Name: Ms.

Divya Tahira Mayadas Grade: 9 (Eco-1 and Eco-2)

Subject: Economics Topic: The Allocation of Resources

DEMAND

The meaning of demand

Demand refers to both the willingness and the ability of customers to pay a given
price to buy a good or service. This is sometimes referred to as effective demand
to distinguish genuine demand from a want or a desire to buy something. The
amount of a good or service demanded at each price level is called the quantity
demanded.

In general, the quantity demanded falls as price rises, whilst the quantity
demanded rises at lower prices. Therefore, there is an inverse relationship
between the price of a good or service and the demand. This rule is known as
the law of demand. There are two reasons for this relationship:

• As the price of a good or service falls, the customer's 'real' income rises (i.e.,
with the same amount of income, the customer is able to buy more products at
lower prices).

• As the price of a good or service falls, more customers are able to pay, so they
are more likely to buy the product.

Demand curves

Diagrammatically, the demand curve is shown as a downward-sloping curve to

show the inverse relationship between price and quantity demanded (see Figure
3.1).
The market demand curve refers to the sum of all individual demand for a
product. It is found by adding up all individual demand at each price level (see
Figure 3.2). For instance, suppose that a cinema charges $10 for its movie tickets
and the demand from male customers totals 500 per week while 400 females
purchase tickets at that price per week. The market demand for cinema tickets
at $10 per ticket is therefore 900 tickets per week.
Movements and shifts in demand

A change in price

A change in the price ofa good or service causes a movement along the demand
curve. A price rise will cause a decrease (contraction) in the quantity demanded
of the product, whereas a reduction in price will cause an increase (expansion)
in the quantity demanded, as shown in Figure 3.3.

Determinants of demand

Although, price is regarded as the key determinant of the level of demand for a
good or service, it is not the only factor that affects the quantity demanded.
Other factors that affect a person's level of demand for goods and services are
listed below:

• A change in the popularity of the good or service

• Seasonal changes
 • A change in population / demographic changes
• Changes in the income distribution of the population
• Changes in the popularity or price of a substitute good, such as coke and
Pepsi
• Changes in the popularity or price of a complimentary good such as golf
club membership and golf equipment
• Habits, fashion and tastes of individuals
• Changes in government policy

There are many other factors that can influence the level of demand for a
particular good or service.

An increase in demand

A movement along the demand curve is caused by price changes only. A change
in all other (non-price) factors that affect demand, such as income le\"els, will
cause a shift in demand.

An increase in demand (rather than an increase in the quantity demanded) is

represented by a rightward shift of the demand curve from Di to D3 in Figure
3.4.

For example, BMW experienced record profits in 2012 when an increase in

demand from China and other emerging markets boosted its car sales. Hence
demand for BMW cars became higher at all price levels. At P1 the quantity of
cars demanded was previously Q1 but has now increased to Q3. By contrast, a
decrease in demand (rather than a fall in the quantity demanded) is shown by
shifting the demand curve to the left, from D1 to D2, resulting in less quantity
being demanded at all price levels. For example, at a price of P1, demand was
previously Q1, but has now fallen to Q2. Financial problems and rising
unemployment across Europe led to a 16.5 per cent decline in the demand for
Peugeot Citroen cars in 2012.

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