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L 02

The Theory of Demand explains the willingness and ability of buyers to purchase goods at various prices over a specific time period. It includes concepts such as the Law of Demand, which states that as prices rise, quantity demanded falls, and vice versa. Additionally, the demand curve illustrates these relationships, while shifts in the demand curve are influenced by factors like income, prices of related goods, tastes, expectations, and the number of buyers.

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8 views10 pages

L 02

The Theory of Demand explains the willingness and ability of buyers to purchase goods at various prices over a specific time period. It includes concepts such as the Law of Demand, which states that as prices rise, quantity demanded falls, and vice versa. Additionally, the demand curve illustrates these relationships, while shifts in the demand curve are influenced by factors like income, prices of related goods, tastes, expectations, and the number of buyers.

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23108003
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Theory of Demand

Theory of Demand

• Demand: Demand refers to:


1. the willingness and ability of buyers to purchase different quantities of a good
2. at different prices
3. during a specific time period (per day, week, etc.).
• Demand is the willingness and ability of buyers to purchase different quantities
of a good at different prices during a specific period of time, other things held
constant.
• Want:
• Quantity demanded is the amount (number of units) of a product that a
household would buy at a particular price in a given time period, other things
held constant.

• The Law of Demand: As the price of a good rises, the quantity demanded of the
good falls, and as the price of a good falls, the quantity demanded of the good
rises, all other things constant” or “nothing else changes” (ceteris paribus).
Demand Schedule

• A demand schedule is a table showing how much of a given product a


household would be willing to buy at different prices, other things held
constant.
Demand Curve

• The demand curve is a graph illustrating how much of a given product a


household would be willing to buy at different prices, other things held constant.
Changes in Demand versus Changes in Quantity Demanded

• A change in price, ceteris paribus, results in a change in quantity demanded;


that is a movement along the curve not a change in demand.

• Quantity demanded = The number of units of a good that individuals are


willing and able to buy at a particular price.

• Change in quantity demanded = A movement from one point to another point


on the same demand curve caused by a change in the price of the good.

• A change in demand (curve) results from changes in factors other than price.
Such changes cause shifts of the demand curve.
Change in demand = Shift in demand curve
What Factors Cause the Demand Curve to Shift?/The determinants
of demand /Factors affecting the demand curve

• Determinants of demand:
– Income (normal, inferior)
Normal Good: A good the demand for which rises (falls) as income
rises (falls).
Inferior Good: A good the demand for which falls (rises) as income
rises (falls).
– Prices of related goods (substitutes, complements)
– Tastes
– Expectations
– Number of buyers
What Factors Cause the Demand Curve to Shift?/ The
Determinants of Demand / Factors Affecting the Demand Curve

• Substitutes are goods that can serve as replacements for one another;
when the price of one increases, demand for the other goes up. Perfect
substitutes are identical products.

• Complements are goods that “go together”; a decrease in the price of one
results in an increase in demand for the other, and vice versa.
Shift of Demand Versus Movement Along a Demand Curve

• A change in demand is not the same as a change in quantity demanded.


• In this example, a higher price causes lower quantity demanded.
• Changes in determinants of demand, other than price, cause a change in
demand, or a shift of the entire demand curve, from DA to DB.

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