Demand curve in the context of Correlation matrix

In economics, a demand shock is a sudden event that increases or decreases demand for goods or services temporarily.

A positive demand shock increases aggregate demand (AD) and a negative demand shock decreases aggregate demand. Prices of goods and services are affected in both cases. When demand for goods or services increases, its price (or price levels) increases because of a shift in the demand curve to the right. When demand decreases, its price decreases because of a shift in the demand curve to the left. Demand shocks can originate from changes in things such as tax rates, money supply, and government spending. For example, taxpayers owe the government less money after a tax cut, thereby freeing up more money available for personal spending. When the taxpayers use the money to purchase goods and services, their prices go up.

In statistics, correlation or dependence is any statistical relationship, whether causal or not, between two random variables or bivariate data. Although in the broadest sense, "correlation" may indicate any type of association, in statistics it usually refers to the degree to which a pair of variables are linearly related. Familiar examples of dependent phenomena include the correlation between the height of parents and their offspring, and the correlation between the price of a good and the quantity the consumers are willing to purchase, as it is depicted in the demand curve.

Correlations are useful because they can indicate a predictive relationship that can be exploited in practice. For example, an electrical utility may produce less power on a mild day based on the correlation between electricity demand and weather. In this example, there is a causal relationship, because extreme weather causes people to use more electricity for heating or cooling. However, in general, the presence of a correlation is not sufficient to infer the presence of a causal relationship (i.e., correlation does not imply causation).

In economics, market power refers to the ability of a firm to influence the price at which it sells a product or service by manipulating either the supply or demand of the product or service to increase economic profit. In other words, market power occurs if a firm does not face a perfectly elastic demand curve and can set its price (P) above marginal cost (MC) without losing revenue. This indicates that the magnitude of market power is associated with the gap between P and MC at a firm's profit maximising level of output. The size of the gap, which encapsulates the firm's level of market dominance, is determined by the residual demand curve's form. A steeper reverse demand indicates higher earnings and more dominance in the market. Such propensities contradict perfectly competitive markets, where market participants have no market power, P = MC and firms earn zero economic profit. Market participants in perfectly competitive markets are consequently referred to as 'price takers', whereas market participants that exhibit market power are referred to as 'price makers' or 'price setters'.

The market power of any individual firm is controlled by multiple factors, including but not limited to, their size, the structure of the market they are involved in, and the barriers to entry for the particular market. A firm with market power has the ability to individually affect either the total quantity or price in the market. This said, market power has been seen to exert more upward pressure on prices due to effects relating to Nash equilibria and profitable deviations that can be made by raising prices. Price makers face a downward-sloping demand curve and as a result, price increases lead to a lower quantity demanded. The decrease in supply creates an economic deadweight loss (DWL) and a decline in consumer surplus. This is viewed as socially undesirable and has implications for welfare and resource allocation as larger firms with high markups negatively effect labour markets by providing lower wages. Perfectly competitive markets do not exhibit such issues as firms set prices that reflect costs, which is to the benefit of the customer. As a result, many countries have antitrust or other legislation intended to limit the ability of firms to accrue market power. Such legislation often regulates mergers and sometimes introduces a judicial power to compel divestiture.

In mathematics, a limiting case of a mathematical object is a special case that arises when one or more components of the object take on their most extreme possible values. For example:

• In statistics, the limiting case of the binomial distribution is the Poisson distribution. As the number of events tends to infinity in the binomial distribution, the random variable changes from the binomial to the Poisson distribution.
• A circle is a limiting case of various other figures, including the Cartesian oval, the ellipse, the superellipse, and the Cassini oval. Each type of figure is a circle for certain values of the defining parameters, and the generic figure appears more like a circle as the limiting values are approached.
• Archimedes calculated an approximate value of π by treating the circle as the limiting case of a regular polygon with 3 × 2 sides, as n gets large.
• In electricity and magnetism, the long wavelength limit is the limiting case when the wavelength is much larger than the system size.
• In economics, two limiting cases of a demand curve or supply curve are those in which the elasticity is zero (the totally inelastic case) or infinity (the infinitely elastic case).
• In finance, continuous compounding is the limiting case of compound interest in which the compounding period becomes infinitesimally small, achieved by taking the limit as the number of compounding periods per year goes to infinity.

A limiting case is sometimes a degenerate case in which some qualitative properties differ from the corresponding properties of the generic case. For example:

Value added is a term in economics for calculating the difference between market value of a product or service, and the sum value of its constituents. It is relatively expressed by the supply-demand curve for specific units of sale. Value added is distinguished from the accounting term added value which measures only the financial profits earned upon transformational processes for specific items of sale that are available on the market.

In business, total value added is calculated by tabulating the unit value added (measured by summing unit profit — the difference between sale price and production cost, unit depreciation cost, and unit labor cost) per each unit sold. Thus, total value added is equivalent to revenue minus intermediate consumption. Value added is a higher portion of revenue for integrated companies (e.g. manufacturing companies) and a lower portion of revenue for less integrated companies (e.g. retail companies); total value added is very nearly approximated by compensation of employees, which represents a return to labor, plus earnings before taxes, representative of a return to capital.

In economics, a price point is a point along the demand curve at which demand for a given product is supposed to stay relatively high.

In economics, a complementary good is a good whose appeal increases with the popularity of another good, its complement. Technically, it displays a negative cross elasticity of demand and that demand for it increases when the price of another good decreases. If ${\displaystyle A}$ is a complement to ${\displaystyle B}$, an increase in the price of ${\displaystyle A}$ will result in a negative movement along the demand curve of ${\displaystyle A}$ and cause the demand curve for ${\displaystyle B}$ to shift inward; less of each good will be demanded. Conversely, a decrease in the price of ${\displaystyle A}$ will result in a positive movement along the demand curve of ${\displaystyle A}$ and cause the demand curve of ${\displaystyle B}$ to shift outward; more of each good will be demanded. This is in contrast to a substitute good, whose demand decreases when its substitute's price decreases.

When two goods are complements, they experience joint demand - the demand of one good is linked to the demand for another good. Therefore, if a higher quantity is demanded of one good, a higher quantity will also be demanded of the other, and vice versa. For example, the demand for razor blades may depend on the number of razors in use; this is why razors have sometimes been sold as loss leaders, to increase demand for the associated blades. Another example is that sometimes a toothbrush is packaged free with toothpaste. The toothbrush is a complement to the toothpaste; the cost of producing a toothbrush may be higher than toothpaste, but its sales depends on the demand of toothpaste.

Demand destruction is a permanent downward shift on the demand curve in the direction of lower demand of a commodity, such as energy products, induced by a prolonged period of high prices or constrained supply. In the context of the oil industry, "demand" generally refers to the quantity consumed (see for example the output of any major industry organization such as the International Energy Agency), rather than any measure of a demand curve as used in mainstream economics. In economics, demand destruction refers to a permanent or sustained decline in the demand for a certain good in response to persistent high prices or limited supply. Because of persistent high prices, consumers may decide that it is not worth purchasing as much of that good, or seek out alternatives as substitutes.

The Sonnenschein–Mantel–Debreu theorem is an important result in general equilibrium economics, proved by Gérard Debreu, Rolf Mantel (es), and Hugo F. Sonnenschein in the 1970s. It states that the excess demand curve for an exchange economy populated with utility-maximizing rational agents can take the shape of any function that is continuous, has homogeneity degree zero, and is in accordance with Walras's law. This implies that the excess demand function does not take a well-behaved form even if each agent has a well-behaved utility function. Market processes will not necessarily reach a unique and stable equilibrium point.

More recently, Jordi Andreu, Pierre-André Chiappori, and Ivar Ekeland extended this result to market demand curves, both for individual commodities and for the aggregate demand of an economy as a whole. This means that demand curves may take on highly irregular shapes, even if all individual agents in the market are perfectly rational. In contrast with usual assumptions, the quantity demanded of a commodity may not decrease when the price increases. Frank Hahn regarded the theorem as a dangerous critique of mainstream neoclassical economics.

A private good is defined in economics as "an item that yields positive benefits to people" that is excludable, i.e. its owners can exercise private property rights, preventing those who have not paid for it from using the good or consuming its benefits; and rivalrous, i.e. consumption by one necessarily prevents that of another. A private good, as an economic resource is scarce, which can cause competition for it. The market demand curve for a private good is a horizontal summation of individual demand curves.

Unlike public goods, such as clean air or national defense, private goods are less likely to have the free rider problem, in which a person benefits from a public good without contributing towards it. Assuming a private good is valued positively by everyone, the efficiency of obtaining the good is obstructed by its rivalry; that is simultaneous consumption of a rivalrous good is theoretically impossible. The feasibility of obtaining the good is made difficult by its excludability, which means that people have to pay for it to enjoy its benefits.

In economics, an inverse demand function is the mathematical relationship that expresses price as a function of quantity demanded (it is therefore also known as a price function).

Historically, the economists first expressed the price of a good as a function of demand (holding the other economic variables, like income, constant), and plotted the price-demand relationship with demand on the x (horizontal) axis (the demand curve). Later the additional variables, like prices of other goods, came into analysis, and it became more convenient to express the demand as a multivariate function (the demand function):${\displaystyle {demand}=f({price},{income},...)}$, so the original demand curve now depicts the inverse demand function ${\displaystyle {price}=f^{-1}({demand})}$ with extra variables fixed.

In microeconomics, the law of demand is a fundamental principle which states that there is an inverse relationship between price and quantity demanded. In other words, "conditional on all else being equal, as the price of a good increases (↑), quantity demanded will decrease (↓); conversely, as the price of a good decreases (↓), quantity demanded will increase (↑)". Alfred Marshall worded this as: "When we say that a person's demand for anything increases, we mean that he will buy more of it than he would before at the same price, and that he will buy as much of it as before at a higher price". The law of demand, however, only makes a qualitative statement in the sense that it describes the direction of change in the amount of quantity demanded but not the magnitude of change.

The law of demand is represented by a graph called the demand curve, with quantity demanded on the x-axis and price on the y-axis. Demand curves are downward sloping by definition of the law of demand. The law of demand also works together with the law of supply to determine the efficient allocation of resources in an economy through the equilibrium price and quantity.