day.

Review Questions

Test your understanding of Market and Demand with these questions:

1. Distinguish between buyers and sellers in a market:

a. What are two key roles that buyers play in a market?

b. What are two key roles that sellers play in a market?

2. Define demand and explain what happens to the quantity demanded of a commodity when its price changes (according to the law of demand).

3. Given a demand function

Q_{d} = 20 - 3 P

a. Prepare a demand schedule showing the quantity demanded when the price (P) is Gh¢1, Gh¢2, Gh¢3, Gh¢4, and Gh¢5.

b. Sketch or describe the demand curve for this commodity based on the schedule.

c. Using your demand schedule, explain how it illustrates the law of demand.

4. Types of Demand: With an example for each, explain the following:

a. Derived demand

b. Composite demand

c. Complementary (joint) demand

d. Competitive (substitute) demand

5. State the Law of Demand in your own words and describe a real-life situation (at school or at home) where you have observed this law in action.

Conclusion

Understanding market and demand is fundamental to grasping how our economy works, even at the everyday level of school life or local communities. We learned that markets bring together buyers and sellers, each with their own goals, and that demand is all about how much people are willing and able to buy at different prices. The law of demand reminds us why prices matter and how they influence our decisions. We also explored demand schedules and curves as tools to visualize this, and discussed various types of demand that connect goods in interesting ways (from smartphones and SIM cards to land and its many uses).

Keep observing the world around you – you’ll notice these concepts in action whenever you see a sale at a shop, choose between products, or hear about prices going up or down. Economics is not just an abstract subject; it’s a living, breathing part of daily life. Keep learning and exploring these ideas, and you’ll be better prepared to make smart decisions as a consumer, entrepreneur, or policymaker in the future. Remember, this is just one lesson in your journey. Stay curious and continue reading more from Notes for SHS to build a strong foundation in economics and other subjects. Happy learning!

Frequently Asked Questions (FAQs)

What is the market and demand theory?

Market and demand theory explains how buyers and sellers interact to determine prices and quantities of goods and services. The market is any place or system—physical or virtual—where these exchanges occur. Demand theory focuses on consumers’ willingness and ability to purchase items at different prices. It shows that, ceteris paribus, the lower the price, the higher the quantity demanded, and vice versa (the Law of Demand). Together, market and demand theory help us predict how changes in price, income, or preferences will affect buying and selling behavior.

What are the 4 types of demand?

Complementary (Joint) Demand: Goods used together, such as printers and ink cartridges—when demand for one rises, demand for its complement rises.
Substitute (Competitive) Demand: Goods that replace each other, like Fanta and Coke—if one’s price rises, demand shifts to the other.
Derived Demand: Demand for a good used to produce another, such as cocoa beans for chocolate.
Composite Demand: A good with multiple uses, like land (for farming, housing, industry)—increased demand in one use affects all uses.

What do you mean by market?

A market is any arrangement—physical (a local open-air market) or virtual (an online platform)—where buyers and sellers meet to exchange goods and services. Markets coordinate production and consumption: sellers supply products based on costs and desired profits, and buyers express their needs and budgets. Prices emerge from this interaction, guiding resource allocation across the economy.

What are the 4 elements of market demand?

The four key elements shaping market demand are:

Price of the Good: Higher prices usually reduce quantity demanded; lower prices increase it (Law of Demand).
Consumers’ Income: Higher income generally raises demand for normal goods; lower income reduces it.
Preferences and Tastes: Trends, advertising, and cultural factors can shift demand up or down.
Prices of Related Goods: Changes in prices of substitutes or complements will respectively raise or lower demand.

How do you define demand?

Demand is the quantity of a good or service that consumers are both willing and able to buy at various prices over a specified period. It requires two conditions: the desire for the item (willingness) and the financial means to purchase it (ability). Without both, true demand does not exist.

What is market and market demand?

Market refers to the setting where exchange happens between buyers and sellers. Market demand is the total quantity of a good or service that all consumers in that market are willing and able to purchase at different prices. It is found by horizontally summing individual demand schedules to see overall demand at each price point.

What do you mean by market and demand analysis?

Market and demand analysis involves studying both the overall market environment (structure, competitors, distribution channels) and how consumers’ demand responds to price, income, and other factors. This analysis helps businesses forecast sales, set prices, and plan production by understanding market size, demand trends, and customer behavior.

What is the market theory?

Market theory encompasses the principles that explain how markets allocate resources and determine prices through the interaction of supply and demand. It covers concepts such as equilibrium price (where quantity demanded equals quantity supplied), market efficiency, and the effects of shifts in demand or supply curves on prices and quantities.

What are the 4 sources of demand?

Economists typically identify four broad sources of demand that can shift a demand curve:

Income Changes: Changes in consumers’ purchasing power.
Taste and Preferences: Alterations in consumer likes due to trends or advertising.
Prices of Related Goods: Movements in substitute or complementary goods’ prices.
Expectations: Anticipations of future price or income changes.

What are the 4 methods of maximum demand?

In utility theory, maximum demand methods are ways to measure consumer choice, but in practical market analysis, you might consider:

Survey Forecasting: Asking potential buyers directly.
Statistical Analysis: Using historical sales data and regression techniques.
Test Marketing: Piloting a product in a small market segment.
Expert Opinion: Gathering insights from industry specialists.

(Note: these methods help estimate the highest likely demand level under best conditions.)

What are the factors affecting demand?

Key factors affecting demand include:

Price of the Good: The primary determinant (inverse relationship).
Consumer Income: Higher income raises demand for most goods.
Tastes and Preferences: Changing fashions or information.
Prices of Substitutes and Complements: Cross-price effects.
Consumer Expectations: Anticipated future price or income changes.

What are the 5 determinants of demand?

The five main determinants of demand are:

Price of the Good (own-price effect).
Income of Consumers (normal vs. inferior goods).
Tastes and Preferences.
Prices of Related Goods (substitutes and complements).
Expectations regarding future prices or availability.

What are the 4 types of markets?

Economists classify markets by competition level:

Perfect Competition: Many sellers offering identical products (e.g., agricultural markets).
Monopolistic Competition: Many sellers offering differentiated products (e.g., restaurants).
Oligopoly: Few large firms dominating (e.g., mobile network operators).
Monopoly: Single seller controls the market (e.g., a state-owned utility).

How to calculate demand?

To calculate demand, you can use a demand function like $Q_d = a - bP$ . Plug in the price $P$ to find the quantity demanded $Q_d$ . For example, if $Q_d = 30 - 5P$ and $P = 4$ , then $Q_d = 30 - 5\nobreak\cdot 4 = 10$ . Alternatively, for real-world estimation, firms often collect price-quantity data over time, then use statistical techniques (regression analysis) to derive the demand curve that best fits observed consumer behavior.

EXTENDED READING:

https://www.investopedia.com/terms/d/demand.asp

https://www.investopedia.com/terms/l/lawofdemand.asp

https://youtu.be/PJTZqsThldA?si=kG_MKc1upFjeZBGp

REFERENCES:

Arrow, K.J (1962). The economic implications of learning by doing. Review of economic studies 29 (3)

Baye, M.R. (2010). Microeconomics and business strategy. New York, NY: McGraw-Hill Irwin

Robbins, Lionel. An Essay on the Nature and Significance of Economic Science. London: Macmillan