Demand

Demand

In the previous section, we saw how a consumer chooses her optimal bundle — the combination of goods that gives her the highest possible satisfaction given her budget. That choice depends on four things: the price of the good itself, the prices of other goods, the consumer’s income, and her tastes and preferences.

Now we focus on one specific aspect of that choice: the quantity of a single good that the consumer ends up buying. This quantity is called the demand for that good.

Notice the two conditions in that definition. Willingness alone is not enough — you might want a new phone but cannot afford it. Ability to pay alone is also not enough — you might have the money but no desire to buy. Demand requires both.

Whenever any of the four determinants changes — the good’s own price, other goods’ prices, income, or tastes — the quantity demanded is likely to change. The textbook now takes up each of these variables one at a time and studies how the amount of the good chosen is related to that variable. This is the classic method of ceteris paribus — holding all other factors constant while changing just one.