Demand

Demand
Definition Law of Schedule and
DEMAND Demand Demand
Curve

Demand
Function and Factors
Demand Affecting
Equation Demand
What Is DEMAND?
Demand
– various quantities of goods and
services per unit of time that consumers
are willing and able to take off from the
market at all possible alternative prices,
ceteris paribus.
2 Types of Demand

• Need – anything that you can’t live

without

• Want – anything that you can live

without
Law of Demand
Law of Demand
– states that other things equal,
the quantity demanded of a good
falls when the price of the good
rises.
An inverse relationship exists between
price and quantity demanded
 Price as a signal
Scarcity

Buy less Price Buy more

Abundance
Demand Schedule
and
Demand Curve
 Demand schedule
• Listing of all the different quantities of the
commodity that consumers will take off from
the market against the various alternatives
prices of the goods or services.
• is a table that shows the relationship between
the price of the good and the quantity
demanded
Demand Schedule

P Qd

5 10 Various amounts
4 20
3 35
2 55
1 80
14
Demand Schedule

P Qd

5 10 Various amounts
4 20
3 35
A series of possible prices
2 55
1 80
15
Demand Schedule

P Qd

5 10 Various amounts
4 20
3 35
A series of possible prices
2 55
1 80
16
 Demand Curve
Plot of the demand schedule.

Graph of the relationship

between the price of the
goods and the quantity
demanded
 Demand

P
Price Qd of
of corn/ 5
corn wk
4
5 10
3
4 20
2
3 35
2 55 1

1 80
0 10 20 30 40 50 60 70 80 Q
18
 Demand

P
Price Qd of
of corn/ 5
corn wk
4
5 10
3
4 20
2
3 35
2 55 1

1 80
0 10 20 30 40 50 60 70 80 Q
19
 Demand

P
Price Qd of
of corn/ 5
corn wk
4
5 10
3
4 20
2
3 35
2 55 1

1 80
0 10 20 30 40 50 60 70 80 Q
20
 Demand

P
Price Qd of
of corn/ 5
corn wk
4
5 10
3
4 20
2
3 35
2 55 1

1 80
0 10 20 30 40 50 60 70 80 Q
21
 Demand

P
Price Qd of
of corn/ 5
corn wk
4
5 10
3
4 20
2
3 35
2 55 1

1 80
0 10 20 30 40 50 60 70 80 Q
22
 Individual Demand

P
Price Qd of
of corn/ 5
corn wk
4
5 10
3
4 20
2
3 35
2 55 1

1 80
0 10 20 30 40 50 60 70 80 Q
23
 Individual Demand

P
Price Qd of
of corn/ 5 An Individual
corn wk Demand Curve
4
5 10
3
4 20
2
3 35
2 55 1

1 80
0 10 20 30 40 50 60 70 80 Q
24
 Market Demand Schedule

P Crisel Crisan Cheska MD

5 8 12 10 30
4 15 18 20 53
Various amounts
3 25 22 35 82
2 45 30 55 130
1 70 85 80 235

25
Market Demand Curve – horizontal summation
of all individual curves of consumers in the
market
Market Demand Schedule

P Crisel Crisan Cheska MD

5 8 12 10 30
4 15 18 20 53
Various amounts
3 25 22 35 82
A series of
2 45 30 55 130 possible prices
1 70 85 80 235

27
 Demand

P
Price MD of
of corn/ 5
corn wk
4
5 30
3
4 53
2
3 82
2 130 1

1 235
0 30 60 90 120 150 180 210 240 Q
28
 Demand

P
Price MD of
of corn/ 5
corn wk
4
5 30
3
4 53
2
3 82
2 130 1

1 235
0 30 60 90 120 150 180 210 240 Q
29
 Demand

P
Price MD of
of corn/ 5
corn wk
4
5 30
3
4 53
2
3 82
2 130 1

1 235
0 30 60 90 120 150 180 210 240 Q
30
 Demand

P
Price MD of
of corn/ 5
corn wk
4
5 30
3
4 53
2
3 82
2 130 1

1 235
0 30 60 90 120 150 180 210 240 Q
31
 Demand

P
Price Qd of
of corn/ 5
corn wk
4
5 30
3
4 53
2
3 82
2 130 1

1 235
0 30 60 90 120 150 180 210 240 Q
32
 Market Demand

P
Price MD of
of corn/ 5
corn wk
4
5 30
3
4 53
2
3 82
2 130 1

1 235
0 30 60 90 120 150 180 210 240 Q
33
DEMAND FUNCTION AND
DEMAND EQUATION
Demand function: Q = f(P)

where:
Q - quantity demanded of the
good/service
P – price of the good/service
Demand equation: Q = a – bP

where: a – intercept of the equation

b – slope of the function
Example: Q=15-0.5P
Interpretation of the slope and
intercept
a=15 means if the price is zero the
consumer will demand 15 units of
the goods
B=0.5 means that for every one unit
change in the price quantity
demanded will change by 0.5 units
Factors Affecting Demand
 Factors Affecting Demand

1. Price of the product

 Factors Affecting Demand

2. Income of the consumers

Types of goods with respect to income
a. Normal (superior) good – good whose
consumption or demand increases as
income increases
b. Inferior goods – good whose
consumption/demand decreases as one
gets higher income
• Increase in consumers’ income
increase in the demand for normal goods
but decreases the demand for inferior goods

• Decrease in consumers’ income

decrease in the demand for normal goods
but increases the demand for inferior goods
 Factors Affecting Demand

3. Number of consumers
(population)
• increase in the number of babies born
--increase in the demand for milk

• decrease in the number of babies born

--decrease in the demand for milk
 Factors Affecting Demand

4. Tastes and preferences

• favorable change in taste
increase in the demand for fashionable
goods

• unfavorable change in taste

decrease in the demand of out-of-fashion
goods
 Factors Affecting Demand

5. Price of related goods

Relationship of Two goods
a. Substitutes – two goods are substitute if one of the
good can be used in place of the other good
b. Complements-two goods are complementary to
each other if they are consumed simultaneously
• Prices of related goods-substitutes
--increase in the price of good X
increases the demand for good Y because the
quantity demanded for good X decreases

• Prices of related goods-complements

increase in the price of good A (a complement of
good B)
decreases the demand for good B because the
quantity demanded for good A decreases
 Factors Affecting Demand

6. Speculation
Expectations
expectation of higher future prices
increases the demand today

expectation of lower future prices

decreases the demand today
 “Change in demand” vs. “change in
quantity demanded”

– Change in quantity demanded refers to a

movement along the demand curve due to
changes in the price of the commodity.

– Change in demand refers to shift in the

entire demand schedules that were held
constant in the definition.
10
9
8
7
6 A A decrease in the
price of ice cream
5
cones results in a
4
movement along
3 the demand
2 B
curve.
1
0
2 4 6 8 10 12 14 16 18 20
Change in Quantity Demanded
 Change in Demand
Price of
Ice-Cream
Cone

Increase
in demand

Decrease
in demand
Demand
curve, D2
Demand
curve, D1
Demand curve, D3
0 Quantity of
Ice-Cream Cones
and Thank
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