Demand

1
Demand Supply
2
What Is Demand?

• Demand is a relationship between a products
  price and quantity demanded.
• Demand is shown using a schedule or curve.
• The law of demand states that price and quantity
  demanded are inversely related.
• Market demand is the sum of quantities demanded
  by all consumers in a market.

3
Demand depends on 2 factors

• One is located in your head (heart)
• The other is in your wallet
• Demand exists only for goods that you both want
  and can afford to buy.

4
So why do we do this?

• 2 reasons
• Substitution effect prices rise, we substitute
  similar goods for it
• Income if prices fall, buyers able to buy same
  amount for lower price resulting in extra income

5
Demand ScheduleA numerical tabulation of the
quantities demanded at selected prices
Individual Demand Schedule for Strawberries
Price ( per kg) Quantity Demanded (mill of kg) Point on graph
3.00 5 A
2.50 7 B
2.00 9 C
1.00 11 D
6
Explanation of Demand Schedule

• Quantity demanded refers to a relationship that
  is determined by price
• Ex. When strawberries are 2.50 quantity
  demanded is 7 mill. Kg. but when they are 3.00
  Q.D. is 5 mill. Kg
• Quantity demanded has fallen by 2

7
On the graph

• Price is measured on vertical axis (Y axis)
• Quantity demanded on horizontal axis (X axis)
• THIS HAS BECOME STANDARD PRACTICE IN ECONOMICS
• Points then plotted on graph joined together
• The line is called the Demand curve even though
  it is a straight line
• It runs downward from top left to bottom right
• Inverse relation between QD holds for
  majority of goods we buy

8
Market Demand

• Buying habits of thousands that decide demand for
  most goods
• Market Demand Schedule sum total of all the
  consumer demands for a product

9
Deriving Market Demand
Price ( per kg) Friends Quantity Demanded (kg) Your Quantity Demanded (kg) Market Demand (kg)
3.00 6 5 11
2.50 8 7 15
2.00 10 9 19
1.00 12 11 23
10
Changes in Demand

• " are shown by shifts in the demand curve
• " are caused by changes in demand determinants

11
Demand Determinants

• Include the following factors
• The number of buyers (an increase causes a
  rightward demand shift)
• Income
• For normal products, an increase causes a
  rightward demand shift.
• For inferior products, an increase causes a
  leftward demand shift.

12
Changes in Quantity Demanded (contd)

• Are shown by movements along demand curve
• Are caused by price changes

13
What Is Supply?

• Supply is a relationship between a products
  price and quantity supplied
• Is shown using a schedule or curve
• The law of supply states there is a direct
  relationship between price and quantity supplied.

14
The Supply Curve
Market Supply Schedule for Strawberries
Price ( per kg) Quantity Supplied (mill of kg) Point on graph
3.00 17 D
2.50 13 E
2.00 9 F
1.00 5 G
15
Changes in Supply

• are shown by shifts in the supply curve
• are caused by changes in supply determinants

16
Supply Determinants

• Supply determinants include the following
  factors
• Number of producers (an increase causes a
  rightward supply shift)
• Resource prices (an increase causes a leftward
  supply shift)
• State of technology (an improvement causes a
  rightward supply shift)
• Prices of related products (an increase causes a
  leftward supply shift)

17
Determinants (contd)

• changes in nature (an improvement causes a
  rightward shift for some products)
• producer expectations (an expectation of lower
  prices in the future causes an immediate
  rightward supply shift)