Demand & Supply: Changes in Demand

Posted by Mohamed Amir

Demand and Quantity Demanded

We know from earlier topic that people tend to buy more of a particulr item as the price goes down. In other words, Quantity Demanded goes up as price falls.

However, some students mistakenly say that "demand goes up as price falls". In fact, the changes in price of an item does not change demand. It merely changes the quantity demanded of that particular item.

Now, Let's see the difference between Demand and Quantity Demanded

Demand is the range of quantities that buyers are willing and able to buy at a range of demand prices. It is ALL points that make up a demand curve. In fact, the whole demand curve itself is known as Demand

Quantity demanded is a specific quantity that buyers are willing and able to buy at a specific demand price. It is but ONE point on a demand curve.

Change in Demand

A change in demand is a change in the ENTIRE demand relation. This means changing, moving, and shifting the entire demand curve. The entire set of prices and quantities is changing. In other words, this is a shift of the demand curve. A change in demand is caused by a change in the five demand determinants. In other words, a change in demand is caused by any factor affecting demand EXCEPT price. The determinants which shift the demand curve include the following:

  1. Income
    2. Income, or more precisely the buyer's income affects the ability of the buyers to buy goods and services. An increase in the income increases the demand and shifts the demand curve to the right.
  2. Taste and Fashion(Preferences)
    3. Demand will increase if a particular good or service becomes more popular. Likewise, outdated or out-of-fashion products will have a reduced demand in the market
  3. Substitutes
    4. Substitutes are those goods or services which can be used instead of a particular good or service. Eg:- Margarine and butter. Ptroleum and Natural gas.
  4. Change in the quality
    5. If the quality of a particular good or services improves, people will be willing to buy more of it even if the price doesn't fall. Likewise, a fall in the quality will reduce the demand for the particular good.

Increase in Demand

CURRENT COMMENTS

1 comments so far (post your own)

This is great work. Thank you very much.

Posted by Abdulla on Wednesday, 04.27.11 @ 01:27am | #31

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