Demand | Economics for Grade 12 PDF Download

Introduction to Demand

• Demand is the amount of a good/service that a consumer is willing & able to purchase at a given price in a given time period
  • If a consumer is willing to purchase a good, but cannot afford to, it is not effective demand
• A demand curve is a graphical representation of the price & quantity demanded (QD) by consumers
  • If data were plotted, it would be an actual curve.  Economists, however, use straight lines so as to make analysis easier

Individual & Market Demand

• Market demand is the combination of all the individual demand for a good/service
  • It is calculated by adding up the individual demand at each price level
    
• Individual & market demand can also be represented graphically
  

Market demand for children's swimwear in July is the combination of boys & girls demand

Diagram Analysis

• A shop sells both boys & girls swimwear
• In July, at a price of $10, the demand for boys swimwear is 500 units & girls is 400 units
• At a price of $10, the shops market demand during July is 900 units

Movements Along a Demand Curve

• If price is the only factor that changes (ceteris paribus), there will be a change in the quantity demanded (QD)
  • This change is shown by a movement along the demand curve
    

A demand curve showing a contraction in quantity demanded (QD) as prices increase & an extension in quantity demanded (QD) as prices decrease

Diagram Analysis

• An increase in price from £10 to £15 leads to a movement up the demand curve from point A to B
  • Due to the increase in price, the QD has fallen from 10 to 7 units
  • This movement is called a contraction in QD
• A decrease in price from £10 to £5 leads to a movement down the demand curve from point A to point C
  • Due to the decrease in price, the QD has increased from 10 to 15 units
  • This movement is called an extension in QD
•  The law of demand captures this fundamental relationship between price and QD
• It states that there is an inverse relationship between price and QD
  • When the price rises the QD falls
  • When prices fall the QD rises

Shifts of the Demand Curve

• There are numerous factors that will change the demand for a good/service, irrespective of the price level. Collectively these factors are called the conditions of demand
• Changes to each of the conditions of demand, shifts the entire demand curve (as opposed to a movement along the demand curve)
  

A graph that shows how changes to any of the conditions of demand shifts the entire demand curve left or right, irrespective of the price level

• For example, if a firm increases their Instagram advertising, there will be an increase in demand as more consumers become aware of the product
  • This is a shift in demand from D to D1. The price remains unchanged at £7 but the demand has increased from 15 to 25 units

An Explanation of How Each of the Conditions of Demand Shifts the Entire Demand

Curve at Every Price Level