This document provides an overview of microeconomics concepts related to demand. It defines demand as the effective desire to buy something, accounting for both desire and purchasing power. The key points are: - The law of demand states that as price increases, quantity demanded decreases, shown by the inverse relationship between the dependent variable of quantity demanded and the independent variable of price on the demand curve. - A demand curve slopes downward due to the income effect, substitution effect, and new buyers entering the market at lower prices. - Individual demand shows what one person buys, while market demand is the horizontal summation of all individual demands. - Changes in non-price factors like income, population, tastes, prices of

1. ‫الرحی‬ ‫الرحمن‬ ‫هللا‬ ‫بسم‬‫م‬

2. Micro Economics
Chapter 3
Demand
Ahsanullah Mohsen M.Sc.
Ahsanullah.mohsen@ruhr-uni-Bochum.de

3. Meaning of Demand
In common language the words demand, desire and need are used in
the same meaning. But in economics the word demand is used in three
senses.
Demand is the effective desire to buy something.
Demand = desire+ purchasing power
Demand indicate quantity actually bought
Demand= quantity purchased at a particular price during a period of
time.

4. Law of Demand
• The inverse relationship between dependent variable (quantity
demanded) and independent variable (price) is called law of demand
Demand Analysis:
Dependent variable
• A variable whose value depend on value of other variable is known as
dependent variable, such as quantity demand.
Independent variable
• A variable whose value is fixed/given is known as independent
variable, such as price, wage or rent.

5. WHY DEMAND CURVE HAS NEGATIVE
SLOPE?
There are three reasons for this:
• income effect: low price means higher purchasing power
• substitutes effect: the expensive product can be substituted with cheap ones
• new buyers: cheaper price encourages new buyers
• Mathematical explanation
Qdx = f(px, m, p s, T, p e ,etc); Where as
Px=Price of x commodity ; Qdx=quantity demand of X commodity
M =money income of household ; PS=price of substitute commodity
T=taste of consumer ; Pe=price expectation

6. Individual and market demand:
• Individual demand:
• It shows the demand of an individual at specific price per unit of time
• Market demand
• It shows the demand of all individuals. It is horizontal summation of the
individuals demand for a commodity at various possible price in market.
Changes in Demand or Shift in Demand Curve
1. Extension and contraction of demand showing influence of price changes.
(i.e. movement along demand curve)
2. Rise and fall in demand showing influence of changes in other factors. (i.e.
shift of demand curve)

7. Extension and contraction:
• Extension and contraction mean the variation in quantity demanded
because of change in price. When price of a commodity decreases
people buy more quantity of it. This is called extension of demand.
On the other hand if price increase people buy less quantity. This is
known as contraction of demand.
Rise and fall of Demand (or Shift in Demand Curve)
• When demand for a commodity goes up or down not due to price but
due to other factors the change is called rise (or increase) in demand
and fall (or decrease) in demand

8. Causes of Changes of Demand (Demand
Shifters)
Many factors are responsible rise and fall in demand of a commodity. The following are
important causes.
1. Change in income : higher income creates higher demand
2. Change in population the demand increases when the number of buyers increase
3. Change in consumer preferences (like & dislike): change depends on habits, fashion…
4. Prices and availability of related goods (substitutes and complements.)
5. Advertisement and publicity : more customers are attracted
6. Change in income distribution: the government policy could affect the poor or rich people
7. Expectations about future prices can affect current purchases:
8. Change in quantity of money: higher bank loans increase the demand
9. Expenditure Tax : it discourages people to buy

9. • Price of other Goods
When the price of a substitute good falls, demand falls for the good
whose price has not changed.
• Exceptions
• The demand curve normally slopes downward. But under some circumstances,
the demand curve of a good may rice upward i.e. people may buy more at higher
prices. There are four main reasons why some good become exceptions to law of
demand
1. Giffen Good
2. Hoarding: During war or some other reason may cause serious shortage, people
may expect that the commodity will not be available in the market. They may buy
more even though prices in increasing.
3. If a commodity becomes a status symbol or distinction or, some people (i.e.
snobbish persons) may buy more at higher prices.
4. If people judge the quality by price of a commodity (taking higher prices as a sign
of better quality), they buy more when prices is higher.