CHAPTER 2

Demand

Dr. Nurul Nadia Abd Aziz

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 Learning Outcomes

i. Students are able to define demand and

law of demand.
ii. Students are able to differentiate between
a change in demand and change in quantity
demanded.
iii. Students are able to explain the
determinants of demand.

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 What is demand?

Demand is a schedule or a curve showing

the various amounts of product
consumers are willing and able to
purchase at each of a series of possible
prices during a specified period of time.

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 Law of Demand
• It shows negative or inverse relationship
between price and quantity demanded,
ceteris paribus.
• When price of a product increases, the
quantity demanded for that product
decreases, vice versa.
• ceteris paribus: other things remain
constant.

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 Classification of
goods and services

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 Conventional Persective
Goods that do Example: Air,
Free not incur any
cost to
It is a gift of Flora and
Fauna, Sea and
goods produce
them.
nature. River Water and
etc.

Goods that It is provided by Example: Bus

Public basically
produced for
the government
and to produce
Station,
Schools,
goods the benefits of
the society.
them it incurs
cost.
Public Phone
and etc.

Goods that
Most goods
Economic incur cost
either to
Limited in
supply due to
around us are
goods produce or to scarcity.
economic
goods.
obtain them.

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Free Goods

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Public Goods

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Economic Goods

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Hierarchy of goods from Islamic
Perspective
Dharuriyah Goods that are classified as basic
need and essentials for living.

Goods that complement and can

Hajiyah
improve human life.

Goods that contribute to the

Kamaliah perfection of human life.

Tarafiah Extravagant and wasteful goods.

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Dharuriyat (Essentials)

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Hajiyat (Complementary)

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Kamaliat (Perfection)

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Tarafiat (Extravagant)

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 Demand Schedule
Table 1: An individual demand for food.

Price (RM) Quantity Demanded

(unit)
2 20
4 15
6 10
8 5

Price increases, quantity demanded decreases and vice

versa.
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 Demand Curve

Price (RM)
Demand curve always downward
sloping due to negative/inverse
relationship between price and
quantity demanded.
8

2
Dd
Quantity
(unit)
5 10 15 20

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 Individual Demand and
Market Demand

Individual Market
demand demand

It shows the relationship

It shows the relationship between the price and
between the price and total quantity
quantity demanded by demanded by all
an individual people. consumers in the
market.

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 Illustration of market demand
Price (RM) Quantity Quantity Market Demand by
Demanded by Demanded by ALL Consumers
Consumer 1 Consumer 2
5 2 4 6
4 4 8 12
3 6 12 18
2 8 16 24

Price Price Price

4
Dd Dd
Dd
Quantity
4 8 12

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 Change in Change in
Quantity Demand
Demanded

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 Change in Quantity Demanded
• It refers to a movement from P
one point to another point
along the fixed demand curve
(from point A to B, from point A
B
to C). P1
• It is caused by the price factor
A
(price increase/price decrease). P0
• Move to the left called
C
contraction (Decrease in P2
quantity demanded). Dd
• Move to the right called Q
Q1 Q0 Q2
expansion (Increase in quantity
demanded).
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 Change in Demand
P
• It refers to a shift of the entire
demand curve whether to the
right or to the left.
• It is caused by a change in
one or more of the
P0
determinants of demand
(price is constant).
• Shift to right (Increase in D1 D0 D2
Q
demand). Q1 Q0 Q2
• Shift to the left (Decrease in
demand).
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Determinants of Demand

T
Tastes and preferences

N
Number of buyers

P Price of related goods

I
Income

Tak E Expectation
Nak
PIE
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Consumers tastes and preferences
• Consumers taste changes. When a product is favorable
by consumer, demand for the product increase and then
the demand curve will shift rightward. This is also called
increase in demand.
• And if the product is unfavorable, demand for the
product decrease and then the demand curve will shift
to the left. This is also called decrease in demand.

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 Number of buyers
• An increase in the number of consumers in a
market increases demand. Demand curve will shift
to the right.
• A decrease in the number of consumers in a
market decreases demand. Demand curve will shift
to the left.

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 Price of related goods
1. Substitutes (good that can be replaced with others).
• When the two products have the same usage, the
prices of one product and demand for the other
move in the same direction.
– Example: when price of TOYOTA increases, the
quantity demanded for TOYOTA decreases, and
the demand for HONDA increases.

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 Price of related goods
2. Complements (good that need to be used together)
• When the goods and are demanded together, the
price of one good and the demand for the other
good move in the opposite directions.
– Example: when price of car decreases, the
quantity demanded for car increases, and the
demand for petrol increases.

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 Price of related goods
c. Unrelated (good that are not related to one
another)
• Increase or decrease in demand of one good does
not affect the demand for other good.
– Example: when price of car increases, the
demand for tomatoes is unchanged.

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 Income level
• The greater income means the greater purchasing power.
• An increase in consumers income causes an increase in
demand for normal goods. People tend to buy more of the
goods when they have more money. So, demand curve for
normal goods shift to the right.
• A decrease in consumers income will cause the demand for
normal goods to fall. People tend to buy less of the goods
when they have less money. So, demand curve for normal
goods shift to the left.

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 Consumer expectation on
future price
• If consumers expect that in the near
future prices of the goods would rise,
then in the present they would demand
greater quantities of the goods so that in
the future they should not have to pay
higher prices.
• Similarly, when the consumers expect
that in the future the prices of goods will
fall, then in the present they will
postpone a part of the consumption of
goods with the result that their present
demand for goods will decrease.
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 Advertisement
• The purpose of advertisement is to influence the consumers
in favor of a product.
• Advertisements are given in various media such as
newspapers, radio, and television.
• Advertisements for goods are repeated several times so that
consumers are convinced about their superior quality.
• When advertisements prove successful they cause an
increase in the demand for the product.

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 Festive seasons
• During a festive season, the demand for some
product increases.
– Mandarin oranges demand will increase during
the Chinese New Year celebration.

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 Quality
• An increase in the quality of the good e.g. better
quality cameras encourage people to buy one.

Xiaomi Mi A1

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 Exceptional Demand

Exceptional demand is a
demand that against the law
of demand. It does not follow
what the law says.

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 Inferior goods
• Goods that consumed by lower income group.
– Examples: Secondhand goods (used car)
• Consumer perception is that the lower the price,
the lower the quality of the product and less
quantity is demanded.
P

Normal Dd at higher P

Regressive Dd at lower P
0 Q
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 Luxury goods
• Goods that bought by the rich to show off their status.
– Examples: Luxury cars (Bentley, Bugatti, Lamborghini etc.)
• The consumer thinks that the higher the price, the better
the quality of the product will be. The demand for these
expensive goods increase purposely for the status symbol.

P
Regressive Dd at higher P

Normal Dd at lower P
0 Q

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You have completed
the topic !!

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