CHAPTER 2

DEMAND

2– 1
 DEFINITION OF DEMAND

Demand is defined as the ability and willingness

to buy specific quantities of goods

in a given period of time

at a particular price.

2– 2
 LAW OF DEMAND

Law of demand states that the higher the price

of a good, the lower is the quantity demanded
for that good and the lower the price, the higher
is the quantity demanded, ceteris paribus.

P  Qdd  P  Qdd 

NEGATIVE RELATIONSHIP

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 Example:

 If the price of chicken decreases, the quantity

demanded for chicken will …………………

 If the price of chicken increases, the quantity

demanded for chicken will ………………..

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 Demand Schedule

 A list of the quantity that a buyer is willing to buy

at different prices at one particular time.
 Shows a functional relationship between price
and quantity.
 assumptions:- income, preferences and price
related goods are constant.

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 DEMAND SCHEDULE AND
CURVE

Demand Schedule Demand Curve

12
Price Quantity
10
5 2
8
4 4
6
3 6 DD
4
2 8
2
1 10
0
2 4 6 8 10

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 INDIVIDUAL AND MARKET
DEMAND
INDIVIDUAL DEMAND
The relationship between the quantity
of a good demanded by a single individual
and its price.

MARKET DEMAND
The relationship between the total quantity
of a good demanded by adding all the quantities demanded
by all consumers in the market and its price.

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 E.g: let’s assume there are only two
buyers in the market, Fira and Fara in the
market demand
QUANTITY DEMANDED (units)
PRICE
FIRA FARA MARKET

5 2 3 5

4 4 6 10

3 6 8 14

2 8 10 18

1 10 12 22

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 Demand curve for Fira

Price (RM)

Dd

Quantity
(units)
2– 9
 Demand curve for Fara
Price (RM)

Dd

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 Demand curve for Market
Price (RM)

Dd

Quantity
(units)
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 CLASS ACTIVITY

 Table below depicts the individual demand schedules for apples for
Individual A and individual B respectively. Find the market demand and
draw the demand curve for individual A, B and market.

Price (RM) Quantity Demanded (Units)

Individual A Individual B Market
1 3 4
2 2 3
3 1 2

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 INDIVIDUAL DEMAND
FUNCTION

Qx = a -bp

Where;
Qx = Quantity demanded for X
p = Price of X
a = Quantity of X when the price is zero
b = Gradient of demand curve

* The positive sign in the function shows the inverse

relationship of price and quantity demanded

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 CLASS ACTIVITY

 The demand function is Qd = 120 - 10P.Calculate the

quantity of goods to be demanded at different price levels
by completing the table.
PRICE (RM) Qd (Units)

10

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 Consumers’ Tastes and
income trends

Price of
related goods Population or
number of
buyers

Supply of DETERMINANTS
money in OF DEMAND Expectation
circulation about future
prices

Festive
Level of taxation Advertisement
seasons and
climate

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 DETERMINANTS OF DEMAND

 The demand curve shifts when there are changes in

other factors.

1)INCOME
 Income of consumer can influence the purchasing
decisions of an individual.
 When income INCREASE the consumers will demand
for more goods and services, other things being equal-
Normal goods (house, cars, bag,etc)

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 Continue:

 When income INCREASES, the demand DECREASES-

inferior (giffen goods)- low grade rice, salted fish etc.

 When the income of the poor consumers RISE, they

can afford to buy better goods and thus demand
DECREASES for giffen goods.

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2) PRICE OF RELATED GOODS

a)Substitute goods
 goods that can be used in place of other goods.
E.g. margarine and butter
 Demand of related goods if price of substitute
goods .
 Demand of a related good if price of
substitute goods .

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 EXAMPLE:

 When the price of margarine increases, the

quantity demanded for margarine will
……………… and the quantity demanded for
butter will …………..

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b) Complementary goods.
 goods that are used together with another good.
E.g: car and petrol.

 Demand of a complementary good if price of

another goods .(e.g: Price of camera ,
demand for film )

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 Demand of a good if price of other goods .

 E.g: when the price of car increases, the

demand of car will ……….and the petrol
consumption will ………..

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3)TASTES AND FASHION
 Changes in tastes and fashion can bring significant
changes in the demand of good.

 E.g: Iphone 7 become the popoular gadget among the

teenagers thus, make the demand of this gadgets
increase.

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4)POPULATION OR NUMBER OF BUYERS.
 Demand depends on the size of the total population or
number of buyers in the market.

 A larger population will bring out an increase in demand.

 E.g: When Putrajaya was built, there was an increase in

demand for houses in nearby areas such Puchong and
Dengkil.

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5)EXPECTATION.
 Expectation of consumers on future events would give
an impact on current demand.

 When consumers expect the price to increase in the

future, they will increase their demand now.

 E.g: if it’s expected that the car price will rise next year,
consumers who intend to buy a car will buy it now, vice
versa.

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6) ADVERTISEMENT
 Advertised goods normally have higher demand.
 Consumers will only buy goods and services when they
are aware of existence of those products.

7) FESTIVE SEASONS.
 Festive seasons can influence the demand of a good
greatly.
 E.g: Hari Raya – demand for Baju Melayu will increase

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 CHANGES IN QUANTITY DEMANDED
VS. CHANGES IN DEMAND
CHANGES IN QUANTITY DEMANDED CHANGES IN DEMAND
Price Price

D1
DD D0
Quantity
Quantity
 Movement along DD curve
 Price changes and other factors are  Shift in the demand curve
constant  Occurs when there are changes in
 Upward movement  Decrease in other factors but price remains
quantity demanded (Contraction) constant
 Downward movement  Increase in  Increase in Demand (D0  D1)
quantity demanded (Expansion)  Decrease in Demand (D1  D0)

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 EXCEPTIONAL DEMAND

Exceptional Demand is the opposite of the Law of Demand

where as price increases, demand will also increase and vice versa.

GIFFEN GOODS

SPECULATION

EMERGENCIES

STATUS SYMBOL GOODS

HIGHLY-PRICED GOODS

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 EXCEPTIONAL DEMAND
 It’s against the law of demand.
Price (RM)

Dd

Quantity
(units)

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a)GIFFON/INFERIOR GOODS
 Consumed by people in the lower income
group.
e.g: rice grade C

 Price INCREASE Quantity INCREASE

-when the price of grade C is high, consumers
have no choice and continue buying because
they need rice.

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b)STATUS SYMBOL GOODS
 Products purchased by people in the higher
income group to show their status.
E.g:Diamond.

 Price INCREASE Quantity INCREASE

-when the price of diamond high, consumers
will buy more to show they can afford it.

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c) SPECULATION
 The future price of the product. E.g :Cars
 Future price INCREASE, current quantity will
…………
 Future price DECREASE, current quantity wil
…………..

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d)EMERGENCIES
 War/natural disasters.
 E.g: Rice, salt, oil , sugar

e)HIGHLY PRICE GOODS

 Consumers feel a product is of superior quality
if it’s priced is very high.
 E.g: Gadget for example Iphone 5.

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 INTER-RELATED DEMAND

CROSS DEMAND

The demand for a good is also affected by the price of

its substitute or complementary goods. Cross demand can be
divided into two: Joint demand and competitive demand.

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 CROSS DEMAND

I) JOINT DEMAND.
 Complementary goods – e.g: fuel and car.
Price of car (RM)

Dd

Quantity
demanded 2–
of 34
fuel
 CROSS DEMAND

II) COMPETITIVE DEMAND

 Substitute goods- e.g: Butter and margarine.
Price of butter (RM)

Dd

Quantity of
margarine
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 INTER-RELATED DEMAND

DERIVED DEMAND

Derived demand is the demand for a good

which is derived from other goods.

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 DERIVED DEMAND
Cross Demand Positive relationship exists
between substitute goods
Price (RM’000)
of pizza Wage
Pricerate
of pizza
(RM per hour)
S0DD
S0
P21 Negative relationship exists WR
P21
P between complement
P0 goods
D1
P1 WR
P10
D1
D0DD D0
Q1 QQ0 2 Q1 Quantity Quantity
of soft drinks Q01 Q02 Quantity
Quantityof of
softworkers
drinks

Demand
Joint Demand
and supply for house Demand
Competitive
and supply
Demand
for carpenters

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 INTERRELATED DEMAND

COMPOSITE DEMAND

Composite demand is demand for a good

that has multiple uses
For example: oil can be used for petrol,
kerosene and diesel

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 COMPOSITE DEMAND

Price Price S1
S0
S0
P1
P1
P0 P0

D1
D0 D0

Q0 Q1 Quantity
Q1 Q0 Quantity of
workers

Demand and supply for petrol Demand and supply for diesel

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 CLASS ACTIVITY

BOB’S DEMAND SCHEDULE FOR VIDEOS

Price/Video ($) Quantity Demanded

5 10
4 20
3 30
2 40
1 50

Use the information above to graph Bob’s demand curve (make sure you put all numbers on your graph
and label your axes correctly)!

MARKET DEMAND SCHEDULE AND CURVE

QUANTITIES DEMANDED PER YEAR BY:

Fill in the MARKET column (assume these are the only people who buy videos)

Price/Video ($) Bob Betty Bess Market

5 10 5 15
4 20 10 18
3 30 15 21
2 40 20 24
1 50 25 27

Once you have determined the market quantity demanded, please graph the MARKET
DEMAND curve (make sure you put all numbers on your graph and label your axes correctly)!

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 CLASS ACTIVITY

CHANGE IN DEMAND

Now, let’s assume that one of the variables that determine demand has changed and as
a result we have a complete change in the price/quantity relationship. For example,
Bob just got a raise and is now demanding MORE VIDEOS AT EVERY PRICE.

QUANTITY DEMANDED PER YEAR:

PRICE/VIDEO BEFORE AND AFTER BOB’S RAISE

Price/Video ($) Quantity Demanded Quantity Demanded after Raise

5 10 20
4 20 30
3 30 40
2 40 50
1 50 60

Use the information above to graph Bob’s original demand curve and his demand curve
after an increase in income (show direction of change with an arrow) and (make sure you put all numbers
on your graph and label your axes correctly)!

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