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Micro Analysis of the Economy – Concept

of Demand
What is Demand?
Demand is the quantity of a good that
consumers are willing and able to purchase at
various prices during a given period of time.
The mere desire of a consumer for a product
is not demand. Demand includes the
purchasing power of the consumer to acquire
a given product at a given period.
In other words, it’s the amount of products
or services that consumers are willing and
able to purchase.
Demand = Need/Want + Ability to Purchase
+ Willingness to Purchas
Price of the product
Determinants of Demand
Price of the Related Goods
 The determinants of demand are factors that
cause fluctuations in the demand quantity for a Consumer’s Income
product or a service.
Consumer’s Tastes and Preferences
Quantity demanded (Qd) is a term used in
economics to describe the total amount of goods or Advertisement Expenditure
services demanded at any given point in time. It
depends on the price of a good or service in the Consumer’s Expectations
marketplace, regardless of whether that market is in
equilibrium. Demonstration Effect

Population of the Country

 The Ten factors in the right side are the major
determinant of demand: Distribution of National Income
Demand Function/Equation
Suppose, the common factors affecting the Demand function is the mathematical
quantity demanded are: relationship between demand and
Price of good or service (P) determinants of demand.
Incomes of consumers (M) Following is the General Demand
Prices of related goods & services (PR)
Qd = f(P, M, Pr, ……, N)
Expected future price of product (Pe)
Number of consumers in market (N)
Qd = 500 – 12p + 2 Pr + 1.5 M
Taste patterns of consumers (Á)
Individual Demand vs Market Demand
The individual demand is the demand of one individual or firm. It represents
the quantity of a good that a single consumer would buy at a specific price point
at a specific point in time.
Market demand provides the total quantity demanded by all consumers. In
other words, it represents the aggregate of all individual demands.
Bollani (Price) Ahmad (Q1) Maryam (Q2) Ali (Q3) Market Demand
10 2 3 1 6
8 4 5 2 11
6 6 7 3 16
4 8 9 4 21
Demand Schedule and Demand Curve
Demand schedule is a table
showing the quantity
demanded of a good or
service at different price
Demand curve is a
graphical representation of
the relationship between the
price of a good or service
and the quantity demanded
for a given period of time.
Individual vs Market Demand Curve
Market Demand
Movement along demand curve and shift of demand curve
The movement in
curve occurs due to
the change in the
price of the
whereas the shift
in demand curve is
because of the
change in one or
more factors other
than the price.
Movement along Demand Curve Shift of Demand Curve
The demand curve could shift to the right for the following reasons:
The good became more popular (e.g. fashion changes or successful advertising
The price of a substitute good increased.
The price of a complement good decreased.
A rise in incomes (assuming the good is a normal good, with positive YED)
Seasonal factors.
Demand Expansion and Demand Contraction
When quantity demanded of a commodity increases as a result of the fall in the price, it
is called extension (or expansion) in demand (a movement down the demand curve).
When the quantity demanded decreases as a result of an increase in the price of the
commodity, it is called contraction in demand (a movement up the demand curve).