DEMAND THEORY

Demand (D) – the schedule of the different quantities of goods that buyers
are willing and able to buy at different prices at a given place and time.

Quantity demanded (Qd) – the specific quantity of goods that buyers are
willing and able to buy at particular prices at a given place and time.

Types of Demand:
1. Consumer demand – the demand for the final goods
a. Individual demand – the demand of an individual consumer for
a given commodity.
b. Market/Collective demand – the sum total of individual demand.
2. Producer demand – the demand for the factors of production.

Ex. Hypothetical demand of Product X in Market Y for a period of 1

Month

Price (P) Qd of Buyer A Qd of Buyer B Qd of Buyer C Market Demand

( in kg.) ( in kg.) ( in kg.) ( in kg.)

25 20 18 15 53
30 18 15 12 45
35 15 12 10 37
40 12 10 8 30
45 10 8 6 24
DEMAND CURVE
60

50

40

QD-A
PRICE

30
QD-B
QD-C
20 MD

10

0
20 25 30 35 40 45 50

QUANTITY DEMANDED
Determinants of Demand:
• Number of buyers
• Consumer’s income
• Price of related goods
• Tastes and preference of the consumer

Consumer demand theory – postulates that the quantity demanded of a

commodity is a function of, or depends on, the price of the commodity, the
consumer’s income, price of related (i.e. complementary and substitute)
commodities, and tastes of the consumers.
Functional form:
Qdx = f(Px, Nb, Y, Pxy, T)

Where:
Qdx = quantity demanded of commodity X by an individual per
time period ( year, month, week, day, or other unit of time)
Px = price per unit of commodity X
Y = consumer’s income
Pxy = price of related (i.e. substitute and complementary)
commodities
T = tastes of the consumer
Law of Demand – states that “the higher the price, the lesser is quantity
demanded; the lower the price, the greater is quantity demanded, assuming
other factors to be remaining constant or equal (ceteris paribus
assumption)

Therefore, price is inversely proportional with quantity demanded.

Change in Demand

 Caused by a change in one or more of the determinants of demand

 There is a shifting of the entire demand curve
rightward shift – increase in demand
leftward shift – decrease in demand

D1
D0
D2
Change in Quantity Demanded

 Caused by a change in the determinant of quantity demanded

 There is a movement along the points of a fixed demand curve
Downward/rightward movement – increase in quantity demanded
Upward/leftward movement – decrease in quantity demanded

P Qd P Qd

P0 P1

P1 P0
D D

Q0 Q1 Q Q1 Q0 Q