Meaning of Demand

It is necessary to distinguish between

demand and desire or need. A sickly child
needs a tonic; a peon desires to have a
Mercedes car. But such needs and desires
do not constitute demand. When, however,
the person desiring is willing and able to
pay for what he desires, the desires is
changed into demand.
 Continue….
The word demand has a precise meaning in economics.
It refers to:
 The willingness and ability of buyers to purchase
different quantities of a good.
 At different prices,
 During a specific time period (per day, week, etc.)
For example, we can express part of John’s demand for
magazines by saying that he is willing and able to buy
10 magazines a month at $4 per magazine and that he is
willing and able to buy 15 magazines a month at $3 per
magazine.
 Continue….
Remember this important point about
demand: Unless both willingness and ability
to buy are present, there is no demand, and a
person is not a buyer. For example, Josie may
be willing to buy a computer but be unable to
pay the price; Tanya may be able to buy a
computer but be unwilling to do so. Neither
Josie nor Tanya demands a computer, and
neither is a buyer of a computer.
 Continue…..
The willingness and ability of buyers to purchase different
quantities of a good at different prices during a specific
time period.
The demand is always per unit of time – per day, per
week, per month or per year.
According to Bober,
“By demand we mean the various quantities of a given
commodity or service which consumers would buy in one
market in a given period of time at various prices, or at
various incomes, or at various prices of related goods.”
 Types of Demand
Three kinds of demands may be distinguished:
 Price Demand
 Income Demand
 Cross Demand
 Quantity Demanded
Quantity demanded is the number of units
of a good that individuals are willing and
able to buy at a particular price during a
time period. For example, suppose
individuals are willing and able to buy 100
TV dinners per week at a price of $4 per
dinner. Therefore, 100 units is the quantity
demanded of TV dinners at $4.
 A warning:
We know that the words demand and quantity demanded
sound alike, but they do not describe the same thing.
Demand is different from quantity demanded. Keep that
in mind as you continue to read this chapter.
For now, remind yourself that demand speaks to the
willingness and ability of buyers to buy different
quantities of a good at different prices. Quantity
demanded speaks to the willingness and ability of
buyers to buy a specific quantity (say, 100 units of a
good) at a specific price (say, $10 per unit).
 The Law of Demand
Will people buy more units of a good at lower prices than at
higher prices? For example, will people buy more shirts at $10
apiece than at $70 apiece? If your answer is yes, you
instinctively understand the law of demand. The law of demand
states that as the price of a good rises, the quantity demanded of
the good falls and that as the price of a good falls, the quantity
demanded of the good rises, ceteris paribus. Simply put, the law
of demand states that the price of a good and the quantity
demanded of it are inversely related, ceteris paribus:
P↑ Qd↓
P ↓Qd ↑ceteris paribus
where P 5 price and Qd 5 quantity demanded.
 Continue….
The law simply explains the relationship
between quantity of a commodity demanded
and its prices. The law states that Demand varies
inversely with price, not necessarily
proportionately. If the price falls, demand will
extend, and vice-versa.
 The law of demand states that, other things remaining
the same, the quantity demanded of a commodity is
inversely related to its price. It is one of the important
laws of economics which was firstly propounded by
neo-classical economist, Alfred Marshall.
• Other things remaining the same, the amount
demanded increases with a fall in price and diminishes
with a rise in price. Thus, according to the law of
demand, there is an inverse relationship between price
and quantity demanded, other things remaining the
same.
 Four Ways to Represent the Law of
Demand
1. In Words. We can represent the law of demand in
words; we have done so already. Earlier we said that
as the price of a good rises, quantity demanded falls,
and as price falls, quantity demanded rises, ceteris
paribus. That was the statement (in words) of the law
of demand.
2. In Symbols. We can also represent the law of demand
in symbols, which we have also already done. In
symbols, the law of demand is:
P↑ Qd↓
P ↓Qd ↑ceteris paribus
3. In a Demand Schedule. A demand schedule is
the numerical representation of the law of demand. A
demand schedule for good X is illustrated in Exhibit
1(a).
4. As a Demand Curve. In Exhibit 1(b), the four
price–quantity combinations in part (a) are plotted
and the points connected, giving us a (downward-
sloping) demand curve. A (downward-sloping)
demand curve is the graphical representation of the
inverse relationship between price and quantity
demanded specified by the law of demand. In short,
a demand curve is a picture of the law of demand.
 Law of Demand
Part 1. As PRICE increases, DEMAND decreases

Demand goes down

Price goes up
THEN

Part 2. As PRICE decreases, DEMAND increases

Price goes down

THEN Demand goes up

 Limitations of Law of Demand
• Limitation/Exception of Law of Demand:
• Though as a rule when the prices of normal goods rise, then the demand
decreases but there may be a few cases where the law may not operate.
• Prestigious goods: there are certain commodities like diamond, sports cars
etc., which are purchased as a mark of distinction in society. If the prices of
these goods are rises, the demand for them may increase instead of falling.
• Price exception: if people expect a further rise in the price of particular
commodity, they may buy more in spite of rise in price. The violation of the
law in this case is only temporary.
• Ignorance of the consumer: if the consumer is ignorant about the rise in
price of goods, he may buy more at a higher price.
• Geffen goods: if the price of basic goods (potatoes, sugar, etc.) falls then the
demand for those goods also falls, because by the surplus income through
falling price people buy superior goods.
 Demand schedule
In economics, a demand schedule is a table that
shows the quantity demanded of a good or
service at different price levels. A demand
schedule can be graphed as a continuous demand
curve on a chart where the Y-axis represents price
and the X-axis represents quantity.
 Representation of Demand

1. Demand SCHEDULE Price Quantity

65 0
Tabular representation of a 60 100
relation between QUANTITY and
50 300
PRICE.
40 500
Example  30 700
20 900
10 1100
16
 Demand Curve
• A graph that illustrates the demand for a product
• It shows how much consumer desire for a product
changes as the price changes
• In economics, a demand curve is a graph depicting
the relationship between the price of a certain
commodity and the quantity of that commodity that
is demanded at that price. Demand curves can be
used either for the price-quantity relationship for an
individual consumer, or for all consumers in a
particular market.
The Demand Schedule & Demand Curve

(a)

(b)
 Representation of Demand (2)
P
2. Demand
CURVE

______________________________________
Quantity
19
 Why Demand Curve Slopes Downwards
• Downward sloping of demand curve-The demand of a product
refers to the desire of acquiring it by the consumer but backed
by his purchasing power and willingness to pay the price. The
law of demand states that there is an inverse proportional
relationship between price and demand of a commodity.
When the price of commodity increases, its demand
decreases.
• Similarly, when the price of a commodity decreases its demand
increases. The law of demand assumes that the other factors
affecting the demand of a commodity remain the same.
• Thus, the demand curve is downward sloping from left to right.
Let us discuss in detail why demand curve slopes downward.
 Continue….
Causes of Downward Sloping of Demand
Curve
 Law of diminishing the marginal utility
 Substitution effect
 Income effect
 New buyers
 Old buyers
 Why Quantity Demanded Goes Down As
Price Goes Up?
The law of demand states that price and quantity demanded
are inversely related. This much you know. But do you
know why quantity demanded moves in the opposite
direction of price? We identify two reasons:

1. People substitute lower-priced goods for higher-priced

goods.
2. The Law of Diminishing Marginal Utility: for a given
time period, the marginal (additional) utility or
satisfaction gained by consuming equal successive units
of a good will decline as the amount consumed increases.
 A Change in Quantity Demanded
Versus a Change in Demand

1. A CHANGE IN QUANTITY DEMANDED

Quantity demanded=The number of units of a good that

individuals are willing and able to buy at a particular
price

Change in quantity demanded = A movement from one

point to another point on the same demand curve caused
by a change in the price of the good.
 2. A CHANGE IN DEMAND
• A Change in demand = Shift in demand curve.

• Demand can change in two ways:

a) Demand can increase, and
b) Demand can decrease.
 Shifting the Demand Curve
• A change in Demand causes a shift in the
Demand curve.
• A change in the Quantity Demanded moves a
point along the current Demand curve.
• If Demand increases, the curve shifts to the
right.
• If Demand decreases, the curve shifts to the
left.