Demand

Demand of Goods and Services

Classification of Goods and Services From conventional perspective Free

goods Public goods Economic goods

From Islamic perspectives Al-tayyibat Al-Rizq

Conventional Perspectives Free Good Goods that have no production cost (air, sunlight, rain water). Public Goods Goods that have a common use and are benefit to everyone (public clinics, schools, hospital and others.) Economic goods Goods which supply is limited and require costs to purchase them (books, clothes, houses, movies) Price is involved in obtaining them.

Islamic Perspective Al-Tayyibat  Al-tayyibat means good things, good and pure things, clean and pure things, good and wholesome things and sustenance of the best.  Bad goods are not considered as goods in Islam. Al- Rizq  Al-rizq is used to denote the following meanings; - Godly sustenance, divine bestowal, godly provision and heavenly gifts  All these meanings denote that Allah s.w.t is the only sustainer and provider for all creatures.

Hierarchy of needs 

Dharuriyah 



Hajiyat 



Goods that will improve the quality of human life

Kamaliat 



Goods that are classified as basic needs and necessary for a living.

Goods that contribute towards the perfection of human life

Tarafiat 

Goods that are consider extravagant and wasteful

DEMAND OF GOODS AND SERVICES

Definition of demand  The

quantity of various goods that people are willing and able to buy at a particular time and at a given range of prices.

 The

desire to buy goods and services with the ability to pay.

Steps to draw demand curve:  Draw

a horizontal(x-axis) and vertical(yaxis) axis  Name x-axis as quantity and y-axis as price Price

Quantity

 Plot

the graft according to the data given

The Individual Demand Curve and the Law of Demand

Demand Schedule for Pizza Price ($) 2 4 6 8 10

Quantity of pizzas per month 13 10 7 4 1

The Individual Demand Curve and the Law of Demand The

individual demand curve shows the relationship between the price of a good and the quantity that a single consumer is willing to buy, or quantity demanded. • The law of demand states that the higher the price, the smaller the quantity demanded, ceteris paribus (Other thing remain constant).

Market Demand  Market

demand is the sum of all the quantities of a good or service demanded per period by all the households buying in the market for that good or service.

From Household Demand to Market Demand 

Assuming there are only two households in the market, market demand is derived as follows:

How to calculate market demand? Price

Ind.1 Ind. 2

Market Demand

RM 2.00

600

300

(600 + 300) = 900

RM 3.00

400

200

RM 4.00

200

100

RM 5.00

100

50

Determinant of Demand Price of the goods  Price of related goods or complementary goods  Consumers income  Taste and preference  The number of buyers in the market  Expectation about the future price  Weather  Availability of credit facilities 

What happens when the price increases for a good that has a complement?

The demand curve for the substitute good decreases

What are substitute goods? Goods that compete with one another for consumer purchases

The Impact of a Change in the Price of Related Goods • Demand for complement good (ketchup) shifts left

• Demand for substitute good (chicken) shifts right • Price of hamburger rises • Quantity of hamburger demanded falls

The Impact of a Change in Income • Higher income decreases the demand for an inferior good

• Higher income increases the demand for a normal good

Change in Quantity Demanded vs. Change in Demand Change in quantity demanded Refer

to a movement along a given demand curve

Change in demand Refer

to a shift in the demand curve (left / right)

 As

a result of a change in the commodity price

As a result of a change in the economics variable and not the price

When price changes, what happens? The

curve does not

shift. There is a change in the quantity demanded

P

$20 $15 $10 $5

A change in price causes a change in the quantity demanded

A B

D

Q 10 20 30 40 50

When something changes other than price, what happens?

The whole curve shifts,there is a change in demand

P

$20 $15

When the ceteris paribus assumption is relaxed, the whole curve can shift

A

B

D D12

$10 $5 10 20

Q

30 40 50

A Change in Demand Versus a Change in Quantity Demanded To summarize: Change in price of a good or service leads to Change in quantity demanded (Movement along the curve). Change in income, preferences, or prices of other goods or services leads to Change in demand (Shift of curve).

Inter related demand 1.Joint Demand  A demand for a particular good is likely to increase the demand for another good.  Complementary goods  Pen and ink, toothbrush and toothpaste 2.Competitive Demand  An increase in the demand for one good will reduce the demand for another good.  Substitutes goods  Pepsi cola and coca cola, KFC and McDonalds, PROTON and HONDA 3.Derived Demand  The demand for a good increases, demand for the factor of production to produce goods will also increase.  House: bricks, cement, tiles etc 4.Composite Demand  Refer to multi purpose products  Rubber can be used to produce tires and shoes.

What is an inferior good? Any good for which there is an inverse relationship between changes in income and its demand curve

What is a normal good?

Any good for which there is a direct relationship between changes in income and its demand curve

What does an inverse relationship between price & quantity mean?

It means that the two move in opposite directions

Exceptional Demand P

Doesn't follow the law of demand  Giffen goods 

d



Q

The demand curve for giffen goods is normally upward sloping.

Luxuries goods P

d

Q

Those products that have an income elasticity of demand greater than 1.  The more expensive the goods, the greater will be the demand.  Jewellery, antique furniture, picture of Mona Lisa etc 