MIDTERM: CHAPTER 2: DEMAND AND associated with the demand for another
SUPPLY product/outcome is called as the derived
demand or induced demand. Such as the
MARKET, DEMAND AND DESIRE demand for cotton yarn is derived from the
demand for cotton cloth. Whereas, when the
MARKET demand for the products/outcomes is
is a term that is relative based on the independent of the demand for another
industry where one is involved. product/outcome is called as the direct
is a place where buyers and sellers meet. demand or autonomous demand. Such as, in
DEMAND the above example the demand for a cotton
Demand is the quantity of goods or services cloth is autonomous.
buyers are willing and able to buy. 4. Industry Demand and Company
In other words, demand for a commodity Demand: The industry demand refers to the
refers to the desire to buy a commodity total aggregate demand for the products of
backed with sufficient purchasing power and a particular industry, such as demand for
the willingness to spend. cement in the construction industry. While
DESIRE the company demand is a demand for the
Desire is just a wish for a commodity and a product which is particular to the company
person can desire a commodity even if he and is a part of that industry. Such as
does not have the capacity to buy it from demand for tyres manufactured by the
the market whereas demand is desire Goodyear. Thus, the company demand can
backed by purchasing power that is to say be expressed as the percentage of the
whatever an individual is willing to buy from industry demand.
the market in a given period of time at a 5. Short-Run Demand and Long-Run
given price. Demand: The short term demand is more
elastic which means that the changes in
THREE CHARACTERISTICS OF DEMAND price or income are reflected immediately
(i) Willingness and ability to pay. on the quantity demanded. Whereas, the
Demand is the amount of a commodity long run demand is inelastic, which shows
for which a consumer has the willingness that demand for commodity exists as a
and also the ability to buy. result of adjustments following changes in
(ii) Demand is always at a price. If we pricing, promotional strategies, consumption
talk of demand without reference to patterns, etc.
price, it will be meaningless. The 6. Price Demand: The demand is often
consumer must know both the price and studied in parlance to price, and is therefore
the commodity. He will then be able to called as a price demand. The price demand
tell the quantity demanded by him. means the amount of commodity a person is
(iii) Demand is always per unit of time. willing to purchase at a given price. While
The time may be a day, a week, a studying the demand, we often assume that
month, or a year. the other factors such as income of the
TYPES OF DEMAND consumer, their tastes, and preferences, the
1. Individual Demand and Market prices of other related goods remain
Demand: The individual demand refers to unchanged. There is a negative relationship
the demand for goods and services by the between the price and demand Viz. As the
single consumer, whereas the market price increases the demand decreases and
demand is the demand for a product by all as the price decreases the demand
the consumers who buy that product. Thus, increases.
the market demand is the aggregate of the 7. income Demand: The income demand
individual demand. refers to the willingness of an individual to
2. Total Market Demand and Market buy a certain quantity at a given income
Segment Demand: The total market level. Here the price of the product,
demand refers to the aggregate demand for customer’s tastes and preferences and the
a product by all the consumers in the price of the related goods are expected to
market who purchase a specific kind of a remain unchanged. There is a positive
product. Further, this aggregate demand can relationship between the income and
be sub-divided into the segments on the demand. As the income increases the
basis of geographical areas, price sensitivity, demand for the commodity also increases
customer size, age, sex, etc. are called as and vice-versa.
the market segment demand. 8. Cross Demand: It is one of the important
3. Derived Demand and Direct Demand: types of demand wherein the demand for a
When the demand for a product/outcome is commodity depends not on its own price,
but on the price of other related products is Complementary goods- are goods that go
called as the cross demand. Such as with hand in hand with each other.
the increase in the price of coffee the If the price of the commodity will increases, we
consumption of tea increases, since tea and can expect the demand of its complementary
coffee are substitutes to each other. Also, good to decrease and vice versa.
when the price of cars increases the demand - TASTE AND PREFERENCE
for petrol decreases, as the car and petrol As taste and preference increase, we can expect
are complimentary to each other. an increase in demand of that product.
DEMAND SCHEDULE - EXPECTATION ON FUTURE PRICES.
According to PROF. ALFRED MARSHALL, as people expect prices to increase in the
“Demand schedule is a list of prices and future, QD at present will increase and if the
quantities”. In other words, a tabular price will decrease in the future, QD at present
statement of price-quantity relationship will decrease
between two variables is known as the - CHANGES IN POPULATION
demand schedule. The demand schedule in As population increase, QD is likely to increase
the table represents different quantities of as well.
commodities that are purchased at different SUPPLY
prices during a certain specified period (it is the quantity of goods or services sellers
can be a day or a week or a month). are willing and able to sell at different
DEMAND CURVES (DIAGRAM) places.
- The demand curve is a graphic statement or If the demand depicts the willingness and
presentation of the relationship between ability of the people to purchase a
product price and the quantity of the commodity, supply shows the behavior of
product demanded. It is drawn with price on producers in selling their commodities.
the vertical axis of the graph and quantity
demanded on the horizontal axis. Demand LAW OF SUPPLY
curve does not tell us the price. It only tells states that a price increase, quantity
us how much quantity of goods would be supplied will also increase, ceteris paribus.
purchased by the consumer at various USING THE SUPPLY FUNCTION : QS= 965 +
possible prices. 0.1 P . CALCULATE THE QS
LAW OF DEMAND
Alfred Marshal says that the amount OTHER FACTORS AFFECTING SUPPLY
demanded increase with a fall in price, 1. INPUT PRICE
diminishes with a rise in price. If the cost of input increases, quantity
C.E. Ferguson says that according to law of supplied id likely to decrease.
demand, the quantity demanded varies 2. Price of related goods and services.
inversely with price. If the price of substitutes goods of a
Paul A. Samuelson says that law of demand commodity increases, the supply of the
states that people will buy more at lower prices other will increase.
and buy less at higher prices, other things 2. Expectation on future prices
remaining the same. Hoarding means that producers would
refrain from selling certain commodities
USING THE DEMAND FUNCTION : QD= at certain period because they expect
1,245 – 0.1 P . CALCULATE THE QUANTITY their prices to go up in the future.
DEMAND 3. Technology
4. Government Regulations
A high amount of money to be paid due to
OTHER FACTORS AFFECTING DEMAND
- INCOME government regulation is likely to decrease
NORMAL GOODS – are goods or services that supply in an area. If the tax is high, we can
have an increasing demand whenever income expect a decrease in the supply of different
increase. commodities
INFERIOR GOODS- are goods or services that 5. Number of suppliers
have a decreasing demand whenever income - If the suppliers increases, the supply will
increase. also increase.
- PRICE OF RELATED GOODS AND 6. Unexpected calamities or natural
SERVICES. disaster
Substitute goods – are goods that can replace - Unexpected calamities will decrease the
another commodity in its absence. supply in an area.
If the price of a commodity increases, we can MARKET EQUILIBRIUM
expect the demand of its substitute goods to a point where quantity demanded is equal to
increase and vice versa. the quantity supplied.
the point where buyer are willing and
able to buy the product or avail the
services, and where the sellers are also
willing and able to sell their product or
delivers the services.
Determining the equilibrium can also be
done in tables, graphs, or
mathematically.
SHORTAGE AND SURPLUS
SHORTAGE
with price below the equilibrium price
demand exceeds supply
SURPLUS
with price above the equilibrium price
supply exceeds demands
