Demand
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Demand • Definition: demand is the desire, willingness and the ability of consumers to purchase a good at a certain time, ceteris paribus. • Law of Demand: It states that the quantity demanded of a good and the price is inversely related. • The demand curve is always downward sloping and it illustrates the inverse relationship. Difference in quantity demanded and demand • •
Change in quantity demanded refers to the response of demand to changes in its own price and it is shown by a movement along the demand curve. Change in demand is the response of demand to changes in other factors other that the price of the product. It is shown by a shift in the demand curve.
Factors that affects demand 1. Price of the good itself 2. Non price factors • Prices of related goods( complements and substitutes) • Income(Norman and inferior good) • Taste and preferences • Climate • Composition and size of population • Expectation of future price changes • Government policy • Discovery of new products Change in price of good itself will affect the quantity demanded and it will cause a movement along the same demand curve. Change in non-price factors/determinants will affect the demand of the product and it will cause a shift in the demand curve. 1. Substitutes • Substitutes are different good that can satisfy the same want and considered by consumers to be alternatives to each other. • Examples: 1. coke and Pepsi 2. Milo and olvatine • A change in price of good Y which is a substitute of good X will because a change in demand for good X.
•
A increase in price of good Y will cause a increase in demand of good X and a decrease in price of good Y will cause a decrease in demand for good X
2. Complements • Complementary goods (complements) are goods that are consumed together. • Examples: 1. cars and petrol 2. printers and ink cartridges • •
A change in price of good Y will cause a change in demand for Good X. An increase in price of good Y will cause a decrease in demand for good X; a decrease in price of good Y will cause an increase in demand for good X.
3. Level of Income • Normal good- demand increases as the income of the consumers rises. • Inferior goods- demand for the good decreases as income of consumers rises. • Luxury goods-demand is elastic to the increase in income of consumers. Demand factors: • E-expectation of prices • G-government policies • Y-income • P-price of related goods • Taste and preferences
Change in quantity demanded refers to the response of demand to changes in its own price and it is shown by a movement along the demand curve. Change in demand is the response of demand to changes in other factors other that the price of the product. It is shown by a shift in the demand curve.
Factors that affects demand 1. Price of the good itself 2. Non price factors • Prices of related goods( complements and substitutes) • Income(Norman and inferior good) • Taste and preferences • Climate • Composition and size of population • Expectation of future price changes • Government policy • Discovery of new products Change in price of good itself will affect the quantity demanded and it will cause a movement along the same demand curve. Change in non-price factors/determinants will affect the demand of the product and it will cause a shift in the demand curve. 1. Substitutes • Substitutes are different good that can satisfy the same want and considered by consumers to be alternatives to each other. • Examples: 1. coke and Pepsi 2. Milo and olvatine • A change in price of good Y which is a substitute of good X will because a change in demand for good X.
•
A increase in price of good Y will cause a increase in demand of good X and a decrease in price of good Y will cause a decrease in demand for good X
2. Complements • Complementary goods (complements) are goods that are consumed together. • Examples: 1. cars and petrol 2. printers and ink cartridges • •
A change in price of good Y will cause a change in demand for Good X. An increase in price of good Y will cause a decrease in demand for good X; a decrease in price of good Y will cause an increase in demand for good X.
3. Level of Income • Normal good- demand increases as the income of the consumers rises. • Inferior goods- demand for the good decreases as income of consumers rises. • Luxury goods-demand is elastic to the increase in income of consumers. Demand factors: • E-expectation of prices • G-government policies • Y-income • P-price of related goods • Taste and preferences
