Define Demand Economics: The demand for a commodity is its
quantity which consumers are able and willing to buy at various prices during given period of time. So, for a commodity t have demand
¨the consume must possess
willingness to buy it.
¨the ability or means to
buy it
¨and it must be related to
per unit of time i.e, per day, per week, per month or per year.
The
amount of a product that consumers wish to purchase is called the quantity
demanded. Quantity demanded is a desired quantity. It is how much consumer’s
wish to purchase, not necessarily how much they actually succeed in purchasing.
Demand function:
An equation which shows the
mathematical relationship between the quantity demanded of a good and the
values of the various determinants of demand. Demand function is an algebraic
expression of the demand schedule expressed either in general terms or with
specific numerical values expressed for the various parameters, and usually
including all factors affecting demand. In other words demand function shows
the functional relationship between quantity demanded of a commodity and the
factors influence the demand for that commodity. The demand function can be
expressed as
¦(
Px, P1 ------Pn, Y, T, S)
Where
Quantity demanded X (X=any commodity)
Px
= Price of X
P1----Pn
= Prices of related commodities
Y
= Consumer’s income and wealth.
T
= Consumer’s taste
S
= Various sociological factors.
Demand schedule and demand
curve:
A
demand schedule is one way of showing the relationship between quantity
demanded and price. It is a numerical tabulation that lists some selected
prices and shows the quantity that will be demanded at each.
The
following table is an individuals hypothetical demand schedule for carrots. It
shows the quantity of carrots that the individual would demand at six selected
prices.
An
individual consumer’s demand schedule for carrots:
Reference letter
|
Price (Tk per kg)
|
Quantity demanded
(Kg per month)
|
A
|
1
|
80
|
B
|
2
|
60
|
C
|
3
|
40
|
D
|
4
|
30
|
E
|
5
|
20
|
F
|
6
|
10
|
For example, at price Tk 4 per
kg, the quantity demanded is 30 kg per month. Each of the price-quantity
combination in the table is given a letter for easy references.
Demand curve: A graph
showing the relationship between the price of a good and the quantity of the
good demanded over a given time period. Price is measured on the vertical axis;
quantity demanded is measured on the horizontal axis. On the other hand, a
demand curve is the graphical representation of the demand schedule.
A
single point on the demand curve indicates a single price-quantity relation.
The whole demand curve shows the complete relation between quantity demanded
and price.
Law of demand:
A
basic economic hypothesis is that the lower the price of a product, the larger
the quantity that will be demanded, other things being equal.
The
quantity of a good demanded per period of time will fall as price rises and
will rise as price falls, other things being equal. (ceteris paribus)
Determinations of demand:
Factors which determine the level
of demand for any commodity are as follows:
1.
Price: The higher the price of a commodity the
lower the quantity demanded. The lower the price the higher the quantity
demanded.
2.
Taste: The more desirable people find the good,
the more they will demand. Tastes are affected by advertising, by fashion, by
observing other consumers, by considerations of health and by the experience
from consuming the good on previous occasions.
3.
The number and price of substitute goods: The
higher the price of substitute goods. the higher will be the demand for this
good, as people switch from the substitutes. For example the demand for tea
will depend upon the price of coffer. If the price of coffee goes up the demand
for tea will rise.
4.
The number and price of complementary goods:
Complementary goods are those that are consumed together: Cars and petrol,
shoes and polish, fish and chips. The higher the price of complementary goods,
the fewer of them will be bought and hence the less will be the demand for
these goods. For example, the demand for matches will depend on the price of cigarettes.
If the price of cigarettes goes up, so that fewer are bought, the demand for
matches will fall.
5.
Income: As people’s income rise, their demand
for most goods will rise. Such goods are called normal goods. As people get
richer, they spend less on inferior goods, such as cheap margarine, and switch
to better quality goods. Define Demand Economics
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