THE CONCEPT OF DEMAND
DEFINITION
Demand refers to the various quantities of a
commodity that consumers are willing and able
to buy at various prices within a given time
frame, all things being equal.
Difference between Effective Demand and
Wants or Desires
Demand is different from want in the sense that
demand is always backed by willingness and
ability to pay for specific quantities of a
commodity at various prices over a given
period of time. This type of demand is called
effective demand.
Want, on the other hand, is a mere desire for a
commodity or just a wish to have a commodity
or service, not backed by any purchasing power
or ability to pay the required amount of money
or price.
Difference between Quantity Demanded and
Demand
Quantity demanded is the amount of a
commodity consumers are willing and able to
buy at a particular price at a period of time.
Quantity demanded is, therefore, a unit of
demand or a point on the demand curve.
Quantity demanded varies with price, all things
being equal. Demand, on the other hand, is the
entire set of quantities consumers are willing
and able to buy at various prices over a period
of time. Demand is, therefore, the entire curve
or schedule which constitutes the various
quantities consumers are willing and able to
buy at the various prices over a period of time.
THE LAW OF DEMAND
The law of demand states that, all other things
being equal, the lower the price of a
commodity, the greater the quantity demanded
of it and, vice versa i.e., the higher the price of
a commodity, the smaller the quantity
demanded.
This means that consumers tend to buy more of
a commodity at a lower price and, less at a
higher price.
Inverse Relationship between Price and
Quantity Demanded of a commodity
From the law of demand stated above, it is
clear that the relationship between price and
the quantity demanded of a commodity is In
other words, price and the Inverse quantity
demanded of a commodity move In opposite
directions, i.e. when the price IS higher,
quantity demanded becomes lower and the
other way round (i.e. vice versa) when the price
is lower, the quantity demanded becomes
higher or greater.
Illustration of the Inverse Relationship
between Price and Quantity Demanded Of a
Commodity
The inverse relationship between the price of a
commodity and the quantity demanded of it can
be illustrated in three main ways, namely:
1. Demand schedule (i.e. a table),
2. Demand curve, (i.e. a graph) and
3. Demand function (i.e. mathematical method)
DEMAND SCHEDULE
Demand schedule is a table which shows the
quantities of a commodity bought at different
or various prices over a period of time, say,
daily, weekly, monthly or yearly.
Individual Demand
This is the quantity of a commodity that an
individual or household purchases at various
prices per time period. An Individual Demand
Schedule An individual demand schedule is a
table showing the quantities Of a commodity
bought at various prices per time period by an
individual consumer.
Below are individual demand schedules as
shown in Table 13.1.
Price Quantity of mangoes demanded DEMAND CURVE
(Cedi per month A demand curve is a line or curve that shows
per one Individual Individual Individual the relationship between various prices and the
mango) A B C quantity bought of a commodity per period of
1 30 60 100 time.
2 28 50 80
3 25 36 60 An Individual Demand Curve
4 22 26 50 An individual demand curve is a graph or line
5 20 24 40 which shows the relationship between various
6 18 22 30 prices and the quantity bought of a commodity
7 16 18 20
by an individual consumer per time period.
8 14 14 16
The individual demand schedules can be
9 12 10 12
plotted on a graph with the price shown on the
10 8 6 10
y-axis (i.e. the vertical axis) and the quantity
demanded on the x-axis (i.e. the horizontal
MARKET DEMAND
axis) as shown in Fig. 13.1
The market demand for a commodity is the
sum of the individual demands of all
households (i.e. consumers) in the market at
various prices per time period.

A MARKET DEMAND SCHEDULE

This is the total Or sum of individual demand
schedules in the market. When all individual
demand schedules are added together, we
have a Market Demand Schedule, which
shows far more units of a commodity
demanded at the same prices as in the
individual demand schedules. See Table 13.2

Quantity of mangoes
demanded per market
A Market Demand Curve
Price (Cedi per Individual demand
one mango) A market demand curve for a commodity is
schedules added = simply the sum of the individual demand
Market Demand
curves of all consumers in the market at
Schedule
various prices per period of time. It is obtained
1
by plotting the total of all individual demand
2
3 schedules on a graph, i.e., it is obtained by
4 plotting the market demand schedule on a
5 graph. See Fig. 13.2 shown an illustration
6
7
8
9
10

The demand curves as presented in Fig. 13.1
and 13.2 are just convenient ways of showing,
at a glance, the relationship between price and
the quantity bought of a commodity. It is,
therefore, not always necessary to have the
price and quantity scales so mathematically
marked off as done in Fig. 13.1 and 13.2.
The graph for the market demand curve, for
example can simply be drawn on any paper as
found in fig 13.3
Importance of the Market Demand Curve
l. The market demand curve shows how much
of the commodity will be purchased (per unit
of time) by the consumers in the market at each
possible price (given that the level Of money
income of the consumers and the prices of
other commodities are held constant.)
2. Information regarding the market demand of
the curve is very important to producers of
commodity since they need to know how much
can be sold at various prices.
3. The demand curve is also very economists
because it plays an important role in
determining the price of the commodity.
a) Similarities
Demand schedule and demand curve have
certain things in common, namely:
i) Both of them show the quantity of a
commodity demanded over a particular range
Of prices per unit of time.
ii) Both of them. illustrate the law of demand
which states that "the lower the price, the
higher (or greater) the quantity demanded of a
commodity and, vice versa, the higher the price
of a commodity, the lower (or smaller) the
quantity demanded of it, all other things being
equal".
b) Difference
However, demand schedule and demand curve
are different in the following way: Demand
schedule is a table which shows the quantity of
a commodity demanded over a particular range
of prices per unit of time whereas demand
curve is a line or graph which shows the
relationship between the price and the quantity
bought of a commodity per unit of time.
DEMAND FUNCTION
DEFINITION
Demand function is a mathematical
representation of quantity demanded of a
commodity over a particular range of prices
per unit of time. Simply put, demand function
is a mathematical equation that shows the
relationship between the quantity demanded
of a commodity over a particular range of
prices per time unit.
FORMULA
Qd = f(P)
i.e. Quantity demanded is function of price
where Qd = Quantity demanded of a
commodity which is a dependent variable i.e.
Qd depends on P.
f = function
P = price of a commodity which is an
independent variable.
Therefore, a change in P will bring about; demanded falls from 37 units to 4 units in that
change in Q. This means that the amount o order.
the commodity to be purchased depends or Example 2
the price of the commodity. 1
Given a demand function as: Qdx = 60 — Px
3
Examples of Demand Function where, Qdx = Quantity demanded of
i) Qd x=40−3 Px commodity Px = Price of commodity X
1 Find quantity demanded of X (i.e. Qdx) when:
ii) Qd x=40− Px
3 i) Px=GH¢15
In each of the two demand functions above, ii) Px = GH¢ 30
Qdx = Quantity demanded of commodity X iii) Px = GH¢60
Px = Price of commodity X
Solution
Example 1 i) If Px = GH¢15
Given demand function as: Qdx = 40 — 3Px 1
then Qdx = 60 - ( −15)
Where Qdx = Quantity demanded of 3
commodity X = 60 – 5
Px = Price of commodity X Qdx = 55 units
Find the Quantity demanded of X (i.e. Qdx)
when: ii) If Px = GH¢30
i) PX = GH¢1 ii) PX = GH¢5 1
then Qdx = 60 - ( −30)
iii) Px = GH¢10 iv) GH¢12 3
= 60 – 10
Solution Qdx = 50 units
i) If PX = GH¢1
Then Qdx = 40−( 3× 1) iii) If Px = GH¢60
1
= 40−3 then Qdx = 60 - ( −60)
3
Qdx = 37units
= 60 – 20
ii) If PX = GH¢5
Qdx = 40 units
Then Qdx = 40−( 3× 5)
= 40−15
The three solutions show that when:
Qdx = 25units
i) Px = GH¢15, Qdx = 55 units
iii) If PX = GH¢10
ii) Px = GH¢30, Qdx = 50 units.
Then Qdx = 40−( 3× 10)
iii) Px = GH¢60, Qdx = 40 units.
= 40−30
This illustrates that as price rises from GH¢15
Qdx = 10units
through GH¢30 to GH¢60, quantity demanded
iv) If PX = GH¢12
of that commodity falls from 55 units through
Then Qdx = 40−( 3× 12)
50 to 40 units in that order.
= 40−36
Qdx = 4units
THE SLOPE OF THE DEMAND CURVE
The demand curve slopes downwards from left
The above solutions show that when:
to right. In other words, the demand curve is
i) PX is GHCI, Qdx = 37units
negatively sloped meaning that more of a
ii) PX is GHC5, Qdx= 25 units
commodity is demanded as its price falls and
iii) PX is GHCIO, Qdx= 10 units
vice versa i.e. less of a commodity is demanded
iv) PX is GHC 12, 4 units.
as its price rises.
This illustrates that as price rises from GH¢1
through GH¢5, GH¢10 to GH¢12, quantity
Reasons behind the slope of the demand
curve
The demand curve slopes negatively as stated
above. This can be explained in the following
ways :
Substitution Effect
When the price of a commodity falls, other
things being equal, that commodity becomes
relatively cheaper than its substitutes. A
rational consumer will buy more of that
commodity to substitute for the other which has
become more expensive. This is especially true
when the commodity whose price has fallen is
a close substitute for those whose prices remain
unchanged and are therefore more expensive.
Therefore, as the price of a commodity falls,
more of it will be demanded as consumers, in
general, will substitute that cheaper commodity
for the other expensive ones. The income and
substitution effects combine to explain why a
consumer is able to buy more of a commodity
when its price falls and less when its price
rises.
Income Effect
When the price of a commodity falls, the
consumer's purchasing power and, hence, his or
her real income increases. The relationship
between price and real income is inverse•
When the price of a commodity rises, the
consumer's purchasing power and his real
income decrease which means fewer units of
that commodity are bought and vice versa, i.e..
when the price Of the commodity falls,
purchasing power and hence, real income
increase. This means that, given the same
money or nominal income, consumers are
better able to buy more of a commodity when
its price falls, and vice versa, i.e. consumers
buy less of a commodity when its price rises.
This is referred to as "Income Effect"
explaining the negatively - sloping demand
curve.
The Marginal Utility Approach
Let us assume that utility is measured in money
terms. Utility is the satisfaction derived from
consuming a commodity. For a single
commodity, equilibrium of the consumer is
achieved at the point where the marginal utility
of a commodity to the consumer is exactly
equal to the price of the commodity in the
market, i.e.
PM X
=1∨¿ M U X =P X
PX
Marginal utility is the extra satisfaction which a
consumer derives from the consumption of an
extra unit of a commodity. When there is a fall
in price, marginal utility of the commodity will
exceed the price of that commodity. In this
situation, there will be disequilibrium between
price of the commodity and the marginal utility
of that commodity. To restore the equilibrium,
there will be more purchases of the commodity
until there is a decrease in the marginal utility
of that commodity to make it equal to price. On
the other hand, when there is a rise in price,
marginal utility will be less than price and this
will create disequilibrium. To restore the
equilibrium, there will be less purchases of the
commodity until there is an increase in the
marginal utility to enable it become equal to
price. This means that as price falls, more of a
commodity will be demanded and as price
rises, less of a commodity will be demanded.
Another way of explaining the negatively
sloping nature of the demand curve by the
utility approach is to consider the law of
diminishing marginal utility theory.
The law of diminishing marginal utility States
that successive consumption of units of a good
gives the consumer lower and lower
satisfaction. This means that the satisfaction
(i.e. utility) obtained from the consumption of
an additional unit of a commodity falls with
each successive additional unit of that
commodity. This means that as price falls,
more of a commodity will be demanded and
vice versa, i.e as price rises, less of the
commodity will be demanded.
Relationship between diminishing marginal
utility, price and demand
For example, someone who is very thirsty will demand curve does not follow the normal law
be prepared to pay 5 pesewas for the first glass of demand. Examples of such exceptional or
of water because he derives high satisfaction abnormal demand curves are the following:
(i.e. high utility) from drinking that first glass
a) A Positively — Sloped Demand Curve
of water, 4 pesewas for the second glass of
There is an abnormal or exceptional case where
water, 3 pesewas for the third glass of water, 2
the demand curve slopes upwards from left to
pesewas for the 4th glass of water and pays
right. Such a demand curve is positively
lower and lower price for each successive unit
sloped, as shown in Fig 13.4.
of the commodity he obtains since he equates
the price he is willing to pay for any unit of the
good to the marginal utility.
Therefore, as more and more of a commodity is
made available arid its marginal utility falls,
the unit price must also fall. Hence quantity
demanded of a good increases as its price falls
and decreases as its price rises. The above
example is illustrated with the following table:
Diminishing marginal utility
Price Quantity purchased or
(pesewas) demanded
5 1st glass of water
4 2nd glass of water Quantity demanded per unit of time
3 3rd glass of water
2 4th glass of water Fig. 13.4: Positively — sloped demand curve
1 5th glass of water From Fig. 13.4 , it can be observed that as the
price of the commodity rises, more of it is
EXCEPTIONS TO THE LAW OF DEMAND: demanded, and as the price falls, less of it is
demanded. When the price rises from to OP 0 to
ABNORMAL DEMAND
OP1 quantity demanded also rises from OQ0 to
DEFINITION OQ1 and when the price falls from OP O to OP2
quantity demanded also falls from OQ0 to OQ2•
Abnormal demand is a demand pattern which
does not abide by the laws of demand and
therefore gives rise to the reverse of the basic
laws Of demand. At higher prices, increased Reasons Behind Positively — Sloped
quantities of a commodity are demanded. It Demand Curves
also means consumers demand a fixed quantity
of a commodity at a higher or lower price. Reasons for such exceptional or abnormal
consumer behaviour giving rise to positively-
In exceptional situations, demand for abnormal sloped demand curves are as follows:
goods or demand in abnormal situations
provides demand curves which do not slope 1. Fear of future or further rise in price
downwards from left to right. When consumers entertain fear that the price of
An exceptional or abnormal demand curve is a commodity is going to rise or the existing
the demand curve which does not slope increased price of a commodity is going to rise
downwards from left to right since such a further, consumers rush to buy more at the
existing high price. E.g. increased prices of
petrol, kerosene, gas, etc., usually lead to more the .same (i.e. unchanged). Demand curve for
of such products being purchased for fear of such a commodity is vertically-sloped, i.e.
further rise. On the Other hand, when there is perpendicular to the quantity or x-axis, as
an expectation that prices are going to fall shown in Fig. 13.5.
further, consumers buy less of the affected
From the diagram (Fig. 13.5) it can be
commodity at the existing low prices.
observed that whether the price rises from to
2. Conspicuous consumption or "snob" OPI or falls from opo to 01%, quantity
appeal, i.e. goods of ostentation or demanded remains the same (i.e. OQ0)
Veblen goods
Some consumers will like to stand out or show
off among Others in the society, i.e. they want
to be conspicuous in the society. such
consumers, usually, tend to buy more of those
goods of ostentation at a higher price.
Examples Of such goods include gold watches,
lace materials, expensive jewelry, etc. of
Research into demand for goods ostentation or
Veblen goods was made by an American
economist called Thorsein Veblen, hence, the
name Veblen goods. If the prices these goods
fall, less will be purchased. Reasons Behind Vertically – Slopped
Demand Curve
3. Giffen and "Inferior" Goods
Reasons for consumer behaviour which results
Goods which are consumed by' people who
in vertically – slopped demand curves include
have low incomes are called "Inferior British
the following:
Giffen goods, after Sir Robert Giffen' a
economist, who conducted a research in this 1. Necessity or Highly Essential Goods)
field. It is explained that more of the goods i.e. Goods of Satiety
consumed by low-income people are demanded Commodities which are highly essential have
even at higher prices, because such consumers zero elastic demand curves since whether their
sacrifice all other goods considered as luxury, prices rise or fall, consumers cannot reduce the
leaving them with a higher purchasing power. quantity they consume of such goods as there
Examples of such goods are necessities like are no substitutes. E.g. salt and pepper. These
gari, cassava, yam and palm oil. For inferior goods have no substitutes and therefore
goods, quantity demanded falls as the consumers cannot alter their demand for them
consumer's income increases and vice versa, even when their prices rise. Salt for example is
quantity demanded increases as the consumer's a good which after a certain quantity the
income falls, e.g. gari, cassava, etc. consumer is completely satisfied. Such a good
is referred to as a good of satiety. Quantity
b) A Vertically — Sloped Demand Curve,
demanded does not change as consumers'
i.e. A Zero Elasticity of Demand or Perfectly
income increases.
Inelastic Demand Curve
There is another exceptional or abnormal 2. Cheap Commodities, i.e. When the
situation in which whatever happens to price portion of Consumers' Income Spenton
(i.e. whether price rises or falls), quantity them is Very Small
demanded of that commodity remains
Some commodities are so cheap (i.e. the
portion of consumers' income spent on them is
so small or negligible) that even if their prices
double, consumers still retain the quantities
they usually buy, e.g. salt, pepper, etc.
3. Habit or strength of taste
Once a consumer has formed a certain habit or
has a strong liking for a commodity, it is
difficult for such a person to change his or her
quantity demanded of that commodity,
whatever happens to the price of that
commodity, e.g. a person who has a strong
liking for tobacco (i.e. cigarette) has an
inelastic demand for it, for he will not stop
buying it even if its price goes up.
c) An Infinitely or Perfectly Elastic Demand
Curve, i.e. A Horizontal Demand Curve
A demand curve which is infinitely or perfectly
elastic is often described as having a zero slope
or zero gradient and is horizontal or parallel to
the quantity or x- axis, as shown in Fig. 13.6.
A demand curve which is infinitely or perfectly
elastic or horizontal or parallel to the quantity
or x-axis illustrates a situation in which
consumers buy all they can obtain at the given
price but refuse to buy any at a slightly higher
price.
Goods in such cases are described as goods
with unlimited markets whereby, at the given
price, an infinite quantity is demanded per time
unit.
From the diagram (i.e. Fig. 13.6) it can be
observed that at price 01%, any quantity, either
OQ or OQ of the commodity is demanded per
period of time.
Reasons Behind Horizontally— Sloped
or Infinitely Elastic Demand Curves
Reasons for consumer behaviour which gives
rise to horizontally sloped or infinitely elastic
demand curves include the following:
Highly -Luxurious goods numerous
substitutes
Demand for highly luxurious goods which
have numerous substitutes, is infinitely or
perfectly elastic, for When the price rises just
a little, consumers will go for cheaper
alternatives as substitutes.
Expensive goods, i.e. Goods which the
portion of Consumers of income spent is
very large
Demand for goods which arc very expensive,
i.e. goods on Which the portion of income
spent is very large, is infinitely or perfectly
elastic, since if the price rises just a little
consumers will stop buying it altogether.
Goods With fixed
Commodities whose prices are fixed by the
government could have a horizontal demand
curve since there is only one particular price at
which Consumers could purchase them.
Examples are postage scamps or petrol and
kerosene.