2. What is demand?
Demand for a product refers to the amount
of it which will be bought per unit of time at
a particular price.
Demand is always related to price and time
(e.g demand for mangoes by a household at
a price N100/kg is 5kg mangoes/week
3. Individual demand/market demand
Individual demand: it refers to demand from
the individuals/family/household. It is a
single cosuming entity’s demand.
Market demand: It refers to the total demand
of all buyers, taken together. It is the
aggregate of the quantities of a product
demanded by all the individual buyers at a
given price over a given period of time.
4. Factors determining demand
Price of product
Consumer income
Tastes and habits of consumer
Price of other related products
Seasonal variations
Population
Technology/advertising
Future expectations about prices
5. Law of demand
States that:
The higher the price of a commodity, the
smaller the quantity demanded; the lower
the price, the larger the quantity demanded.
In other words, other things being constant,
demand varies inversely with price.
D = f(P)
6. Demand curve
Price N Qty
demand
ed
5 100
4 200
3 300
2 400
1 500
Demand for commodity X (units per week)
price
Y
5
4
3
2
1
0
100 200 300 400 500 X
7. Assumptions of the law of
demand
The law of demand is based on certain
assumptions:
1. No change in consumer’s income
2. No change in consumer’s preferences
3. No change in fashion
4. No change in price of related goods
5. No expectations of future price changes or
shortages
6. No change in government policy
8. Exceptions to the law of demand
1. Giffen goods: in case of certain inferior
goods called Giffen goods (named after Sir
Robert Giffen), inspite of price rise, demand
will also rise. This is because the next
cheapest alternative is also expensive.
2. Speculation: when people speculate about
prices on the commodity in the future, it
may not act according to the law of
demand. Speculating the prices of the
commodity will further increase the
demand because people will buy the
commodity in order to hoard for future use.
9. Exceptions to the law of demand
3) Article of snob appeal: Certain
commodites are demanded because they
happen to be expensive or prestige goods,
having them is more of a status symbol. So
increase in price will lead to increase in
demand for such goods. Eg diamonds,
expensive cars etc
4) consumer psychological bias: when a
customer is wrongly biased against quality of
a commodity, a fall in price may not lead to
an increase in demand.
10. Various types of demand
Autonomous demand: refers to
spontaneous demand for goods to satisfy a
want directly.
Derived demand: When the demand for a
product depends on the demand for some
other product. E.g demand for doors derived
from demand for houses.
11. Types of demand cont.
Short run demand: refers to existing
demand with its immediate reaction to price
changes, income changes e.t.c. The demand
is not elastic (not very responsive to change)
Long run demand: is that which will
ultimately exist as a result of the changes in
pricing, promotion, or product improvement,
after time is allowed to to let market adjust
to the new situation
12. Types of demand cont.
Joint or complementary demand: when 2
or more goods are demanded in conjunction
with one another at the same time to satisfy
the same want. E.g razors and shaving
sticks, cars and fuel, pen and ink.
Composite demand: when a commodity is
wanted for several different uses. E.g steel
needed for cars, railways, buildings; coal for
factories, railways.
13. Types of demand cont.
Price demand: refers to the various quantities
of a product purchased by a consumer at
alternate prices
D = f(p) where D – demand, f – functional relationship, p – price
of product.
Income demand: refers to various quantities of
a commodity demanded by the consumer at
alterntive levels of changing money income
D = f(M) where M – income variable
Cross demand: refers to the various quantities
of a commodity (X) purchased by a consumer in
relation to changes in price of a related
commodity (Y), which may be a
substitute/complimentary product
D x = f (P y) where D x – demand for X and Py – price of
commodity Y
