Chapter 4 - Demand

Microeconomics
ECO111F
Chapter 4
Demand
Lecture Concepts
 Law of Demand
 Demand schedule
 Demand curve
 Market demand vs. individual demand
 Determinants of demand
 Shifts vs. movements along demand curve
DEMAND
 Demand shows the relationship between
price and the quantity demanded during a
particular period of time, ceteris paribus
 Quantity demanded refers to the amount of a

good or service that potential buyers are
willing and able to purchase
◦ i.e. intend to buy it and have the means
DEMAND
 Demand is a flow concept, which means that
demand is measured over a given period or time
frame
◦ E.g. 2kg of rice per week,10 bags of tomatoes a month
 Demand has to do with the future plans to make

purchases
◦ Quantity demanded may differ from quantity actually

bought. Why?
◦ Quantity bought depends on availability
DEMAND
 The law of demand
◦ The law of demand states that, all other things

being equal (ceteris paribus), the higher the price of
a product, the lower the quantity demanded
◦ In other words, an inverse relationship exists

between the price of a product and the quantity
demanded
Demand Schedule
 The demand schedule is a table that shows the relationship
between the price of the good and the quantity demanded
 It shows the quantity that is demanded at different prices when all

other influences are held constant
Demand Schedule Example
Demand Curve
 The demand curve is a graph of the relationship between the
price of a good and the quantity demanded.
 This demand curve simply graphically illustrates what is shown

in the demand schedule
 Each point illustrates a different price-quantity demanded

combination
 By joining these points, we obtain the demand curve
 Note the inverse relationship shown by the downwards slope of

the demand curve
Demand Schedule and Demand Curve
Price
R3.00 Price
Quantity
2.50 R0.00 12
0.50 10
1. A decrease
2.00
in price ... 1.00 8
1.50 1.50 6
2.00 4
1.00
2.50 2
0.50
3.00 0
0 1 2 3 4 5 6 7 8 9 10 11 12
Quantity Demanded
2. ... increases quantity
of cones demanded.
Market Demand vs. Individual
Demand
 In a market system, the plans of all consumers and
producers must be considered
 Market demand refers to the sum of all individual

demands for a particular good or service
 Graphically, individual demand curves are summed

horizontally to obtain the market demand curve
Market demand curve
 Market demand is the horizontal summation of
individual consumer demand curves
DETERMINANTS OF DEMAND
 The demand of a good is influenced or
affected by a number of factors
 These include:
◦ 1. Price of the product
◦ 2. Prices of related products
◦ 3. Income of households
◦ 4. Consumer tastes and preferences
◦ 5. Size of households
End of lesson
 As a function the determinants can be
expressed as:
 WHERE IS quantity demanded, is price of

particular good, is price of related goods, Y is
household income, T is consumer tastes and
preferences, N is number of people in a
household
Movements along the demand curve
and shifts of the curve
 Also referred to as changes in quantity

demanded vs. changes in demand
 It is very important to be able to distinguish
between a change in quantity demanded and

a change in demand
 Change in quantity demanded refers to the
effect of a change in price

 Shown by movement along the demand curve
 In other words are held constant
Movements along the demand curve
and shifts of the curve
 When the relationship between quantity

demanded and price is allowed to be
influenced by one of the other determinants,
then a shift of the demand curve occurs
 In other words, the assumption of holding all
other things constant is relaxed.

 Therefore a change in determinants other
than price of the good will result in a shift of

the demand curve
Shifts in the Demand Curve
 Change in Demand
◦ A shift in the demand curve, either to the left or right.
◦ Caused by change in any of the determinants of demand other
than the price of the product
Shifts in the Demand Curve
Price
Increase
in demand
Decrease
in demand
Demand
curve, D2
Demand
curve, D1
Demand curve, D
3
0 Quantity
A change in the quantity demanded versus a change
in demand
19
A change in the quantity demanded versus a change
in demand
•The movement from point a – b and a- c shows a change

in the quantity demanded.
• The shift from DD to D1D1 and DD - D2D2 represents a
change in demand
20
 1. Price of the product – the lower the price of
a particular product, the more of the product
one can buy
◦ As already indicated, changes in the price of a

product will affect the quantity demanded
◦ Therefore if price increases or decreases, there will
be a movement along the demand curve
◦ Price is the main determinant of demand
Changes in Quantity Demanded
Price
A tax that raises the price of
a product results in a
B movement along the demand
R2.00 curve
1.00 A
Demand
0 4 8 Quantity
 2. Price of related products - related products could
either be complements or substitutes
◦ Changes cause shifts in demand curves
◦ Complements are goods that are used jointly – an increase in

the price of a complement, causes a decrease in demand for
the other good
 E.g. cars and petrol, coffee and milk, tea and sugar
◦ Substitutes are goods which can be used instead of the good

in question – an increase in the price of a substitute, causes
an increase in demand for the other good
 E.g. butter and margarine, beef and mutton
Change in the Price of a Complementary Good
Price of DVD disc rises:
Change in the Price of a Substitute Good
Price of coffee rises:

 3. Income of households - income affects
one’s purchasing power
◦ The higher ones income, the more goods one can

afford to buy
◦ BUT there is a difference between normal goods
and inferior goods
◦ Inferior goods – think of poor consumers (switch
to better products)
◦ Changes cause shifts in demand curve
Income and Demand: Normal
Goods
 A good is a normal good if an increase in income
results in an increase in the demand for the good.
Income and Demand: Inferior Goods
 A good is an inferior good if an increase in income
results in a reduction in the demand for the good
 4. Tastes and preferences - the more one enjoys a
good the more they will demand of it
◦ As ones tastes and preferences change, so too will demand

change
◦ For example – doctors discover the acidity in tomatoes can
cause serious health problems.
◦ Advertising and fashion can cause changes in tastes and
preferences
◦ Changes cause shifts in demand curve
Tastes and preferences
Effects of a change in taste and preferences
 5. Number of individuals in a household –
the bigger the household, the more of a
good will be demanded
◦ Changes cause shifts in the demand curve
 WHAT OF SUPPLY - IS IT A DETERMINANT OF

DEMAND?
Demand and the # of buyers
 An increase in the number of buyers results in an
increase in demand.
Other influences on demand
 1. A change in expectations–
◦ A higher expected future price will increase current demand.

◦ A lower expected future price will decrease current demand.
◦ A higher expected future income will increase the demand
for all normal goods.
◦ A lower expected future income will reduce the demand for
all normal goods.
Other influences on demand
 2. Change in income distribution –
◦ Income redistributed from high income households to

poorer households results in demand for goods bought by
poor households to increase, and demand for goods
bought by richer households to decrease
◦ Note – these other influences would cause shifts in

demand curve
Variables That Influence Demand
Variable A Change In This Variable

Price (good`s own) Represents a movement along the demand curve
Income Shifts in the Demand Curve
Prices of Related Goods Shifts in the Demand Curve
Tastes Shifts in the Demand Curve
Expectations Shifts in the Demand Curve
Number of Buyers Shifts in the Demand Curve
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Microeconomics

 Quantity demanded refers to the amount of a

 Demand has to do with the future plans to make

◦ Quantity demanded may differ from quantity actually

◦ The law of demand states that, all other things

◦ In other words, an inverse relationship exists

 It shows the quantity that is demanded at different prices when all

 This demand curve simply graphically illustrates what is shown

 Each point illustrates a different price-quantity demanded

 Note the inverse relationship shown by the downwards slope of

 Market demand refers to the sum of all individual

 Graphically, individual demand curves are summed

 WHERE IS quantity demanded, is price of

 Also referred to as changes in quantity

between a change in quantity demanded and

effect of a change in price

 When the relationship between quantity

other things constant is relaxed.

than price of the good will result in a shift of

•The movement from point a – b and a- c shows a change

◦ As already indicated, changes in the price of a

◦ Changes cause shifts in demand curves

◦ Complements are goods that are used jointly – an increase in

◦ Substitutes are goods which can be used instead of the good

Price of coffee rises:

◦ The higher ones income, the more goods one can

◦ As ones tastes and preferences change, so too will demand

◦ Changes cause shifts in the demand curve

 WHAT OF SUPPLY - IS IT A DETERMINANT OF

◦ A higher expected future price will increase current demand.

◦ Income redistributed from high income households to

◦ Note – these other influences would cause shifts in

Variable A Change In This Variable

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