Theory Of Demand | Demand | Microeconomics | Economics | Demand Analysis | Consumer Theory

Yasser Khan..・2 minutes read

Demand in economics refers to consumer willingness and ability to purchase commodities at different prices in a given time period, influenced by factors like income, related goods, consumer preferences, and population size. Market demand reflects total consumer demand for a commodity, illustrated through demand schedules and curves, with the law of demand indicating an inverse relationship between price and quantity demanded.

Insights

  • Demand in economics refers to the quantities of a commodity consumers want and can buy at different prices, requiring willingness and purchasing power, always expressed concerning price and time, with individual and market demand being distinct concepts.
  • The Law of Demand states that as a commodity's price decreases, the quantity demanded increases, and vice versa, influenced by factors like income, related goods, taste, and population composition, illustrated through demand schedules and curves.
  • Changes in demand, whether extensions or contractions, can be triggered by factors beyond price fluctuations, such as income, preferences, and expectations, impacting consumer behavior and market dynamics.

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  • What is demand in economics?

    Demand refers to consumers' desire and ability to purchase.

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Summary

00:00

Understanding Demand in Economics

  • Economics topic discussed is Demand, specifically the Theory of Demand
  • Demand refers to the quantities of a commodity consumers want and can buy at various prices during a specific period
  • In economics, demand is distinct from desire, as demand requires willingness and ability to purchase
  • Demand is an effective desire backed by willingness and purchasing power
  • Demand is always expressed with reference to a price and a specific time period
  • Individual demand pertains to the quantities of a commodity an individual consumer is willing and able to buy at various prices during a given time period
  • Market demand refers to the total quantities of a commodity all households are willing to buy at various prices during a given time period
  • Aggregate demand and market demand are different concepts in economics
  • Expost demand is the actual amount of goods consumers purchase during a specific time period
  • Joint demand involves the demand for two or more goods that are used together or demanded jointly

14:57

Understanding Consumer Demand and Income Relationships

  • Normal goods are those whose demand increases with consumer income and decreases with falling income.
  • Examples of normal goods include clothes, TVs, fridges, cars, and other items that enhance comfort and luxury.
  • Inferior goods are those whose demand falls with increasing consumer income and rises with falling income.
  • Examples of inferior goods include basic cereals like jowar and bajra, which are replaced by superior substitutes like wheat and rice as income rises.
  • Expensive necessities like salt and matchsticks see an increase in quantity purchased with rising income up to a certain level, after which it remains constant.
  • The relationship between a commodity's demand and income levels is known as income demand, influenced by consumer tastes, preferences, and social customs.
  • Consumer demand is also affected by the prices of related goods, which can be substitutes or complements.
  • Substitute goods are those that can replace each other, with a positive relationship between the demand for one good and the price of another.
  • Complementary goods are those that are consumed together to satisfy a specific need, with an inverse relationship between the demand for a good and the price of its complement.
  • Cross demand or cross price effect refers to the change in demand for one product due to a change in the price of another product.

28:51

Factors Influencing Demand for Goods and Services

  • Cross demand explains the relationship between the price of one commodity and the demand for another related commodity.
  • Changes in price affect the demand for goods based on consumers' expectations.
  • Expectations of future prices, income, and availability of goods play a crucial role in determining current demand.
  • Consumers tend to increase demand if they expect prices to rise in the future.
  • Consumer credit facilities impact demand for expensive durable goods.
  • Demand for cars in India has increased due to easier access to loans.
  • The demonstration effect influences demand as people imitate others' consumption patterns.
  • The size and composition of the population affect market demand for goods.
  • Distribution of income in a country influences demand, with unequal distribution leading to more demand for luxury goods.
  • Climatic factors impact demand for goods, with different products needed in varying climates.
  • Government policies, such as taxes and infrastructure spending, also influence demand for commodities.
  • The demand function expresses the relationship between demand for a product and various determinants like price, income, and population size.
  • The law of demand states that as the price of a commodity increases, demand decreases, and vice versa, assuming other factors remain constant.

43:52

Understanding the Law of Demand in Economics

  • The Law of Demand states that the quantity demanded of a commodity increases when its price falls and decreases when its price rises.
  • The Law of Demand indicates an inverse relationship between price and quantity demanded of a commodity, assuming other factors remain constant.
  • Factors influencing demand include consumer income, related goods, taste and preference, among others.
  • The Law of Demand is based on factors like no change in consumer income, taste and preference, related goods, and population and age composition.
  • Demand can be illustrated numerically through demand schedules and demand curves.
  • The demand schedule is a tabular statement showing different quantities of a commodity demanded at various prices during a given time period.
  • The market demand schedule is the total demand of all consumers in the market at different prices.
  • The market demand curve is a graphic representation of the market demand schedule, showing the aggregate demand of all consumers in the market at different prices.
  • The individual demand curve shows the quantities of a good an individual consumer is willing to buy at different prices during a given time period.
  • The market demand curve can be drawn by aggregating individual demand curves, representing the total demand of all consumers in the market at different prices.

57:40

"Price and Demand: Exploring Market Dynamics"

  • The item was initially priced at Rs 100 and sold for Rs 2 per KG.
  • The price of item L was Rs 100, leading to a discussion on buying 2 KG.
  • If the price of the second item was Rs 80, the quantity increased to 3 KG.
  • The price of 4 KG dropped to Rs 40, resulting in a purchase of 4 KG.
  • The concept of demand curves was introduced, discussing linear and non-linear relationships.
  • Market demand was illustrated through the aggregation of individual demand curves.
  • The market demand curve slopes downwards, indicating an inverse relationship between price and quantity demanded.
  • The downward slope of the demand curve is explained by the law of diminishing marginal utility.
  • The income effect is detailed, showing how changes in real income impact purchasing power and demand.
  • The substitution effect is highlighted, demonstrating how changes in the price of substitute goods affect demand.

01:10:52

Price Fluctuations Impact Consumer Demand Trends

  • Price falls lead to increased consumption due to substitution or income factors.
  • New consumers enter the market when commodity prices decrease.
  • Lower prices attract consumers across income levels, increasing demand.
  • Various commodities have multiple uses, with some considered more essential than others.
  • True commodities like steel, aluminum, coal, electricity, and milk are used more when prices are high.
  • Price fluctuations impact the usage of commodities, affecting demand.
  • Giffen Goods, like maize and jowar, are inferior goods whose demand rises with price increases.
  • Poor consumers shift to cheaper food items like maize and jowar when prices of superior goods rise.
  • Veblen Effect states that demand for status symbol goods increases with higher prices.
  • Expectations about future prices influence current purchasing decisions, impacting demand.

01:25:00

Consumer Behavior and Demand Dynamics in Economics

  • People buy less during depression even at low prices due to recession in the market
  • Consumers sometimes assume higher-priced goods are of better quality, while lower-priced goods are of poor quality
  • Quality is often associated with price, but this is not always true
  • Example of people buying Lux Supreme over ordinary Lux due to perceived quality difference
  • Change in fashion affects consumer behavior, leading to decreased purchases of outdated items even at reduced prices
  • Situations exist where the law of demand does not apply, such as changes in quantity demanded due to price changes
  • Extension of demand occurs when quantity demanded rises due to a fall in price, while contraction of demand happens when quantity demanded falls due to a price increase
  • Movement along the demand curve indicates changes in quantity demanded due to price changes
  • Shift in demand, or change in demand, occurs due to factors other than price, leading to an increase or decrease in demand
  • Factors causing an increase in demand include rise in income, price of substitute goods, fall in price of complementary goods, favorable changes in taste and preference, and expectations of future price increases or population growth
  • Decrease in demand happens when consumers buy smaller quantities of a commodity at the same price due to factors other than price

01:38:45

Factors Influencing Demand Shifts and Extensions

  • Decreases in demand are not solely due to changes in commodity prices but can be influenced by factors like income, taste, and preferences.
  • Understanding demand shifts involves analyzing tables and diagrams to illustrate changes in price and demand quantities.
  • Causes of decreased demand can include a drop in income, price increases of substitutes, unfavorable taste changes, and shifts in preferences.
  • Distinguishing between extensions and contractions of demand is crucial, with extensions indicating increased purchases due to price drops, while contractions signify reduced purchases due to price increases or other factors.
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