Introduction to Demand
- Demand is the amount of a good/service that a consumer is willing and able to purchase at a given price in a given time period
- If a consumer is willing to purchase a good, but cannot afford to, it is not effective demand
- If a consumer is willing to purchase a good, but cannot afford to, it is not effective demand
- A demand curve is a graphical representation of the price and quantity demanded (QD) by consumers
- If data were plotted, it would be an actual curve. Economists, however, use straight lines so as to make analysis easier
- If data were plotted, it would be an actual curve. Economists, however, use straight lines so as to make analysis easier
- The law of demand states that there is an inverse relationship between price and quantity demanded (QD), ceteris paribus
- When the price rises the QD falls
- When the price falls the QD rises
Individual and Market Demand
- Market demand is the combination of all the individual demand for a good/service
- It is calculated by adding up the individual demand at each price level
- It is calculated by adding up the individual demand at each price level
The Monthly Market Demand for Newspapers in a Small Village
Customer 1 |
Customer 2 |
Customer 3 | Customer 4 | Market Demand |
30 |
|
4 |
4 |
53 |
- Individual and market demand can also be represented graphically
Market demand for children's swimwear in July is the combination of boys and girls demand
Diagram Analysis
- A shop sells both boys and girls swimwear
- In July, at a price of $10, the demand for boys swimwear is 500 units and girls is 400 units
- At a price of $10, the shops market demand during July is 900 units
Movements Along a Demand Curve
- If price is the only factor that changes (ceteris paribus), there will be a change in the quantity demanded (QD)
- This change is shown by a movement along the demand curve
A demand curve showing a contraction in quantity demanded (QD) as prices increase and an extension in quantity demanded (QD) as prices decrease
Diagram Analysis
- An increase in price from £10 to £15 leads to a movement up the demand curve from point A to B
- Due to the increase in price, the QD has fallen from 10 to 7 units
- This movement is called a contraction in QD
- A decrease in price from £10 to £5 leads to a movement down the demand curve from point A to point C
- Due to the decrease in price, the QD has increased from 10 to 15 units
- This movement is called an extension in QD
