Demand

• Definition: demand is the desire, willingness and the ability of consumers to

purchase a good at a certain time, ceteris paribus.
• Law of Demand: It states that the quantity demanded of a good and the price is
inversely related.
• The demand curve is always downward sloping and it illustrates the inverse
relationship.

Difference in quantity demanded and demand

• Change in quantity demanded refers to the response of demand to changes in its

own price and it is shown by a movement along the demand curve.
• Change in demand is the response of demand to changes in other factors other
that the price of the product. It is shown by a shift in the demand curve.

Factors that affects demand

1. Price of the good itself
2. Non price factors
• Prices of related goods( complements and substitutes)
• Income(Norman and inferior good)
• Taste and preferences
• Climate
• Composition and size of population
• Expectation of future price changes
• Government policy
• Discovery of new products

Change in price of good itself will affect the quantity demanded and it will cause a
movement along the same demand curve.

Change in non-price factors/determinants will affect the demand of the product and it will
cause a shift in the demand curve.
1. Substitutes
• Substitutes are different good that can satisfy the same want and
considered by consumers to be alternatives to each other.
• Examples:
1. coke and Pepsi
2. Milo and olvatine
• A change in price of good Y which is a substitute of good X will because a
change in demand for good X.
 • A increase in price of good Y will cause a increase in demand of good X
and a decrease in price of good Y will cause a decrease in demand for
good X

2. Complements
• Complementary goods (complements) are goods that are consumed
together.
• Examples:
1. cars and petrol
2. printers and ink cartridges

• A change in price of good Y will cause a change in demand for Good X.

• An increase in price of good Y will cause a decrease in demand for good
X; a decrease in price of good Y will cause an increase in demand for good
X.

3. Level of Income
• Normal good- demand increases as the income of the consumers rises.
• Inferior goods- demand for the good decreases as income of consumers
rises.
• Luxury goods-demand is elastic to the increase in income of consumers.

Demand factors:
• E-expectation of prices
• G-government policies
• Y-income
• P-price of related goods
• Taste and preferences