concept of demand economics

CONCEPT O

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DEMAND

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QUIZ

1.______refers to the number of goods and services that consumers are willing and able to buy at alternative prices at a given period of time.

2.-3. The ________as the dependent variable and ______as the independent variable.

4. A _______is a table showing the units of the product, which the consumer is willing and able to buy at different prices.

5.__________is a graphical representation of the inverse relationship of price and quantity demanded, which the consumer is willing to buy.

6. It explains how the people react every time prices change in terms f the quantities of the product that they purchase.

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7. _________is the combination of all the demands of the consumers in the market.

8-10.Give at least 3 demand determinants

Economic analysis is important to determine the level of development that country has achieved. There are two ways to study and analyze the economy , in microeconomics and macroeconomics approaches.

The behaviour of consumer and producer in the market is a central concern in microeconomics.

DEMAND

DEMAND

CONSUMER

The concept of demand is focused on consumer behaviour in the market.

Demand refers to the number of goods and services that consumers are willing and able to buy at alternative prices at a given period of time.

The willingness and ability of buyers to purchase a given amount of goods or services, over a range of prices, over a given period of time.

The relationship of the quantity of a good that will be bought at various prices can be presented in the form of a demand

schedule or portrayed graphically as a demand curve.

DEMAND FUNCTION

It is a mathematical expression of the relationship of two variables. The Quantity demand (QD) as the dependent variable and Price (P) as the independent variable. Qd changes as price changes.

Example:

Qd=300 – 5P

Assuming that 300 is the quantity of the product, which the consumer does not want to buy because the price is so high, which is at Php.60.00. What does demand function say? A consumer will only buy the product if the price is lower than Php.60.00. The value of 5P show s the change in in Qd. The negative sign indicates the relationship between Qd and P. Let us have an example in equation Qd = 300 – 5P , the price of citrus is Php.60.00. the Qd is 0. if the price becomes Php.50.00, Qd is 50 pieces. Replace the price Php.50.00; Php.50.00 in P of equation.

For example:A: Qd=300 -

5(60) Qd=300 – 300

Qd=0

B: Qd = 300 -5(50)

Qd=300-250Qd=50

DEMAND SCHEDULE

A Demand schedule is a table showing the units of the product, which the consumer is willing and able to buy at different prices. It shows the inverse relationship of the two variables.

DEMAND SCHEDULE OF CITRUS

POINT QD PRICE

A 0 60

B 50 50

C 75 45

D 100 40

E 135 33

F 160 28

G 175 25

H 200 20

We can check the price is correct by subtituting the values for Qd . In our equation

Qd = 300 -5P, deduct the given Qd which is 50 to 300. (300 – 50 =250) then divide it by 5 (250 ÷ 5=50).

DEMAND CURVE

Demand curve is a graphical representation of the inverse relationship of price and quantity demanded, which the consumer is willing to buy. From the demand schedule of citrus, the demand curve can be shown. Two axes , the horizontal and the vertical represent a graph. Price is in the Y-axis and Qd is in the X-axis. Plot the data in the demand schedule. After plotting the Qd and Price, connect all the points on the graph, a line will be formed which represents the demand curve.

DEMAND

FUNCTION

LAW

CURVE

SCHEDULE

LAW OF DEMAND

It explains how the people react every time prices change in terms f the quantities of the product that they purchase.

A microeconomic law that states that, all other factors being equal, as the price of a good or service increases, consumer demand for the good or service will decrease and vice versa.

MARKET DEMAND

Market demand is the combination of all the demands of the consumers in the market.

Assuming there are four consumers in the market who are willing and able to buy akil of lanzones.

Assuming that they will have the same demand function Qd = 300 -5P, if you mutiply the number of consumers in the market which is 4 in the equation you will get the market demand function, Qd = 1200 – 20P.

DETERMINANTS OF DEMAND

When price changes, quantity demanded will change. That is a movement along the same demand curve. When factors other than price changes, demand curve will shift. These are the determinants of the demand curve.

1. Income: A rise in a person’s income will lead to an increase in demand (shift demand curve to the right), a fall will lead to a decrease in demand for normal goods. Goods whose demand varies inversely with income are called inferior goods (e.g. Hamburger Helper).

2. Consumer Preferences: Favorable change leads to an increase in demand, unfavorable change lead to a decrease.

3. Number of Buyers: the more buyers lead to an increase in demand; fewer buyers lead to decrease.

b. Complement goods (those that can be used together): price of complement and demand for the other good are inversely related.

Example: if the price of ice cream rises, the demand for ice-cream toppings will decrease.

4. Price of related goods:a. Substitute goods (those that

can be used to replace each other): price of substitute and demand for the other good are directly related.

Example: If the price of coffee rises, the demand for tea should increase.

5. Expectation of future:a. Future price: consumers’

current demand will increase if they expect higher future prices; their demand will decrease if they expect lower future prices.

b. Future income: consumers’ current demand will increase if they expect higher future income; their demand will decrease if they expect lower future income.

CHANGE IN PRICE AND QUANTITY DEMANDThe change in price will result in

change in Quantity demand (Qd),which can be illustrated in the movement along the curve.it shows the significant effect of price in demand.

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25 50 75 100 125 150 175 200 QD

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SHIFT OF THE DEMAND CURVE

The shift of the demand curve from left to right or vice versa shows the change in demand. A change in demand may also happen even if there are no changes in price.

When the demand curve shifts to the right , D1 to D2, this shows the increase in demand caused by the different factors even when the price is constant.

The factors that can shift the demand curve to the right are:

-increase in income

-product preference

-expectation and speculation

-increase in the number of consumers

-celebration or occasion

-price decrease of a complementary product

D1

D2

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P

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QD

The factors that cause decrease demand are:

-decrease in income

-price increase of a complementary good

-consumers do not speculate about price increases

-decrease in the number of consumers

-price decrease of substitute goods.

D2

D1

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P

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QD

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