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Demand

Demand. Quantity Demanded refers to the amount (quantity) of a good that buyers are willing to purchase at alternative prices for a given period . or Demand = Power to purchase + will to purchase Requisites: Desire for specific commodity.

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Demand

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  1. Demand Quantity Demanded refers to the amount (quantity) of a good that buyers are willing to purchase at alternative pricesfor a given period. • or • Demand = Power to purchase + will to purchase • Requisites: • Desire for specific commodity. • Sufficient resources to purchase the desired commodity. • Willingness to spend the resources. • Availability of the commodity at • (i) Certain price (ii) Certain place (iii) Certain time.

  2. Determinants of Demand • What factors determine how much ice cream you will buy? • Product’s Own Price • Consumer Income • Prices of Related Goods • Tastes • Expectations • Number of Consumers • etc

  3. Kinds of Demand • 1. Individual demand • 2. Market demand • 3. Income demand • Demand for normal goods (price –ve, income +ve) • Demand for inferior goods (eg., coarse grain) • 4. Cross demand • Demand for substitutes or competitive goods (eg.,tea & coffee, bread and rice) • Demand for complementary goods (eg., pen & ink) • 5. Joint demand (same as complementary, eg., pen & ink) • 6. Direct demand (eg., ice-creams) • 7. Derived demand (eg., TV & TV mechanics) • 8. Competitive demand (eg., desi ghee and vegetable oils) • 9. Demand of unrelated goods

  4. Factors Affecting Demand • Prices of Goods • 2. Income of Consumer • 3. Prices of Related Goods • Population • Tastes, Habit • Expectation about future prices • Climatic Factors • 8. Demonstration Effect • 9. Distribution of national income

  5. Demand Schedule Demand Schedule: a tabular presentation showing different quantities of a commodity that would be demanded at different prices. Types of Demand Schedules Individual Demand schedule Market Demand Schedule

  6. The Law of Demand Prof. Samuelson: “Law of demand states that people will buy more at lower price and buy less at higher prices, others thing remaining the same.” Ferguson:“According to the law of demand, the quantity demanded varies inversely with price”. Chief Characteristics: Inverse relationship. Price independent and demand dependent variable. Assumptions: No change in tastes and preference of the consumers. Consumer’s income must remain the same. The price of the related commodities should not change. The commodity should be a normal commodity

  7. 1.50 6 2.00 4 2.50 2 3.00 0 John's Demand Schedule Quantity of cones Demanded Price of Ice-cream Cone ($) 0.00 12 0.50 10 1.00 8

  8. $3.00 2.50 2.00 1.50 1.00 0.50 12 0 2 4 6 8 10 John’s Demand Curve Price of Ice-Cream Cone Quantity of Ice-Cream Cones

  9. Exceptions and Importance of Law of Demand Exceptions: Inferior goods Articles of snob appeal. (exception: Veblen goods, eg., diamonds) Expectation regarding future prices (shares, industrial materials) Emergencies Quality-price relationship Ignorance Change in fashion, habits, attitudes, etc.. Importance: Price determination. To Finance Minister To farmers In the field of Planning.

  10. Shift of Demand Vs Movement Along a Demand Curve • A change in demand is not the same as a change in quantity demanded. • In this example, a higher price causes lower quantity demanded. • Changes in determinants of demand, other than price, cause a change in demand, or a shift of the entire demand curve, from DA to DB.

  11. A Change in Demand Versus a Change in Quantity Demanded • When demand shifts to the right, demand increases. This causes quantity demanded to be greater than it was prior to the shift, for each and every price level.

  12. Change in price of a good or service leads to Change in quantity demanded(Movement along the curve). Change in income, preferences, orprices of other goods or services leads to Change in demand (Shift of curve). A Change in Demand Versus a Change in Quantity Demanded To summarize:

  13. The Impact of a Change in Income • Higher income decreases the demand for an inferior good • Higher income increases the demand for a normalgood

  14. The Impact of a Change in the Price of Related Goods • Demand for complement good (ketchup) shifts left • Demand for substitute good (chicken) shifts right • Price of hamburger rises • Quantity of hamburger demanded falls

  15. From Household to Market Demand Demand for a good or service can be defined for an individual household, or for a group of households that make up a market. Market demand is the sum of all the quantities of a good or service demanded per period by all the households buying in the market for that good or service.

  16. From Household Demand to Market Demand Assuming there are only two households in the market, market demand is derived as follows:

  17. Reference: Principles of Economics, 6/e by Karl Cas, Ray Fair Slides prepared by: Fernando Quijano and Yvonn Quijano

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