Demand of Goods and
Services
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Learning Objectives
After completed this topic, you are expected to
be able to express your understanding by
Explaining and discussing the concept of demand of
goods and services from Islamic and Conventional
perspective.
Using graphs and tables in your explanation and
discussion of the concept of demand from both
perspectives.
Identify and determine the factors that are relating to
demand of goods and services
Describing and showing the calculation of the
elasticity of demand
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Classification of Goods and
Services
From conventional perspective
Free goods
Public goods
Economic goods
From Islamic perspectives
Al-tayyibat
Al-Rizq
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Conventional Perspectives
Free Goods
Goods that do not have any production
cost at all
Air and rain water
Public goods
Goods which the benefits are indivisibly
spread among the entire community
whether or not the individuals desire to
purchase the public goods
Radio station, school, hospital
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Economic goods
Goods which supply is limited and
require costs to purchase them.
Price is involved in obtaining them.
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Islamic Perspective
The Quran always refer to
consumable goods by using terms
which attributed moral and
ideological values to them.
Two term in the Al-Quran to
describe are al-Rizq and al-
Tayyibat
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Al- Tayyibat
Al-tayyibat means good things, good and
pure things, clean and pure things, good and
wholesome things and sustenance of the
best.
Consumer goods are tied up with ethical
values such as goodness, purity, nourishing
and wholesomeness.
Bad goods are not considered as goods in
Islam.
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Al-Rizq
Al-rizq
is used to denote the following
meanings;
Godly sustenance, divine bestowal, godly
provision and heavenly gifts
* Yusuf Ali
All these meanings denote that Allah
s.w.t is the only sustainer and provider
for all creatures.
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Consumer goods in Islamic economics are
useful and beneficial.
The consumption of them brings about the
material, moral and spiritual betterment of
the consumer.
Things that do not have any goodness and
do not help improve human beings are not
considered as goods, property, or assets of
muslim.
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These 2 categories of goods can be
further subdivided based on hierarchy of
needs
Dharuriyah
Hajiyah
Kamaliah
Tarafiyah
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Hierarchy of needs
Dharuriyah
Goods that are classified as basic needs and
necessary for a living.
Hajiyat
Goods that will improve the quality of human life
Kamaliat
Goods that contribute towards the perfection of
human life
Tarafiat
Goods that are consider extravagant and wasteful
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Definition of demand
The quantity of various goods that people
are willing and able to buy at a
particular time and at a given range of
prices.
The desire to buy goods and services
with the ability to pay.
* Hashim
Ali
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The Individual Demand Curve and
the Law of Demand
Al’s Demand Schedule for
Pizza
Quantity of pizzas
Price ($) per month
2 13
4 10
6 7
8 4
10 1
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The demand schedule is a table of
numbers that shows the
relationship between price and
quantity demanded by a consumer,
ceteris paribus (Other thing remain
constant).
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The Individual Demand Curve and
the Law of Demand
The individual demand
curve shows the relationship
between the price of a good
and the quantity that a single
consumer is willing to buy, or
quantity demanded.
• The law of demand states that
the higher the price, the
smaller the quantity
demanded, ceteris paribus
(Other thing remain constant).
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Price/Kg Quantity
(RM) Demanded (Kg)
4.00 75
5.00 60
6.00 50
7.00 40
8.00 25
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The Individual Demand Curve and
the Law of Demand
A change in quantity
demanded is a change
in the amount of a good
demanded resulting
from a change in the
price of the good,
represented graphically
by a movement along
the demand curve.
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From Household to Market
Demand
Demand for a good or service can be
defined for an individual household, or
for a group of households that make up a
market.
Market demand is the sum of all the
quantities of a good or service demanded
per period by all the households buying in
the market for that good or service.
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From Household Demand to
Market Demand
Assuming there are only two households in the
market, market demand is derived as follows:
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The demand curve:
The demand for potatoes (monthly)
Calculate the total market demand for the above situation.
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The demand curve:
The demand for potatoes (monthly)
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Determinant of Demand
Price of the goods
Price of related goods
Consumers income
Taste and preference
The number of buyers in the market
Expectation about the future price
Weather
Availability of credit facilities
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IMPORTANT - KNOW
THE DIFFERENCE
BETWEEN A CHANGE
IN THE QUANTITY
DEMANDED AND A
CHANGE IN DEMAND
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When price changes,
what happens?
The curve does not
shift.
There is a change in
the quantity demanded
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Increase in
Quantity
Demanded
Decrease in
Price
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When something
changes other than
price, what happens?
The whole curve
shifts,there is a
change in demand
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P
When the ceteris paribus assumption
is relaxed, the whole curve can shift
$20
A B
$15
$10 D
$5 D12
Q
10 20 30 40 50
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Increase
in demand
Change in
nonprice
determinant
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A Change in Demand Versus a Change
in Quantity Demanded
To summarize:
Change in price of a good or service
leads to
Change in quantity demanded
(Movement along the curve).
Change in income, preferences, or
prices of other goods or services
leads to
Change in demand
(Shift of curve).
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The Impact of a Change in
Income
• Higher income • Higher income
decreases the demand increases the demand
for an inferior good for a normal good
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The Impact of a Change in the
Price of Related Goods
• Demand for complement good
(ketchup) shifts left
• Demand for substitute good (chicken)
shifts right
• Price of hamburger rises
• Quantity of hamburger
demanded falls
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Inter related demand
1. Joint demand
2. Competitive demand
3. Derived demand
4. Composite demand
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[Link] Demand
A demand for a particular good is
likely to increase the demand for
another good.
Complementary goods
Pen and ink, toothbrush and
toothpaste
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What are complementary
goods?
Goods that are
jointly consumed
with another good
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What does a direct
relationship between price
and quantity mean?
The two move in the
same direction
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What happens when the
price increases for a good
that has a complement?
The demand curve for
the substitute good
decreases
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What happens when the
price decreases for a good
that has a complement?
The demand curve for
the substitute good
increases
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[Link] Demand
An increase in the demand for one good
will reduce the demand for another
good.
Substitutes goods
Pepsi cola and coca cola, KFC and
McDonalds, PROTON and HONDA
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What are
substitute goods?
Goods that compete
with one another for
consumer purchases
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What happens when the
price decreases for a good
that has a substitute?
The demand curve for
the substitute good
decreases
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[Link] Demand
The demand for a good increases,
demand for the factor of production to
produce goods will also increase.
House bricks, cement, tiles etc
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[Link] Demand
Refer to multi purpose products
Rubber can be used to produce tires
and shoes.
If the demand for tires increase, more
rubber will be used to produce tires
shortages of rubber to produce shoes
will increase the price of rubber shoes.
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What is an
inferior good?
Any good for which
there is an inverse
relationship between
changes in income
and its demand curve
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What is a normal
good?
Any good for which
there is a direct
relationship between
changes in income
and its demand curve
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What does an inverse
relationship between price &
quantity mean?
It means that the two
move in opposite
directions
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Exceptional Demand
Doesn't follow
P d
the law of
demand
Giffen goods
The demand
curve for giffen
goods is
normally
upward
Q sloping.
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Luxuries goods Those products that
have an income
elasticity of demand
greater than 1.
P
d The more
expensive the
goods, the greater
will be the demand.
Jewellery, antique
furniture, picture of
Mona Lisa etc
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