Things to Know

Aim of Consumers

The aim of consumers are to maximise utility or satisfaction.

Aim of Producers

The aim of producers are to make a profit.

Define Demand

Demand refers to the amount of a good or service a person is willing and able to purchase at a particular price at a particular point in time.

Define "Effective Demand"

Effective demand if the desire to buy the product backed by the willingness and ability to pay for the product.

Laws of Demand

There are TWO laws of Demand.

(i) More of a good will be demanded at a lower price than at a higher price, assuming CETERIS PARIBUS.
(ii) Less of a good will be demanded at a higher price than at a lower price, assuming CETERIS PARIBUS.

The Demand Schedule

A demand schedule is a tabular version of the demand curve. This table is a way of showing the relationship between price of a product and the quantity demanded.

This is an example of a Demand Schedule

As shown in the table above, as the price of the good rises from $1 to $2 to $3 to $4 etc... Quantity Demanded fell from 60 to 50 to 40 to 30 etc.. respectfully, assuming ceteris paribus.

The Demand Curve

A demand curve is a graphic representation if the relationship between the price of a product and the quantity demanded for it.

There are 2 types of demand curves:

1. Individual Demand Curve
2. Market Demand Curve

Individual Demand Curve

• The demand curve slopes downward from left to right.
• There is a negative or inverse relationship between price and quantity demanded. This means as price increases, quantity demanded decreased and vice versa.

Market Demand Curve

The Market Demand Curve is a horizontal summation of each individual demand curve. See representation below.

Determinants of Demand / Conditions of Demand / Factors Affecting Demand

(1) Price Determinants

(a) Increase in Price

As shown above, as the price of the product increases from $10 to $20, quantity demanded fell from 50 units to 30 units.

Therefore, there is an UPWARD movement along the demand curve from points a to b, assuming ceteris paribus. Hence, there is a CONTRACTION in demand.

(b) Decrease in Price

As shown above, a fall in price of the good from $20 to $10 led to an increase in quantity demanded from 30 units to 50 units.

Therefore, there is DOWNWARD movement along the demand curve, from point c to point d, assuming ceteris paribus. Hence, there is an EXTENSION in demand.

(2) Non-Price Determinants

This causes a shift of the demand curve.

Increase in Demand

Decrease in Demand

Causes of an Increase in Demand

• An Increase in Consumer Income - This is likely to lead to an increase in the demand and result in a rightward shift of the demand curve assuming ceteris paribus.

• An Increase in Pereference for the good - This is due to a change in the taste of the consumers usually in favour of the good. This leads to an increase in demand for the product and hence a rightward shift assuming ceteris paribus.

• Seasonal Factors - During peak seasons such as Christmas, there is likely to be an increased in goods by consumers for instance Sorrel. This leads to a rightward shift of the curve assuming ceteris paribus.

• An Increase in the size of the population - Increase in population usually leads to an increase in demand for some products. Hence, a rightward shift of the curve, assuming ceteris paribus.

• Successful Advertisement - Successful advertising is likely to lead to an increase in the demand and result in a rightward shift of the curve, assuming ceteris paribus.

• An Increase in the price of substitute goods - A substitute good is one that can replace another. If there is an increase in the price of these subsitute goods, then demand will increase for this product resulting in a rightward shift of the curve, assuming ceteris paribus.

• A decrease in the price of complementary goods - Complementary goods are goods that are in joint demand with a product. If these complementary prices are decreased this will lead to an increase in demand resulting in a rightward shift of the curve, assuming ceteris paribus.

Causes of a Decrease in Demand

• An decrease in Consumer Income - This is likely to lead to an decrease in the demand and result in a leftward shift of the demand curve assuming ceteris paribus.

• An decrease in Pereference for the good - This is due to a change in the taste of the consumers usually against the good. This leads to an decrease in demand for the product and hence a leftward shift assuming ceteris paribus.

• Seasonal Factors - During off seasons, there is likely to be an decreased in goods by consumers for instance Sorrel. This leads to a leftward shift of the curve assuming ceteris paribus.

• An decrease in the size of the population - decrease in population usually leads to an decrease in demand for some products. Hence, a leftward shift of the curve, assuming ceteris paribus.

• Unsuccessful Advertisement - Unsuccessful advertising is likely to lead to an decrease in the demand and result in a leftward shift of the curve, assuming ceteris paribus.

• An decrease in the price of substitute goods - A substitute good is one that can replace another. If there is an decrease in the price of these subsitute goods, then demand will increase for this product resulting in a leftward shift of the curve, assuming ceteris paribus.

• A decrease in the price of complementary goods - Complementary goods are goods that are in joint demand with a product. If these complementary prices are increased this will lead to an decrease in demand resulting in a leftward shift of the curve, assuming ceteris paribus.

⚠️ "Change in Demand" VS "Change in Quantity Demanded"

$B \space to \space A \Rightarrow$ A change in the quantity demanded / A movements along the demand curve / A change in Price

$ B \space to \space C \Rightarrow$ A change in demand / A shifts in the demand curve / A change in the non-price determinants