Markets and Sub-Markets:

• A market arises when buyers and sellers engage in transactions. Within a larger market, sub-markets exist, each possessing unique characteristics. In each sub-market, distinct market structures can be observed. For instance, within the broader banking market, sub-markets can include credit cards, loans, mortgages, or savings accounts.

Demand:

• Demand refers to the quantity of a product or service that consumers are both willing and able to purchase at a given price within a specific timeframe. The level of demand is influenced by price, with lower prices generally making a good more affordable and consequently increasing consumer demand. This relationship can be graphically depicted using a demand curve.

Price and Quantity Demanded: Marginal Utility Theory and Effects:

Marginal Utility:

• Marginal utility represents the additional satisfaction gained from consuming one additional unit of a particular good.

Downward-Sloping Demand Curve:

• The demand curve slopes downward due to the concept of diminishing marginal utility. According to the law of diminishing marginal utility, as consumers consume more units of a good, the additional utility derived from each extra unit decreases. Consequently, consumers are willing to pay less for additional units.

Price Increase Effects:

• When the price of a good increases:
  • The good becomes relatively more expensive compared to alternatives, leading to the substitution effect. This effect, assuming income remains constant, measures how much a higher price for a good encourages consumers to switch to substitute products.
  • Disposable income decreases, potentially causing a reduction in demand. This is known as the income effect and examines how price changes impact disposable income. These two effects help explain the downward slope of the demand curve.

Individual vs. Market Demand:

• Individual Demand: Individual demand represents the demand of a single consumer or firm, measured by the quantity purchased at a specific price point in time.
• Market Demand: Market demand is the cumulative demand of all individuals and entities within a market. It reflects the total quantity demanded for a particular good or service within that market.

Types of Demand:

1. Derived Demand:

   • Derived demand refers to a situation where the demand for one product is directly linked to the demand for another related product.
   • For instance, the demand for bricks is derived from the need for new houses. Similarly, the demand for labor is derived from the production of goods. When the demand for a product like cars increases, the demand for labor to manufacture those cars also increases.

2. Composite Demand:

   • Composite demand occurs when a single product can serve multiple purposes or has various uses.
   • Consider milk as an example. If there's a fixed supply of milk, an increase in the demand for cheese may lead to more milk being allocated to cheese production, resulting in less milk available for producing butter.

3. Joint Demand:

   • Joint demand arises when two or more goods are commonly purchased together as a bundle.
   • For instance, the purchase of a camera often includes the demand for a memory card, as they are typically used together.

4. Competitive Demand:

   • Competitive demand is observed when multiple goods are considered substitutes for each other.
   • When consumers choose between similar products from different manufacturers, such as a Samsung TV versus a Sony TV, it represents competitive demand as the sale of one brand competes with the other.

   Factors Shifting the Demand Curve (PIRATES):

   • P - Population:
     • The size and composition of the population significantly impact demand. A larger population generally leads to higher demand. Changes in population demographics, such as the distribution of age groups, can also influence demand.
   • I - Income:
     • The level of consumer income plays a crucial role in demand. When consumers have more disposable income, they can afford to purchase more goods, leading to an increase in demand.
   • R - Related Goods:
     • Related goods can be either substitutes or complements. Substitutes can replace one another, like different brands of TVs. If the price of a substitute falls, the demand for the original product decreases as consumers switch to the cheaper option. Complements are goods that are typically consumed together, such as strawberries and cream. If the price of strawberries rises, the demand for cream falls because fewer people buy strawberries, leading to lower demand for cream.
   • A - Advertising:
     • Advertising campaigns can boost consumer loyalty to a particular product and increase its demand.
   • T - Tastes and Fashions:
     • Changes in consumer preferences and trends, often driven by evolving tastes and fashions, can shift the demand curve. For instance, the demand for physical books may decline if consumers prefer reading e-books.
   • E - Expectations:
     • Expectations about future price changes can affect demand. If speculators anticipate that the price of shares in a company will rise in the future, demand for those shares is likely to increase in the present.
   • S - Seasons:
     • Demand varies with the seasons. For example, during the summer, the demand for products like ice cream and sun lotions typically increases.