DEMAND.pptx

WELCOME TO OUR GROUP PRESENTATION

Course No: Principles Of Micro Economic
“DEMAND”

Manings and Definition of demand:
The word demand has a precise meaning in economics.
It refers to:
1. the willingness and ability of buyers to purchase different quantities of a good
2. at different prices
3. during a specific time period (per day, week, etc.)
In economics, demand is the quantity of a good that consumers are willing and
to purchase at various prices during a given period of time. The relationship
between price and quantity demand is also called the demand curve. Wikipedia

Law Of Demand:
The law of demand state that AS the price of a good rises, the quantity demanded of
the good falls, and as the price of a good falls, the quantity demanded of the good
rises, ceteris paribus.
P ↑ Qd
↓ P ↓ Qd ↑ ceteris paribus
where P =price and Qd =quantity demanded.
For Example:
If movie ticket prices declined to $3 each, for
example, demand for movies would likely rise.
As long as the utility from going to the movies
exceeds the $3 price, demand will rise. As soon
as consumers are satisfied that they've seen
enough movies, for the time being, demand
for tickets will fall.

Demand Schedule and Demand Curve:
Demand Schedule:
The numerical tabulation of the quantity demanded of a good at different prices. A demand schedule is the
the numerical representation of the law of demand.
Demand Curve :
The graphical representation of the law of demand
Part (a) shows a demand schedule for good X.
Part (b) shows a demand curve, obtained by
plotting the different price-quantity
combinations in part (a) and connecting the
points. On a demand curve, the price (in
dollars) represents price per unit of the good.
The quantity demanded, on the horizontal
axis, is always relevant for a specific time
period (a week, a month, and so on).

Individual Demand Curve and Market Demand Curve:
Individual Demand curve:
An individual demand curve represents
the price-quantity combinations of a
particular good for a single buyer.
For example,
a demand curve could show Jones’s
demand for CDs
Market Demand Curve:
A market demand curve represents the
price-quantity combinations of a
particular good for all buyers.
In this case, the demand curve would
show all buyers’ demand for CDs

Deriving a Market Demand Schedule and a Market Demand Curve :
A market demand curve is derived by “adding up” individual demand curves, as we
show that The demand schedules for Jones, Smith, and other buyers are shown in
part (a). The market demand schedule is obtained by adding the quantities
demanded at each price. For example, at $12, the quantities demanded are 4 units
for Jones, 5 units for Smith, and 100 units for other buyers. Thus, a total of 109 units
are demanded at $12.

In part (b), the data points for the demand schedules are plotted and added to
produce a market demand curve. The market demand curve could also be drawn
directly from the market demand schedule.

A change in demand:
When an economist talks about a “change in demand,” we are actually
talking about a change—or shift—in the entire demand curve.
Change in demand = Shift in demand curve
DEMAND Can change in two ways:
a) Demand in increase
b) Demand in decrease

a) Demand in increase :
 The demand curve for this demand schedule will look like the
demand curve labeled DA in Exhibit 3(a). What does an increase in
demand mean? It means that individuals are willing and able to buy
more units of the good at each and every price. In other words,
demand schedule A will change as follows.
 Where as individuals were willing and able to buy 500 units of the
good at $20, now they are willing and able to buy 600 units of the
good at $20; whereas individuals were willing and able to buy 600
units of the good at $15, now they are willing and able to buy 700
units of the good at $15; and so on.
Let’s look first at an increase in
demand. Suppose we have the
following demand schedule.

In part (a), the demand curve shifts rightward from DA to DB . This shift
represents an increase in demand. At each price, the quantity demanded
is greater than it was before. For example, the quantity demanded at $20
increases from 500 units to 600 units.
Rightward shift in the demand curve

b) Demand in decrease:
 Now let’s look at a decrease in demand. What does a decrease in
demand mean? It means that individuals are willing and able to buy less
of a good at each and every price. In this case, demand schedule A will
change as follows.

 In part (b), the demand curve shifts leftward from DA to DC . This shift
represents a decrease in demand. At each price, the quantity demanded is
less. For example, the quantity demand at $20 decreases from 500 units to 400
units.
Rightward shift in the demand curve

What Factors Cause the Demand Curve to Shift?
 We know what an increase and decrease in demand mean: An increase in
demand means consumers are willing and able to buy more of a good at every
price. A decrease in demand means consumers are willing and able to buy less
of a good at every price. We also know that an increase in demand is graphically
portrayed as a rightward shift in a demand curve and a decrease in demand is
graphically portrayed as a leftward shift in a demand curve. But what factors or
variables can increase or decrease demand? What factors or variables can shift
demand curves? We identify and discuss these factors or variables in this
section.

1) INCOME:
As a person’s income changes (increases or decreases), his or her demand for
a particular good may rise, fall, or remain constant.
 Normal Good:
A good the demand for which rises (falls) as income rises (falls
For example,
suppose Jack’s income rises. As a consequence, his demand for CDs rises. For Jack, CDs
are a normal good. For a normal good, as income rises, demand for the good rises,
and as income falls, demand for the good falls.
X is a normal good:
If income ↑ then DX ↑
If income ↓ then DX ↓

 Inferior Good :
A good the demand for which falls (rises) as income rises (falls)
Now suppose Marie’s income rises. As a consequence, her demand for canned baked beans
falls. For Marie, canned baked beans are an inferior good. For an inferior good, as income
rises, demand for the good falls, and as income falls, demand for the good rises.
Y is an inferior good:
If income ↑ then Dy ↓
If income ↓ then Dy ↑
 Neutral Good
A good the demand for which does not change as income rises or falls.
Finally, suppose when George’s income rises, his demand for toothpaste neither rises
falls. For George, toothpaste is neither a normal good nor an inferior good. Instead, it is
neutral good. For a neutral good, as income rises or falls, the demand for the good
not change.

2) PREFERENCES:
People’s preferences affect the amount of a good they are willing to buy at a particular price. A
change in preferences in favor of a good shifts the demand curve rightward. A change in
preferences away from the good shifts the demand curve leftward. For example, if people begin
to favor Elmore Leonard novels to a greater degree than previously, the demand for Elmore
Leonard novels increases, and the demand curve shifts rightward.

3) PRICES OF RELATED GOODS:
 Substitutes: Two goods that satisfy similar needs
or desires. If two goods are substitutes, the
demand for one rises as the price of the other
rises (or the demand for one falls as the price of
the other falls)
 For example,
For many people, Coca-Cola and Pepsi- Cola
are substitutes. If two goods are substitutes, as the
price of one rises (falls), the demand for the other
rises (falls). For instance, higher Coca-Cola prices will
increase the demand for Pepsi-Cola as people
substitute Pepsi for the higher-priced Coke [Exhibit
5(a)]. Other examples of substitutes are coffee and
tea, corn chips and potato chips, two brands of
margarine, and foreign and domestic cars.
X and Y are substitutes:
If PX ↑ then DY ↑
If PX ↓ then DY ↓
 Complements: Two goods that are
used jointly in consumption. If two
goods are complements, the demand
for one rises as the price of the other
falls (or the demand for one falls as
the price of the other rises)
For example, tennis rackets and tennis
balls are used together to play tennis. If
two goods are complements, as the price
of one rises (falls), the demand for the
other falls (rises).
For example, higher tennis racket prices
will decrease the demand for tennis balls.
Other examples of complements are cars
and tires, light bulbs and lamps, and golf
clubs and golf balls.

4) NUMBER OF BUYERS:
The demand for a good in a particular market area is related to the
number of buyers in the area: more buyers, higher demand; fewer
buyers, lower demand. The number of buyers may increase owing to
higher birthrate, increased immigration, the migration of people from
one region of the country to another, and so on. The number of
may decrease owing to a higher death rate, war, the migration of
people from one region of the country to another, and so on.

5)EXPECTATIONS OF FUTURE PRICE:
Buyers who expect the price of a good to be higher next month may buy
good now—thus increasing the current (or present) demand for the good.
Buyers who expect the price of a good to be lower next month may wait
next month to buy the good—thus decreasing the current (or present)
demand for the good. For example, suppose you are planning to buy a
house. One day, you hear that house prices are expected to go down in a
months. Consequently, you decide to delay your purchase of a house for a
few months. Alternatively, if you hear that prices are expected to rise in a
months, you might go ahead and purchase a house now.

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