Demand (Copy)

2.3.1 Definition of Demand

• Demand: The willingness and ability of consumers to purchase a good or service at a given price in a given time period.
• Key points:
  • Willingness alone is not enough; consumers must also have ability (purchasing power).
  • Demand is always linked to price and time period.
  • Example: “At Rs. 100, consumers are willing and able to buy 500 burgers per day.”

2.3.2 Price, Demand and Quantity

• Law of Demand: As the price of a good falls, the quantity demanded rises; as the price rises, the quantity demanded falls (ceteris paribus).
• Inverse relationship between price and quantity demanded.

ASCII Diagram: Basic Demand Curve

Price
 |
 | 
 |  
 |   
 |    
 |     
 |       D (Demand Curve)
 +---------------------- Quantity

• The downward slope shows: higher prices → fewer units demanded; lower prices → more units demanded.

Movements along the demand curve

• Extension in demand: When price falls, demand extends (movement downwards along the same curve).
• Contraction in demand: When price rises, demand contracts (movement upwards along the same curve).

ASCII Diagram: Extension and Contraction

Price
 |
 |   A (contraction: high price, low Q)
 |  
 |   
 |     B (extension: low price, high Q)
 |
 +---------------------- Quantity

• Movement along the curve = caused only by price change.

2.3.3 Individual and Market Demand

• Individual demand: Demand of one consumer for a product.
  • Example: Ali buys 2 burgers at Rs. 100.
• Market demand: Total demand from all consumers for a product at each price.
  • Example: Ali buys 2, Sara buys 3, Ahmed buys 5 → Market demand = 10 burgers at Rs. 100.

ASCII Diagram: Market Demand = Sum of Individuals

Price
 |
 |    Dm (Market Demand)
 |  
 |     
 |      
 |       
 +---------------------- Quantity
       I1 + I2 + I3 = Dm

• Market demand is simply the horizontal summation of individual demands.

2.3.4 Conditions of Demand

• Demand can change due to non-price factors (causing shifts in the demand curve).
• A shift is different from a movement:
  • Movement = change in price → same curve.
  • Shift = change in other factors → new curve.

Causes of Shifts in Demand

1. Income changes:
   • Normal goods: Higher income → demand rises.
   • Inferior goods: Higher income → demand falls (e.g., demand for used clothes).
2. Price of related goods:
   • Substitutes: If tea price rises → demand for coffee rises.
   • Complements: If cars become cheaper → demand for petrol rises.
3. Tastes and preferences:
   • If fashion shifts towards sneakers → higher demand for them.
4. Expectations of future prices:
   • If people expect oil prices to rise → current demand rises.
5. Population changes:
   • Higher population → more demand for basic goods.
6. Government policies:
   • Taxes/subsidies change demand patterns.

ASCII Diagram: Shift in Demand

Price
 |
 |    D1 (original demand)
 |        
 |            D2 (increase in demand)
 |    
 |     
 +---------------------- Quantity

• Increase in demand = shift to the right (D1 → D2).
• Decrease in demand = shift to the left.

Summary

• Demand = willingness + ability to buy.
• Law of Demand: Inverse relation between price and demand.
• Movements along curve = price changes (extensions/contractions).
• Shifts in demand curve = non-price factors (income, substitutes, complements, tastes, population, etc.).
• Individual demand → summed horizontally = Market demand.