{"id":3226,"date":"2025-09-23T11:08:41","date_gmt":"2025-09-23T11:08:41","guid":{"rendered":"https:\/\/acmeitsolutions.net\/ibcognito\/?post_type=notes&p=3226"},"modified":"2025-09-24T09:58:01","modified_gmt":"2025-09-24T09:58:01","slug":"unit-2-1-demand","status":"publish","type":"notes","link":"https:\/\/acmeitsolutions.net\/ibcognito\/notes\/unit-2-1-demand\/","title":{"rendered":"Unit 2.1- Demand"},"content":{"rendered":"\n

2.1.1 – Demand, Price and Quantity<\/strong><\/strong><\/h2>\n\n\n\n

The definition of Demand<\/strong><\/strong><\/p>\n\n\n\n

Demand is the Willingness, Desire and Ability to buy a good at a specific Price, Quantity and Time<\/p>\n\n\n\n

*You must mention these 6 words for the definition of demand<\/p>\n\n\n\n

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The law of demand<\/strong><\/strong><\/h2>\n\n\n
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Credits to: savemyexams<\/p>\n\n\n\n

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Whenever there is an increase in price of a good, the demand for that good will decrease, or if there is a decrease in price of a good, the demand of a good will increase. Ceteris Paribus.<\/p>\n\n\n\n

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The demand curve<\/strong><\/h2>\n\n\n\n

A demand curve is a graphical representation of the relationship between the price of a good or service and the quantity demanded for a given period of time. Its typically downward sloping  <\/p>\n\n\n\n

The demand curve diagram will always have \u2018Price\u2019 on the Y axis and \u2018Quantity demanded\u2019( henceforth referred to as \u2018QD\u2019) on X axis.<\/p>\n\n\n\n

Points where the values  of \u2018Price\u2019 and \u2018QD\u2019 meet are plotted to make the demand curve, which is labelled as \u2018D\u2019 or \u2018D1\u2019<\/p>\n\n\n\n

When we draw it, we tend to make it as a straight line as this is much simpler and easy to understand. [Practically the curve will indeed be a curve.]<\/p>\n\n\n\n

However for exams you will be ok with drawing a straight line for the \u2018curve\u2019<\/p>\n\n\n\n

{In the graph we can see that due to a price decrease from P1 to P2 there has been a QD increase of QD1 to QD2}<\/p>\n\n\n\n

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Movements along the demand curve<\/strong><\/h2>\n\n\n
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Credits to: savemyexams<\/p>\n\n\n\n

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There are 2 types of movements along the curve, Extension and contraction.<\/p>\n\n\n\n

These will only happen if a change in the price of the good is reason behind the change in demand.<\/p>\n\n\n\n

Extension: A extension in demand means the demand extends[increases] due to a reduction in price [change in Price P1 to P2 has caused an extension in demand]<\/p>\n\n\n\n

Contraction: A contraction in demand means the demand contracts[decreases] due to a increase in price[change in Price P1 to P3 has caused a contraction in demand]<\/p>\n\n\n\n

These changes occur due to the law of demand; if price increases demand contracts\/ if price decreases  demand extends.<\/p>\n\n\n\n

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Individual and Market Demand<\/strong><\/strong><\/h2>\n\n\n\n

Individual demand is the demand for a good in a particular period of time by a single customer, Market demand is the sum of all Individual demands in the same period of time. Ceteris Paribus.<\/p>\n\n\n\n

Say for hats, when hats are 10$, Customer A demands 10, B demands 3 and C demand 7, but when hats are 7$ customer A demands 13, B demands 7, C demands 12.<\/p>\n\n\n\n

We can say that at Price of 10$ the market demand is 20 {10+3+7}<\/p>\n\n\n\n

The individual demands are 10, 3, 7<\/p>\n\n\n\n

And at Price of 7$ the market demand is 32 {13+7+12}<\/p>\n\n\n\n

Individual demands are 13,7,12<\/p>\n\n\n\n

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The substitution effect, Law of diminishing marginal utility and Income effect<\/strong><\/strong><\/h2>\n\n\n\n
The income effect<\/strong> <\/td>The law of diminishing marginal utility<\/strong> <\/td>The substitution effect<\/strong> <\/td><\/tr>
This refers to the change in consumers purchasing power due to a change in the price of a good. <\/td>Marginal utility is the extra satisfaction or benefit a consumer gets from consuming additional units of a product or service. <\/td>This suggests that consumers will seek out the good that is more competitive\/affordable; they will substitute goods that have become more expensive with ones that are more affordable  <\/td><\/tr>
If Price decreases<\/strong> then purchasing power <\/strong> of consumers increase<\/strong> as they can buy more of the good with the same amount of money. Vice Versa<\/strong> <\/td>This law assumes the utility from the first\/prior consumed unit is more than the unit consumed after it. Ceteris Paribus. <\/td>So this assumes consumers are rational decision makers; make decisions that are the best for them, and have perfect information and will adjust their consumption based on prices<\/td><\/tr>
The income effect assumes that consumers adjust consumption patterns according to price of goods <\/td>Thus firms try to keep prices lower to make their offer more attractive and make the consumer purchase additional goods. <\/td> <\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n
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2.1.2 Non-Price determinant factors of demand<\/strong><\/strong><\/h2>\n\n\n\n

There are 2 types of factors that affect demand, Price and Non Price factors, we have already seen price, which is the only Price factor.<\/strong><\/p>\n\n\n\n

However there are several non price factors;<\/strong><\/p>\n\n\n\n

Population: <\/strong>Or the amount of consumers, more the consumers higher the demand<\/p>\n\n\n\n

Disposable Income:<\/strong> The amount of untaxed income a consumer has to spend, the more disposable income they have the more demand there will be<\/p>\n\n\n\n

Tastes and Preference\/Popularity:<\/strong> The trends in the world; if frameless glasses are becoming more popular\/coming into fashion the demand for them will increase<\/p>\n\n\n\n

Pricing of Substitutes : <\/strong>substitutes are goods that are interchangeable; if the prices of coffee increase, the demand for tea will increase as its a substitute to coffee. Connect with law of demand<\/p>\n\n\n\n

Pricing of complementary goods: <\/strong>Complementary goods are goods that go hand in hand; if the prices of petrol increase the demand of cars is likely to decrease as its a complementary good to petrol. Connect with law of demand<\/p>\n\n\n\n

Future expectations: <\/strong>future expectations of price of a product, if price is expected to rise in future demand will increase currently, vice versa. Connect with law of demand<\/p>\n\n\n\n

Weather: <\/strong>If the weather favours a good, its demand will increase; demand for sweaters increase in winters.<\/p>\n\n\n\n

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The shifts in demand curve<\/strong><\/strong><\/h2>\n\n\n
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Credits to: savemyexams<\/p>\n\n\n\n

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A shift in demand curves occurs due to a change in demand influenced by any of the non price factors.<\/p>\n\n\n\n

This means there is a completely new demand curve in addition to the original curve.<\/p>\n\n\n\n

A increase in demand is illustrated by a rightwards shift of the original demand curve, a decrease in demand is illustrated by a leftward shift.<\/p>\n\n\n\n

Notice how even with demand changing the price stayed the same; this means a non price factor has caused the change in demand.<\/p>\n\n\n\n

D1->D2= Decreasing demand[lefts shift]<\/p>\n\n\n\n

D1->D3= Increasing demand[right shift]<\/p>\n","protected":false},"excerpt":{"rendered":"

2.1.1 – Demand, Price and Quantity The definition of Demand Demand is the Willingness, Desire and Ability to buy a good at a specific Price, Quantity and Time *You must mention these 6 words for the definition of demand The law of demand Credits to: savemyexams Whenever there is an increase in price of a good, the […]<\/p>\n","protected":false},"featured_media":0,"template":"","subject":[87],"unit":[102],"class_list":["post-3226","notes","type-notes","status-publish","hentry","subject-economics","unit-unit-2"],"acf":[],"_links":{"self":[{"href":"https:\/\/acmeitsolutions.net\/ibcognito\/wp-json\/wp\/v2\/notes\/3226","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/acmeitsolutions.net\/ibcognito\/wp-json\/wp\/v2\/notes"}],"about":[{"href":"https:\/\/acmeitsolutions.net\/ibcognito\/wp-json\/wp\/v2\/types\/notes"}],"wp:attachment":[{"href":"https:\/\/acmeitsolutions.net\/ibcognito\/wp-json\/wp\/v2\/media?parent=3226"}],"wp:term":[{"taxonomy":"subject","embeddable":true,"href":"https:\/\/acmeitsolutions.net\/ibcognito\/wp-json\/wp\/v2\/subject?post=3226"},{"taxonomy":"unit","embeddable":true,"href":"https:\/\/acmeitsolutions.net\/ibcognito\/wp-json\/wp\/v2\/unit?post=3226"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}