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DEMAND

Demand notes

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Godswill Okpolokpo
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10 views

DEMAND

Demand notes

Uploaded by

Godswill Okpolokpo
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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DEMAND

Demand is the quantity of a good/service that a consumer is willing & able to


purchase at a given price in a given time period. If a consumer is willing to purchase
a good, but cannot afford to, it is not effective demand but a mere demand - desire
or wish. Effective demand is where the willingness to buy is backed by the ability to
pay.

LAW OF DEMAND
The law of demand states that “an increase in price leads to a decrease in
demand, and a decrease in price leads to an increase in demand” (it's an inverse
or negative relationship between price and demand. This means demand will rise
as price falls and fall as price rises. The law of demand is established with respect
to changes in price, not demand).

A higher price will mean that fewer people will be able to afford the product. They
will also be less willing to buy it and will be more likely to switch to rival products.
So, as price rises, the willingness and ability to buy a product falls.

Demand schedule
A demand schedule lists the different quantities demanded of a product, at different
prices over a particular time period.

Demand curve
A demand curve is a graphical representation of the price (P) and quantity
demanded (QD) by consumers. If data were plotted, it would be an actual curve.
Economists, however, use straight lines so as to make analysis easier.

Individual & Market Demand


Market demand is the combination of all the individual demand for a good/service. It
is calculated by adding up the individual demand at each price level. Again, totalling
up of the demand of all of the potential buyers is sometimes referred to as
aggregation.

The Monthly Market Demand for Newspapers in a Small Village


A shop sells both boys & girls swimwear. In July, at a price of $10, the demand for
boys swimwear is 500 units & girls is 400 units. At a price of $10, the shops market
demand during July is 900 units

Movements along a Demand Curve


If price is the only factor that changes (ceteris paribus), there will be a change in
the quantity demanded (QD). This change is shown by a movement along the
demand curve.

Effect of a change in price on demand


A fall in the price of a product is likely to lead to a rise in demand for it. So 'an
extension in demand', 'expansion in demand' or 'an increase in the quantity
demanded' tells us that the cause of the change in demand is a change in the
price of the product itself – fall in price. This change can be illustrated on a demand
curve, as shown as shown below.
An extension in demand

This diagram shows that a fall in price from P to P1 has caused the demand to
extend from
Q to Q.

On the other hand, a rise in price will cause a contraction in demand which can
also be
referred to as a decrease in quantity demanded.

A contraction in demand
The diagram above shows us, the impact of a rise in price. Demand contracts from
Q to Q as a result of a rise in price from P to P1.
Shifts of the Demand Curve
There are numerous factors that will change the demand for a good/service,
irrespective of the price level. Collectively these factors are called the conditions
of demand
Changes to each these conditions of demand, shifts the entire demand curve (as
opposed to a movement along the demand curve).

For example, if a firm increases their Instagram advertising, there will be an


increase in demand as more consumers become aware of the product. This is a shift
in demand from D to D1 - The price remains unchanged at 7 but the demand has
increased from 15 to 25 units.
Causes of changes in demand

Changes in income
An increase in income raises consumers' purchasing power, this results in an
increase in demand. However, if there is positive relationship between income and
demand that such products are referred to as normal goods. While if there is a
negative relationship between income and demand, these goods will be referred to
as inferior goods. This means that if income rises, demand falls as consumers
switch to better quality products.

Changes in the price of related products


An increase in demand can be caused by a rise in the price of a substitute
product.
For example, if Pepsi becomes cheaper, demand for Coca-Cola will decrease.
Demand will also increase if the price of a complement falls. if travel insurance
becomes cheaper, demand for holidays to most of the destinations will increase.

Advertising campaigns
A successful advertising campaign will increase demand for a product. It may bring
the
product to the notice of some new consumers and may encourage some existing
consumers to purchase more quantities of the product.

Changes in population
The population of a country can change in terms of both size and age composition.
If there is an increase in the number of people in the country, demand for most
products will increase.
If there is an ageing population, with people living longer, and a fall in the birth rate,
demand for wheelchairs is likely to increase while demand for toys is likely to
decrease.

Changes in taste and fashion


Certain products are particularly influenced by changes in taste and fashion. These
include food, clothes and entertainment. A rise in vegetarianism in a number of
countries has caused the demand for meat to decrease. Health reports can have a
significant influence on demand for particular foods. Designer trainers have become
more popular in many countries, and the rise in the popularity of football in Asia and
Africa has increased demand for football shirts and football merchandise.

Other factors
Expectations about future price rises can influence current demand.
Government policy

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