Demand
Demand
Demand
- Definition
Demand refers to the quantity of a good or service that consumers are willing and able to
purchase at various prices during a given period of time.
- Law of Demand
- Statement: Other things being equal, there is an inverse relationship between the price of a
good and the quantity demanded.
- Explanation: As the price of a good rises, the quantity demanded falls, and as the price falls,
the quantity demanded rises.
- (Demand Schedule)
- Individual Demand Schedule: A table showing the quantities of a good that an individual
consumer is willing to buy at different prices.
- Market Demand Schedule: A table showing the total quantities of a good that all consumers in
a market are willing to buy at different prices.
- (Demand Curve)
- Characteristics:
- Downward sloping from left to right.
- Reflects the law of demand.
-(Determinants of Demand)
2. Income of Consumers:
- Normal Goods: Demand increases with an increase in income.
- Inferior Goods: Demand decreases with an increase in income.
- Complements: An increase in the price of one leads to a decrease in the demand for the
other.
4. Tastes and Preferences: Favorable changes increase demand, and unfavorable changes
decrease demand.
- (Types of Demand)
1. Individual Demand: Demand by an individual consumer.
2. Market Demand: Total demand by all consumers in the market.
3. Joint Demand: Demand for goods that are used together (complements).
4. Derived Demand: Demand for a good that results from the demand for another good (e.g.,
demand for labor due to demand for goods produced).
5. Composite Demand: Demand for a good that has multiple uses.
- Movement along the Demand Curve: Caused by a change in the price of the good.
- Extension (Increase) in Demand: Movement down the curve (due to a price decrease).
- Contraction (Decrease) in Demand: Movement up the curve (due to a price increase).
- Shift in the Demand Curve: Caused by changes in other determinants of demand (income,
tastes, prices of related goods, etc.).
- Increase in Demand: Rightward shift of the demand curve.
- Decrease in Demand: Leftward shift of the demand curve.
- Elasticity of Demand
- Price Elasticity of Demand (PED): Measures the responsiveness of quantity demanded to a
change in price.
- Formula: PED = (% Change in Quantity Demanded) / (% Change in Price)
- Types:
- Cross Elasticity of Demand: Measures the responsiveness of demand for one good to a
change in the price of another good.