Demand

DEMAND

Economists study demand in order to understand consumer behavior and the determination of price levels, In the absence of government intervention, prices are determined by the forces of demand and supply. Buyers and sellers are brought into contact with one another in a market. A market does not have to be an actual location. For example, part of the book market now exists on the Internet.

DEFINITION:-

In economics demand is not the same thing as desire, or need, or want. This is because the strength of the desire for something will not, in itself, have any influence on the price of the item. Only when desire is supported by the ability and willingness to pay the price does it become an effective demand and have an influence on the market. Demand, in economics, means effective demand and may be defined as �the quantity of the commodity which will be demanded at any given price over some given period of time.’

INDIVIDUAL AND MARKET DEMAND:-

For the great majority of goods and services, experience shows that the quantity demanded will increase as the price falls. Economists have found this out by studying markets. It is possible to study individual demand which is the relationship between the quantities demanded of a good or service by a single individual and the price of that good or service. It is also possible to study market demand. This is the total demand for the good or service. It is found by adding the quantities demanded by each individual buyer at each price. For example one person’s demand for crisps at the current price may be four a week and the total demand may be 30000.

Market demand will depend on how the market is defined. For example, the total demand for all brands of crisps may be studied, or the total demand for one particular brand or the total demand for snacks (of which crisps are a part). It is also possible to examine the demand for crisps at different levels. For example, the demand for crisps from one particular supermarket or in one particular area might be studied.

DEMAND SCHEDULES AND CURVES:-

Individual and market demand information can be expressed in the form of demand schedules and demand curves. A demand schedule is a table giving the quantities demanded at a range of prices.

A demand curve can be drawn which plots this information on a graph with price on the vertical axis and quantity demanded at a range of prices. This is shown on Figure 8.1.

A market demand schedule and a corresponding market demand curve, can be calculated by adding up the amounts each individual demands at different prices. This is sometimes referred to as the horizontal summation of all the individual demand curves.

THE DEMAND CURVE:-

The demand curve shows what quantities would be demanded at any given price, if other things do not change. These other things are discussed later in this chapter but it is important to realize, right at the beginning, that the demand curve shows what happens to quantity demanded when price changes and there is no change in any of the other factors influencing demand (e.g. income, taste, fashion and so on).

Figure 8.2 shows a typical demand curve. It can be seen that at a price of P the quantity demanded would be Q. If price fell to P’ quantity demanded would rise to QL Alternatively, the demand curve can be used to find the maximum price consumers are willing to pay for a given quantity For example the maximum consumers are willing to pay for Q’ amount is P1.

In this case the demand curve also shows the price at which the good or service would be priced out of the market. At P2 none of the good or service would be demanded. If the good or service were to be provided free, Q2 quantity would be demanded. The areas of the rectangles under the demand curve represent the total revenues/total expenditures which would occur at different prices, since they are equal to price x quantity.

EXTENSIONS AND CONTRACTIONS IN DEMAND

Movements along a demand curve can be referred to as extensions and contractions in demand or changes in quantity demanded. Figure 8.3 shows an extension in demand from Q to Q1 as a result of a fall in price from P to P’. This can also be referred to as an increase in the quantity demanded.

Figure 8.4 shows a contraction in demand (decrease in quantity demanded) from Q to Q’ caused