Preferences and choices, which underlie demand, can be represented as functions of cost, benefit, odds managerial economics and strategy by jeffrey m perloff pdf other variables. Innumerable factors and circumstances could affect a buyer’s willingness or ability to buy a good. The basic demand relationship is between potential prices of a good and the quantities that would be purchased at those prices.
Generally the relationship is negative meaning that an increase in price will induce a decrease in the quantity demanded. This negative relationship is embodied in the downward slope of the consumer demand curve. The assumption of a negative relationship is reasonable and intuitive. If the price of a new novel is high, a person might decide to borrow the book from the public library rather than buy it. The principal related goods are complements and substitutes. A complement is a good that is used with the primary good.
Examples include hotdogs and mustard, beer and pretzels, automobiles and gasoline. Perfect complements behave as a single good. If the price of the complement goes up the quantity demanded of the other good goes down. Mathematically, the variable representing the price of the complementary good would have a negative coefficient in the demand function.
The other main category of related goods are substitutes. Substitutes are goods that can be used in place of the primary good. The mathematical relationship between the price of the substitute and the demand for the good in question is positive. If the price of the substitute goes down the demand for the good in question goes down.
The greater the desire to own a good the more likely one is to buy the good. There is a basic distinction between desire and demand. Desire is a measure of the willingness to buy a good based on its intrinsic qualities. Demand is the willingness and ability to put one’s desires into effect. It is assumed that tastes and preferences are relatively constant. If the population grows this means that demand will also increase.