Demand and its

determinants
 Demand
Demand is:

–Willingness

–ability

–and desire of buyers to purchase a good or service

–at a particular price

–at a particular time.

Demand curve is a relationship between price and quantity, with all other
factors remaining constant.

Demand curve is represented graphically as a downward sloping curve with

price on the vertical axis and quantity on the horizontal axis
 Demand
Law of Demand:
States that there is an inverse relationship
between price and quantity.
This means that the higher is the price level
the lower will be the quantity demanded
and, conversely, the lower the price the
higher will be the quantity demanded.
• Market demand is the sum of the demands
of all individuals within the marketplace.
 Demand Schedule

Data Point Price ($) Quantity Demanded

A 5 0
B 4 1
C 3 2
E 2 3
F 1 4
G 0 5
 Demand Curve
A The demand curve slopes downward
Price ($’s)

5 because price and quantity demanded

B are inversely related.
4
C
3
2 E

1 F Demand
G
0
1 2 3 4 5
Quantity
5
 Exceptions to law of Demand
• Luxuries
• Giffen / Inferior goods
• Multiple uses of product
• Ignorance
 Determinants of Demand
• Price of the Commodity, Px
• Income of Individual, Y
• Price of related good, Pr
• Advertisement Expenditure, A
• Taste and Preference of individuals, T
• Future expected Price, Pf
• Demonstration effect, Dr
• Credit facility, Cr
• Target Population, Pp
Dx= f(Px, Y, Pr, A, T, Pf, Dr, Cr, Pp)
 Changes in Demand vs. Changes in
Quantity Demanded
Shift in Demand versus Movement along the Curve
A change in the price of a good causes a change in
the quantity demanded, but does not shift demand
Movement along the curve

A price change would

change the quantity
demanded which
involves movement
along the demand
curve.
Movement along the curve

Due to change in Price of

the commodity
 Shift in the Curve

Movement along
Price ($’s)

the demand curve.

Decrease

Increase
Demand

Quantity
 Factors causing Shift in Demand
Tastes and Preferences
 Substitutes and Complements
 Income
Population
 Price Expectations
** all factors except price
 Changes in Demand - Decrease
Demand
DemandShifts
ShiftsLEFT
LEFT

Price
When:
When:

Prices
Pricesofofsubstitutes
substitutesdecrease
decrease

Prices
Pricesofofcomplements
complements
increase
increase

Income
Incomedecreases
decreases

Population
Populationdecreases
decreases D1

Tastes
Tastes&&preferences
preferencesturn
turn D2
against
againstthe
theproduct
product
Quantity

13
Changes in Demand - Increase

Demand
Demand Shifts
Shifts RIGHT
RIGHT When:
When:
Price

 Prices
Prices of
of substitutes
substitutes increase
increase
 Prices
Prices of
of complements
complements
decrease
decrease
 Income
Income increases
increases
 Population
Population increases
increases
D2  Tastes
Tastes && preferences
preferences turn
turn in
in
D1 favor
favor of
of the
the product
product

Quantity