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Notes On The Demand

The document defines demand as the willingness and ability of customers to pay for goods or services, highlighting the law of demand which states that price changes inversely affect quantity demanded. It outlines various factors affecting demand, including income changes, population dynamics, fashion trends, tax rates, prices of substitutes and complementary goods, advertising, climate, and interest rates. Additionally, it mentions objectives to examine movement along the demand curve and concepts of extension and contraction in demand.

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105 views4 pages

Notes On The Demand

The document defines demand as the willingness and ability of customers to pay for goods or services, highlighting the law of demand which states that price changes inversely affect quantity demanded. It outlines various factors affecting demand, including income changes, population dynamics, fashion trends, tax rates, prices of substitutes and complementary goods, advertising, climate, and interest rates. Additionally, it mentions objectives to examine movement along the demand curve and concepts of extension and contraction in demand.

Uploaded by

Tasnim
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd

3/10/2023

Objective:

To define the demand curve and draw, interpret appropriate demand diagrams.
To explain the factors affecting the demand curve
DEMAND

• Demand refers to the willingness and the ability of customers to pay a given price to buy a

good or service. It is also called Effective demand

Law of demand: -.

The law of demand states that ceteris paribus (other things being
equal)
 If the price of good rises, then the quantity demanded will
fall
 If the price of a good falls, then the quantity demand will
rise.

Description: Law of demand explains consumer choice behavior when the price
changes. In the market, assuming other factors affecting demand being
constant, when the price of a good rises, it leads to a fall in the demand of that
good and vice versa.
The above diagram shows the demand curve which is downward sloping. Clearly
when the price of the commodity increases from price p3 to p2, then its quantity
demand comes down from Q3 to Q2 and then to Q3 and vice versa.

Determinants/Factors affecting of demand:


Change in people’s income: More the people earn the more they will spend and
thus the demand will rise. A fall in income will see a fall in demand.

Changes in population: An increase in population will result in a rise in demand


and vice versa.

Change in fashion and taste: Commodities or which the fashion is out are less in
demand as compared to commodities which are in fashion. In the same way, change
in taste of people affects the demand of a commodity.

Changes in Income Tax: An increase in income tax will see a fall in demand as
people will have less money left in their pockets to spend whereas a decrease in
income tax will result in increase of demand for products and services because
people now have more disposable income.

Change in prices of Substitute goods: Substitute goods or services are those


which can replace the want of another good or service. For example margarine is a
substitute for butter. Thus a rise in butter prices will see a rise in demand for
margarine and vice versa.

Change in price of Complementary goods: Complementary goods or services


are demanded along with other goods and services or jointly demanded with other
goods or services. Demand for cars is affected the change in price of petrol. Same
way, demand for DVD players will rise if the prices of DVDs’ fall.

Advertising: A successful advertising campaign may affect the demand for a


product or service.

Climate: Changes in climate affects the demand for certain goods and services.

Interest rates: A fall in Interest rate will see a rise in demand for goods and
services.

04/10/2023

Objectives

To examine the movement along the demand curve.

Shift/Change in Demand
Extension of demand and contraction in deman

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