Demand

Nishat Tasneem
Lecturer (Economics)
Department of Mechanical Engineering
Sonargaon University
Demand
Quantity Demanded
• The quantity demanded of any good is the amount of the good that
buyers are willing and able to purchase.
• Quantity demanded is the quantity of a commodity that people are
willing to buy at a particular price at a particular point of time.
• If the price of ice cream rose to $20 per scoop, you would buy less ice
cream. You might buy frozen yogurt instead. If the price of ice cream
fell to $0.20 per scoop, you would buy more.
Demand
• This relationship between price and quantity demanded is true for
most goods in the economy and, in fact, is so pervasive that
economists call it the law of demand: Other things being equal, when
the price of a good rises, the quantity demanded of the good falls,
and when the price falls, the quantity demanded rises.
• Or we can say, when the price of a good rises, the quantity
demanded of that good falls and vice versa; ceteris paribus.
Demand Schedule
• The table shows how many ice-cream cones Catherine buys each
month at different prices of ice cream. If ice cream is free, Catherine
eats 12 cones per month. At $0.50 per cone, Catherine buys 10 cones
each month. As the price rises further, she buys fewer and fewer
cones. When the price reaches $3.00, Catherine doesn’t buy any
cones at all.
• This table is a demand schedule, a table that shows the relationship
between the price of a good and the quantity demanded, holding
constant everything else that influences how much of the good
consumers want to buy.
Demand Schedule
Demand Curve
Demand Curve
• The demand curve, which graphs the demand schedule, illustrates
how the quantity demanded of the good changes as its price varies.
Because a lower price increases the quantity demanded, the demand
curve slopes downward.
• The graph uses the numbers from the table to illustrate the law of
demand. By convention, the price of ice cream is on the vertical axis,
and the quantity of ice cream demanded is on the horizontal axis. The
line relating price and quantity demanded is called the demand curve.
The demand curve slopes downward because, other things being
equal, a lower price means a greater quantity demanded.
Demand Law
• An increase in price leads to a decrease in quantity demanded, and
vice versa; ceteris paribus.
• Inverse/negative relationship
• Downward sloping

•P D

•P D
Demand Equation
• D (QD) = a – bP

D (QD) = Quantity demanded

a = Intercept
b = slope
P = price
Why is the demand curve downward sloping?
The demand curve slopes downward because more consumers would
be willing or able to afford goods or services the more their prices
lessen. This is the basic law of demand. As the price drops, it becomes
easier to entice consumers to try a good or service. That's why coupons
and free trial promotions work so well at attracting new customers.
Movements along the Demand Curve
Keeping all other factors the same, when there is a change in
demand of a commodity due to a change in price, it is referred to
as the change in quantity demanded.
Movements along the Demand Curve
• When the price rises from p to
p2 demand falls from q to q2.
This is known as the
contraction of demand.

• When the price falls from p to

p1 demand rises from q to q2.
This is known as the
expansion of demand.
Movements along the Demand Curve
Upward Movement of the Demand Curve
When the price of the commodity rises, the quantity
demanded falls. It leads to the upward movement of the demand
curve.
It is also known as the contraction of demand.
Downward Movement of the Demand Curve
When the price of the commodity falls, the quantity
demanded rises. It leads to the downward movement of the
demand curve.
It is also known as the expansion of demand.
Shifts in the Demand Curve
• If something happens to alter the quantity demanded at any given
price, the demand curve shifts.
• For example, suppose the American Medical Association discovered
that people who regularly eat ice cream live longer, healthier lives.
The discovery would raise the demand for ice cream. At any given
price, buyers would now want to purchase a larger quantity of ice
cream, and the demand curve for ice cream would shift.
Shifts in the Demand Curve
• Any change that increases the quantity demanded at every price,
shifts the demand curve to the right and is called an increase in
demand. Any change that reduces the quantity demanded at every
price shifts the demand curve to the left and is called a decrease in
demand.
Shifts in the Demand Curve
Reasons behind the Shifts in the Demand
Curve
• Income
• Prices of Related Goods
• Tastes
• Expectations
• Number of Buyers
Reasons behind the Shifts in the Demand
Curve
Income
What would happen to your demand for ice cream if you lost
your job one summer? Most likely, it would fall. A lower income means
that you have less to spend in total, so you would have to spend less on
some—and probably most—goods. If the demand for a good falls when
income falls, the good is called a normal good.
Not all goods are normal goods. If the demand for a good rises
when income falls, the good is called an inferior good. An example of
an inferior good might be bus rides. As your income falls, you are less
likely to buy a car or take a cab and more likely to ride a bus.
Reasons behind the Shifts in the Demand
Curve
Prices of Related Goods
When a fall in the price of one good reduces the demand for
another good, the two goods are called substitutes. Substitutes are
often pairs of goods that are used in place of each other, such as hot
dogs and hamburgers, sweaters and sweatshirts, and movie tickets and
DVD rentals.
When a fall in the price of one good raises the demand for
another good, the two goods are called complements. Complements
are often pairs of goods that are used together, such as gasoline and
automobiles, computers and software, and peanut butter and jelly.
Reasons behind the Shifts in the Demand
Curve
Tastes
The most obvious determinant of your demand is your tastes. If
you like ice cream, you buy more of it. Economists normally do not try
to explain people’s tastes because tastes are based on historical and
psychological forces that are beyond the realm of economics.
Economists do, however, examine what happens when tastes change.
Reasons behind the Shifts in the Demand
Curve
Expectations
Your expectations about the future may affect your demand for a
good or service today. If you expect to earn a higher income next
month, you may choose to save less now and spend more of your
current income buying ice cream. If you expect the price of ice cream
to fall tomorrow, you may be less willing to buy an ice-cream cone at
today’s price.
Reasons behind the Shifts in the Demand
Curve
Number of Buyers
In addition to the preceding factors, which influence the
behavior of individual buyers, market demand depends on the number
of these buyers. If Peter were to join Catherine and Nicholas as another
consumer of ice cream, the quantity demanded in the market would be
higher at every price, and market demand would increase.
Shifts vs Movements in the Demand Curve
Shifts vs Movements in the Demand Curve
Shifts vs Movements in the Demand Curve
• If warnings on cigarette packages convince smokers to smoke less, the
demand curve for cigarettes shifts to the left.
• In panel (a), the demand curve shifts from D1 to D2. At a price of
$2.00 per pack, the quantity demanded falls from 20 to 10 cigarettes
per day, as reflected by the shift from point A to point B. By contrast,
if a tax raises the price of cigarettes, the demand curve does not shift.
Instead, we observe a movement to a different point on the demand
curve.
• In panel (b), when the price rises from $2.00 to $4.00, the quantity
demanded falls from 20 to 12 cigarettes per day, as reflected by the
movement from point A to point C.