Demand
Definition
It is the amount of goods or services that consumer are willing and able to buy at a given price over a period of time.
Law of demand
·
Other
things remaining constant (Ceteris Paribus) more of the goods or services will
be demanded at lower price and less of the goods or services will be demanded
at higher price.
- · More the price less will be demand for that product.
- · Lesser the price more will be demand for that product.
Demand Schedule is the table showing the quantities of a product or
service demanded at various prices over a period of time.
Demand Curve is a curve showing the relationship between price and
quantity demanded. The demand curve generally slopes downward to right.
In
The demand curve slopes downward. This
is because of the inverse relationship that exists between the price and
quantity demanded. Therefore the gradient of the demand curve will always be negative.
A demand curve is drawn on the
assumption of Cetris Peribus – other factors remaining constan. It means any factor
which will affect are constant. When demand curve shows the quantity of goods
that can be purchased at a given price assuming other factors remain constant
it is called effective demand. . (how much would be bought at any given price
and not how much buyers would like to buy.)
Individual
Demand
Individual demand is the demand curve
of a consumer, a firm or any other economic unit.
For Example in a country there are only two people, Adam and Eve. Therefore the quantity demanded at given price by these two makes the individual demand curve.
For Example in a country there are only two people, Adam and Eve. Therefore the quantity demanded at given price by these two makes the individual demand curve.
Individual
Demand Curve
The following diagram shows the individual demand curve of Adam and Eve
for Oranges
In this diagram at price £10 Adam is
able and willing to buy (ready to buy) 110 oranges while Eve is willing and
able to buy 200 oranges. Therefore the first diagram represent individual
demand curve for Adam while second
represent the individual demand curve for Eve.
Market
Demand
Market demand curve is the horizontal
summation of all the individual demand curves.
Therefore by adding the quantity
demanded of all the individual in the market, the market demand curve can be
obtained. It is shown below for the country where Adam and Eve lives.
Market
Demand Curve
The following diagram shows the individual demand curve of Adam and Eve
for Oranges.
Movement
Along The Demand Curve
Movement along the
demand curve refers where the quantity demanded responds to change
in price. When there is a movement along the demand curve, it’s the quantity
demand which changes.Movement along the demand curve will
occur due to change in price. If the
price increase quantity demanded will decrease leading to contraction of demand
curve. At the same time, when the price decrease, quantity demanded will
increase, leading to expansion of demand curve. When movement along the demand curve
occurs, the demand curve will remain the same however the print in the demand
curve will change. The following diagram shows movement along the demand curve
with expansion and contraction
As shown in the above diagram, when the
price increases from £10 to £20, there is movement along the demand curve where
quantity demand falls from 350 to 200 leading to contraction. Whereas decrease
from £10 to £5, quantity demanded increase from 350 to 550 leading to
expansion.
Movement
Off The Demand Curve
Movement off the
demand curve this occurs when the demand curve shifts. Demand curve
can shift to either right or left. A rightward shift in demand curve refers to
an increase in demand while a leftward shift in demand curve refers to a
reduction in demand. When a movement of demand it is also referred as change in
demand. A movement of demand curve will not be associated with any change in
price of the product.
Factors
Influencing Demand
1) Price: This is the price of
the good itself. An increase in the price will decrease the quantity demanded
while a decrease in price will have a vice-versa effect. However, the change in
the price of the product will not cause the demand curve to shift.
2) Price of other goods: Price of other goods
refers to either to complimentary goods or a substitute goods.
A substitute
goods is a good which can be used
instead of another good. For example the demand for tea will depend on the
price of coffee. As the price of one goes up the demand for other rises.
For example following diagram shows the
demand for two substitute goods Chicken and Beef.
Complimentary goods are the pair of goods which are consumed
together for the same purpose. As the price of one goes up the demand for both
the goods will reverse. For example Camera and film, cars and petrol, shoes and
polish, fish and chips.
The following diagram shows the demand
for camera and film.
3) Income: As income of the
consumers rises the demand for the products will raise as well. When the demand
for the product increases as income raises is called as normal goods. However,
sometimes when people get richer and richer, they tend to reduce the demand for
certain goods. These types of goods are known as inferior goods.
4) Taste & Preference: When consumer taste
and preferences change favourable over a good, the demand increases and vice
versa occurs when they have unfavourable perception over a good.
5) Expectation about future prices: When consumers
predicts that price of a good is going to go up in future, to prevent the loss
they are likely to buy that good before the expected price goes up. As a result
the demand will increase.
6) Population distribution: The change in
population component can increase or decrease the demand for certain products.
For example, if the baby boom season occurs in a country, then the demand for
the baby products will increase.
7) Advertisement: Advertisements can
increase the demand for particular products. Due to advertisements people may
be tempted to buy the product leading to increase in demand, whereas bad
advertisement or advertisement of the substitute product may decrease the
demand for the product.
8) Seasonal Products: The demand for the
particular product will be more in season and less in off season for example
Demand for umbrella may be more in rainy season whereas in other season demand
for umbrella will be less.