Lecture Notes on Demand

Introduction to Demand

• Demand is estimated from buyers in the market.
• Differentiate between Demand and Quantity Demanded:
  • Quantity Demanded: Amount a consumer is willing to buy at a given price.
  • Demand: An economic model showing quantities of a good purchased at different prices.
  • Represented as a demand curve on a graph.

Demand Curve

• Axes: Price (vertical axis) and Quantity (horizontal axis).
• Demand curve is downward sloping:
  • As price increases, quantity demanded decreases.
  • The entire curve represents demand.
  • A single point represents quantity demanded.

Misrepresentations about Demand

• Demand is not a single number but a model with two variables: price and quantity demanded.
• Incorrect to say demand decreases when price increases:
  • Correct to say quantity demanded decreases.
  • Price changes cause movement along the demand curve, not a change in demand itself.

Law of Demand

• Definition: Price and quantity demanded are inversely related.
• Demand curve illustrates this inverse relationship.

Types of Demand

• Individual Demand: Quantity demanded by an individual at different prices.
• Market Demand: Aggregated demand from all buyers in the market.

Changes in Demand and Quantity Demanded

• Change in Quantity Demanded:
  • Movement along the demand curve due to price changes.
• Change in Demand:
  • Shift in the demand curve due to factors other than price (right for increase, left for decrease).

Determinants of Demand

1. Tastes and Preferences:
   • Changes can increase or decrease demand.
2. Consumer Income:
   • Normal Goods: Increased income leads to increased demand.
   • Inferior Goods: Increased income leads to decreased demand.
3. Prices of Related Goods:
   • Substitutes: Price increase in one leads to demand increase in another.
   • Complements: Price increase in one leads to demand decrease in another.
4. Consumers' Expectations:
   • Expectations about future prices and income can shift demand.
5. Number of Buyers:
   • More buyers increase demand; fewer buyers decrease it.

Additional Notes

• A change in taste, income, prices of related goods, expectations, or number of buyers can all shift the demand curve.
• Movements along the curve are always due to price changes.