Lecture #2

Law of Demand, Determinants of Demand, Change in Demand and Change in Quantity Demand

• Demand• Law of Demand

Demand ScheduleDemand curve

• Assumption of Lawof Demand• Change in Demand• Change in Quantity Demand • Change in Demand vs. Change in Quantity Demand

remember you and I are here “to learn from each other”

Contents….

Demand

• Demand is schedule or a curve that shows the various amounts of product that consumers are willing and able to purchase at each of series of possible prices during specified period of time.

Law of Demand

• It states that other things constant, when price of a commodity rises, the quantity demand for that commodity falls and when price of a commodity falls, the quantity demand for that commodity rises.

“Demand for a product is inversely proportional to its price”.

Demand Schedule Demand Curve

Pric

e of

Cok

e

Quantity Demand of Coke

D

Negative Relationship

15

10

5

42 6

Price of Coke

Quantity Demand of coke

15 210 45 6

Price #Qd $

Price $ Qd #

Negative relationship between price and demand

A demand curve is the graphical representation of the demand schedule; it shows how much of a good or service consumers want to buy at any given price.

Demand schedule is a table showing the relationship between price and quantity demand of commodity.

Assumption of Law of Demand

• Taste of people remain same• Fashion does not change• Season does not change• Number of Buyers does not change• Income does not change• Price of related goods does not change• Value of money does not change

Shift in Demand Curve

• Any change in determinants of demand cause shift in demand curve.

Increase: shift to the right

Decrease: shift to the left

Change In Price of Related Goods

Complements • Goods that are used together

with another good.

Ink & PenBall & Bat

Car & PetrolHam & Egg

• When two goods are complementary, the price of one and demand for another moves in opposite direction.

Price of Ink $ Demand for Pen #

Quantity Demand of Pen

Pric

e of

Pen

Change In Price of Related Goods

Substitutes • Goods that can be used in place

of another good.

Pepsi & CokeCoffee & Tea

Supreme and Lipton Beef & chicken

• When two goods are substitutes, the price of one and demand for another moves in same direction.

Price of Pepsi# Demand for Coke#

Quantity Demand of Coke

Pric

e of

Cok

e

Change in Quantity Demand

Expansion

Contraction1

1

Change in quantity demand is movement from one point to another from one price combination to another on a fixed demand curve. An increase in quantity demand is represented by expansion in demand curve while a decrease in quantity demand is represented by contraction in demand curve.

Change in Demand Vs Change in Quantity Demand

• Change in Quantity Demand is represented by movement along the existing demand curve. This change in quantity demand is attributed to change in price of the commodity.

• Change in Demand is represented by shift in demand curve. This change in demand is attributed to change in other factors of demand instead of change in price.