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Demand

Demand refers to the quantity of a good that consumers are willing and able to purchase at a given price. The law of demand states that, all else equal, the quantity demanded decreases when the price rises. A demand schedule shows the relationship between price and quantity demanded, while a demand curve graphs this relationship. Individual demand curves combine to form market demand. Movements along the demand curve occur due to price changes, while shifts in the curve happen due to non-price factors like income, tastes, prices of related goods, and expectations.

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14 views13 pages

Demand

Demand refers to the quantity of a good that consumers are willing and able to purchase at a given price. The law of demand states that, all else equal, the quantity demanded decreases when the price rises. A demand schedule shows the relationship between price and quantity demanded, while a demand curve graphs this relationship. Individual demand curves combine to form market demand. Movements along the demand curve occur due to price changes, while shifts in the curve happen due to non-price factors like income, tastes, prices of related goods, and expectations.

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Peeyush Vashishtha
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Demand

Dr. Debasmita Basu


10/7/2023
Demand
•Quantity demanded is the amount of a good
that buyers are willing and able to purchase
at a given price.
•Law of Demand: Other things equal, the
quantity demanded of a good falls when the
price of the good rises.
Some Terminologies
•Demand schedule is a table that shows the
relationship between the price of the good
and the quantity demanded.
•Demand Curve is the relationship between
price and quantity demanded shown
graphically
The Demand Schedule: The Relationship
between Price and Quantity Demanded

Price of milk per litre (Rs.) Quantity of milk demanded


Rajni’s (litres per month)

Demand 00 20
10 18
Schedule
20 16
30 14
40 12
50 10
60 8
70 6
80 4
90 2
Rajni’s Demand Curve
Market Demand versus Individual Demand

• Market demand refers to the sum of all


individual demands for a particular good or
service.
• Graphically, individual demand curves are
summed horizontally to obtain the market
demand curve.
Shifts Versus Movements Along The Demand
Curve
– A shift in the demand curve is caused by a
factor affecting demand other than a change
in price.
– Movement along the demand curve.
• Caused by a change in the price of the
product.

– Point to note:
Ceteris paribus - other factors affecting demand are
held constant so that we can analyze the effect of a
change in one factor on demand.
Changes In Quantity Demanded
Price of milk

A tax that raises the


price milk results in a
B movement along the
Rs.
120 demand curve.

A
Rs. 60

D
0 4 8 Quantity of milk
Movement Along the Demand Curve
•Assume the price of milk falls.
–More will be demanded because of the income and
substitution effects.
–The income effect. Assume that incomes remain
constant then a fall in the price of milk. Consumers
can now afford to buy more with their income.
–The substitution effect. Milk is lower in price
compared to other similar products so some
consumers will choose to substitute the more
expensive drinks with the now cheaper milk.
Shifts in the Demand Curve
Shifts caused by factors other than price
0. Price of other goods
• Goods are Substitutes when the fall in price of one good reduces the
demand for the other good.
• Goods are complements when the fall in price of one good increases the
demand for the other good.
1. Income
•If the demand for a good falls when income falls or rises as income rises, the
good is called a normal good.
• If the demand for a good rises when income falls, the good is called an
inferior good.
2. Tastes and Preferences
3. Number of buyers
4. Advertising
5. Expectations of consumers where demand is influenced by expectations of
future income and future prices
Shifts in the Demand Curve
Price of
milk

Increase
in demand

Decrease
in demand
Demand
curve, D2
Demand
curve, D1
Demand curve, D3
0 Quantity of milk
Consumer Income Normal Good
Price of milk

Rs. 120 An increase


100 in income...
Increase
80 in demand

60

40

20
D2
D1 Quantity of
milk
0 1 2 3 4 5 6 7 8 9 10 11 12
Consumer Income Inferior Good
Price inferior
good
Rs. 150

An increase
100
in income...
Decrease
in demand

50

D2 D1 Quantity of
inferior
0 1 2 3 4 5 6 7 8 9 10 11 12 good

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