Theory of Final)

8/14/2019 Theory of Final)

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Meaning of demand

Cont.

3. The willingness to use thosemeans.

Again it must consist,

it is always at a point of time.

It is always at a price.


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Features of Demand1.Difference between desire and

demand:

(consumer has the willingness andability to buy)

2.Relationship between demand and

price

(It is always at a price per unit oftime)

3.Demand at a point of time It is


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Definition

According to Hansen" By demand,we mean the quantity of acommodity that will be purchasedat a particular price and not

merely the desire of a thing.


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Demand & Demand Curve

The term demand refers to the entire

relationship between the price of thegood and quantity demanded of thegood.

A demand curve shows the

relationship between the quantitydemanded of a good and its pricewhen all other influences onconsumers planned purchases

remain the same.


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Demand Curve


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Types of demand

1. Price Demand: It refers to the

various quantities of thecommodity which the consumerwill buy per unit of time and atcertain price.

DA=f(PA)

Where DA =demand of

commodity A


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Types of demand Cont2. Income Demand: It shows how

much quantity a consumer will buy

at different levels of income.DA=f(YA)

Where DA =demand of

commodity AF =function

YA =income of the

consumer A


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Types of demand Cont3. Interconnected Demand

A. Substitute and Complementary

demand: It refers to therelationship between quantitydemanded of good A and price ofrelated good B.

B. Composite Demand: When a thingis demanded for two or many otherreasons.


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Interconnected Demand

cont..C. Direct and Indirect Demand:

Direct demand: which satisfieshuman wants directly.

Indirect Demand :which satisfieshuman wants indirectly.

D. Alternative Demand: when it issatisfied by alternative ways.


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Law of Demand Holding all other things constant

(ceteris paribus), there is an

inverse relationship between theprice of a good and the quantity ofthe good demanded per timeperiod.

The Law of Demand results from a substitution effect an income effect


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Explanation of the Law Substitution effect when the relative

price (opportunity cost) of a good or servicerises, people seek substitutes for it, so thequantity demanded decreases.

Income effect when the price of a good orservice rises relative to income, people cannot

afford all the things they previously bought, sothe quantity demanded decreases.


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Demand ScheduleThe Mathematical representation

of the Demand curve is known as

demand schedule.


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Individual Demand Curve


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Market Demand Curve


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From Individual to Market

Demand Curve


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Demand functionDX=f(PX,P,Y,T,E etc.)

here DX=demand forcommodity X

F=functional relationshipPX=price of the commodity X

P= price of the relatedcommodity

Y=income of the consumerT = taste

E= expectations.


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Changes in Demand

When any factor that influences buying plansother than the price of the good changes,there is a change in demand for that good.

The quantity of the good that people plan tobuy changes at each and every price, so thereis a new demand curve.

When demand increases, the quantity thatpeople plan to buy increases at each andevery price so the demand curve shiftsrightward.

When demand decreases, the quantity that


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Shifts in the DemandCurve

Income

Price of substitutes

Price of complements

Population, tastes, weather

Expected future prices Quality of the product


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demanded Vs. Change inDemand

A Change in theQuantity

Demanded Versusa Change inDemand This figure

illustrates thedistinctionbetween a changein demand and a

change in theuantit


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Movements along theDemand Curve

When the price ofthe good changes

and everythingelse remains thesame, there is achange in the

quantitydemanded and amovement alongthe demand

curve.


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Shifts in the DemandCurve

When one of theother factors that

influence buyingplans changes,there is a changein demand and a

shift of thedemand curve.


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Common Confusions

2. Individual vs. Market Demand

4. Movements along vs. Shifts inDemand curve


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Quantity Supplied

Definition:

QS

= the amount of good or servicethat suppliers will be willing andable to sell during a particular timeat a particular price.

Resources and technologydetermine what it ispossible to produce. Supply reflects a decision aboutwhich technologically feasible items to produce.


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Supply

Supply Curve and Supply ScheduleThe term supply refers to the entire

relationship between the quantitysupplied and the price of a good.

The supply curve shows the

relationship between the quantitysupplied of a good and its price whenall other influences on producersplanned sales remain the same.


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Supply Curve of CD-Rs

A rise in the price,other things

remaining thesame, brings anincrease in thequantity supplied

and a movementalong the supplycurve


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The Law of Supply

The higher theprice of the

good, the moreproducers willbe willing to

supply (QS

),ceteris paribus


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A Change in Supply

When any factor that influences selling plans other thanthe price of the good changes, there is a change insupply of that good. The quantity of the good thatproducers plan to sell changes at each and every price,

so there is a new supply curve.

When supply increases, the quantity that producersplan to sell increases at each and every price so thesupply curve shifts rightward.

When supply decreases, the quantity that producersplan to sell decreases at each and every price so thesupply curve shifts leftward.


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Shifts in the Supply Curve

Price of inputs

Price of other goods produced

Expected future prices

# Suppliers

Technology


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Quantity Supplied Vs.Change in Supply

A Change in theQuantity Supplied

Versus a Changein Supply

Figure illustratesthe distinction

between a changein supply and achange in the

quantity supplied.


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Movement along theSupply Curve

When the price ofthe good changesand otherinfluences onselling plansremain the same,there is a change

in the quantitysupplied and amovement alongthe supply curve.


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Shift in Supply Curve

When one of theother factors that

influence sellingplans changes,there is a changein supplyand a

shift of the supplycurve.


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Market Equilibrium

Equilibrium is a situation in which opposingforces balance each other. Equilibrium in amarket occurs when the price balances theplans of buyers and sellers.

The equilibrium price is the price at whichthe quantity demanded equals the quantitysupplied.

The equilibrium quantity is the quantitybought and sold at the equilibrium price.

Price adjusts when plans dont match.


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Market Equilibrium

Figure illustrates theequilibrium price andequilibrium quantity

in the market for CD-Rs.

If the price of a discis $2, the quantitysupplied exceeds thequantity demandedand there is asurplus of discs.


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Market Equilibrium

Definition:

A Price-Quantity Combination atwhich

there is no shortage or surplus

S=D

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