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Economics

Economics. Concept Of Demand. Types Of Demand. Demand can be classified into four main categories: Competitive demand Complement ( joint) demand Composite demand Derived demand. Competitive demand.

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Economics

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  1. Economics Concept Of Demand. Types Of Demand

  2. Demand can be classified into four main categories: Competitive demand Complement ( joint) demand Composite demand Derived demand

  3. Competitive demand • This type of demand involves the products that are competing to satisfy a particular want. This occurs with commodities which have close substitutes. If the price for one one increases the demand for the other will rise eg tea and coffee, milo and bournvita etc this is illustrated in the diagram below.

  4. An increase in the price of Milo p B P1 dd Po A o q1 q0 dd

  5. An increase in the demand for bournvita d0 d1 p d0 d1 o quantity

  6. Complementary ( joint) demand • It is a type of demand which occurs when two or more commodities are needed together to satisfy a particular want. Example include car and petrol. An increase in the price of one leads to a decrease in the demand for the other.

  7. Effect of an increase in the price of car on the demand for petrol petrol d d1 car d0 price p1 B A p p0 d0 d1 d 0 o q0 q0 q1 q1 quantity

  8. Composite demand • This term is used to describe a good that can serve two or more purposes eg wood could be used for making furniture, fuel, building houses etc.

  9. Derived demand • This demand occurs with commodities which are required for the production of other commoditties and not for the direct satisfaction of want eg flour is required for making bread wood is used for making paper.

  10. Distinction between change in demand and change in quantity demanded • A change in quantity demanded is the movement along the same demand curve due to an increase or a decrease inthe price of the commodity only.

  11. d c p2 p0 a b p1 d o q1 q0 q2

  12. A decrease in price from Opo to Op1 brought about an increase in the quantity demanded from 0qo to Oq1. Whereas, an increase in price from Opo to Op2 brought about about a decrease in the quantity demanded from Oqo to Oq2

  13. A change in demand (shift in demand) This is a parellel shift in the demand curve either to the right or to the left indicating an increase or decrease in demand respectively. A change in demand is caused by all the factors affecting demand other than change in the price of the comodity.

  14. d2 price d0 d1 p d2 d0 d1 o quantity

  15. The diagram above shows , a shift in the demand curve to the right from Do -D2 (ie an increase in quantity bought from Oqo - Oq2) and a shift in the demand curve to the left from Do-D1 (ie a decrease in quantity brough from Oqo-Oq1).

  16. Causes of shift in demand. Change in consumers income. Price of other commodities. Size of the population( consumers). Taste and fashion Weather and season.

  17. Assignment • Explain how the following factors will affect the demand for a commodity X.(with the aid of diagrams) • Decrease in the price of a complement Y. • An increase in consumers disposable income. • An increase in income tax.

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