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Demand | O Level Economics 2281 & IGCSE Economics 0455 | Detailed Free Notes To Score An A Star (A*)

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Lesson Objectives

  • Definition of Demand
  • Price and Demand
  • Individual and Market Demand
  • Conditions of Demand

Definition of Demand

  • The willingness and ability to buy a product is called demand
    • Remember, demand is seen from the consumer’s perspective, NOT the producer’s perspective
  • Both willingness and ability must be present for there to be an effective demand
    • For example
      • If I have the money to buy an iPhone but I do not want to buy an iPhone, there is ability but no willingness so no demand
      • If I want to buy an iPhone but I do not have the money to buy it, there is willingness but no ability so no demand.
  • When you think of demand in terms of willingness and ability, it will be easier to grasp the entire concept.

Price and Demand

  • Ceteris Paribus, price and demand have an inverse relation
  • In other words
    • Other things kept constant, an increase in the price of the product itself will decrease its demand
  • Remember, price is the INDEPENDENT VARIABLE here.
    • Price is the thing that changes first.
  • This is called the Law of Demand as well
  • Why?
    • When you increase the price any product, there will be some people who will lose the willingness to buy it.
    • Similarly, there will be other people who will lose the ability to buy it. They can not afford it any more.
  • This is the reason the graph of demand has a downward slope

  • We can usually demonstrate it using a straight line.

  • Price Increase, Demand Decrease

Individual and Market Demand

  • Individual demand is the demand of one person
  • Market demand is the demand of all the consumers in the market
  • We find market demand by adding the individual demands for the product at given price.
  • Naturally
    • If individual demands of most customers increase, market demand will increase
    • If individual demands of most customers decrease, market demand will decrease

Conditions of Demand

  • Remember, I mentioned that Law of Demand only applies when Price is the Independent variable.
    • In other words, if the price of the product itself changes first, we DO NOT shift the graph. Instead, there is a movement on the same graph.
  • However, demand can also change due to NON-Price Factors.
    • Non-price factor is any factor other than the price of the product itself.
  • If there is any non price factor change, demand itself shifts either to the right (increase) or left (decrease) and price becomes the dependent variable
    • Thus, law of demand does not apply.
  • Let me give you an example
    • Say, in the morning today, the temperature was hot, so 100 people were willing to buy an ice cream for 10 rupees each.
    • The price stays the same, but at mid day, suddenly snowfall starts
      • Many people will lose their willingness to buy the product despite the price being the same i.e. 10 rupees
      • Why? Maybe because with the change in weather, they may fear that they might get a fever by eating such cold ice cream
    • Here, NOTHING happened to price of the product itself. Instead, another factor caused the demand to change. So at each and every price demand will change, causing a shift.
  • Factors for shift
    • Weather
    • Trends
      • A thing coming in trend will see an increase in demand at every price, shift right.
      • A thing getting out of fashion will see a fall in demand at every price, shift left.
    • Political situation
      • If war is anticipated, people will buy and store goods, shift right.
    • Substitute goods
      • One good that can be used instead of another one. Like coca cola and pepsi
      • If the price of the substitute increase, it will shift the demand of the other product to the right.
        • Why?
          • If pepsi becomes 100000 rupees per bottle, most people will prefer coca cola as it will be more affordable at 20 rupees per bottle (old price)
          • Thus, Coca Cola did nothing to its own price (no law of demand). Instead, a competitor and substitute product increased its price.
          • As the price of the product itself, i.e. Coca Cola is the same, there will be NO LAW OF DEMAND. It is a non price factor for Coca Cola.
          • So there will be a shift in Coca Cola’s demand to the right.
        • FOR PEPSI HOWEVER
          • It will be a price factor and law of demand will apply because price of the product itself changed.
    • Complement Goods
      • These are products that are used together.
      • For example, tooth paste and tooth brush – petrol and cars.
      • If the price of complement product A increases, the demand curve of product B will shift backward
      • If the price of complement product A decreases, the demand curve of product B will shift forward.
      • Why?
        • Because for Product B, its own price is not changing so NO LAW OF DEMAND.
        • For product A, it will be law of demand because its own price is increasing or decreasing.
    • Age factor of population
      • If a greater proportion of the population is getting older, people will buy more old age products like wheelchairs at any price. So shifts will occur in such products.

  • This is a shift increase. See how at same price, the demand increased.
Hunain Zia

Hunain Zia has previously achieved considerable success in the high-school educational stream, gaining a massive 154 Total A Grades and 7 Major Distinctions, a process in which he broke/ set 11 different world records, including the most A grades ever achieved, most subjects ever appeared in, most distinctions, gaining distinctions across two separate boards (Pearson Edexcel and CAIE) within the same year/ ever, and even 19 hours of constant examination. All records stand intact today. Hunain pursued his Honors Accounting Degree from the prestigious Bentley University, and then completed an LLB (in Honors) from University of London. Currently, he manages multiple social and commercial projects, has founded digital streams and works tirelessly in the education sector.

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