Market Demand Essay

2172 words - 9 pages

Market Demand Essay Question 1 What is meant by market demand? How do expansions and contractions differ from increases and decreases in demand? Explain the factors which cause a movement along a demand curve and shift in the demand curve? Use diagrams to aid your explanations.Demand forms the basis of microeconomics, which is the economics concerned with individual consumers, groups of consumers and business firms. Market demand is analysed using a demand curve as a tool. Contractions and expansions show the affects that changes to the price of the good, has on the quantity that is demanded by consumers. Increases and decreases differ to contractions and expansions in several ways. Shifts in the demand curve are seen as increases and decreases, which are influenced to move by a number of key factors that must be explored.Demand is the quantity of a particular good or service that consumers are both able and willing to buy at various price levels, during a specific period of time. Demand is defined by the Penguin Dictionary Of Economics as being, "The desire for a particular good or service supported by the possession of the necessary means of exchange to effect ownership." The theory of demand is expressed as, "The area of economics concerned with the allocation of limited resources to different commodities in the purchasing decisions of rational consumers." There are two types of demand. Individual demand is concerned with the demand for a particular product, either a good or service, by a single consumer or individual household. Market demand is the result of adding the quantities demanded by all individuals for a particular product. In order for a material desires to become known as demand, the consumer must also be capable of purchasing it. Wants must not be confused with demand in this way because wants may or may not be satisfied.The market demand of any good or service is determined by a number of factors. These range from the price of the good itself to the level of income. These factors are known as determinants. It is often difficult to examine all of the factors at once because they influence market concurrently. When analysing demand one determinant is allowed to vary and one assumes that all other factors that could affect demand remain unchanged. This economic assumption is known as the Ceteris Paribus Assumption. This is a Latin phrase meaning "other things being equal" or holding all other influences constant.A demand schedule is a useful tool to analyse market demand with the Ceteris Paribus Assumption. A demand schedule is a table that shows the quantity of a commodity which will be purchased at various price levels in a given time period. A typical demand curve is a graphical representation of a market demand schedule. Such a device is used to isolate this influence assuming other factors are constant. The price of the good itself will change the quantity demanded in the opposite direction to the price. This is seen as the...

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