ECONOMICS

DEMAND
Demand is the want and willingness of consumers to buy a good or services at a
given price.

EFFECTIVE DEMAND
Effective demand is where the willingness to buy is backed by the ability to pay. For
example, when you want a laptop , you donot have the money, it is called demand.
When you do have the money to buy it, it is called effective demand.

QUANTITY DEMAND
The effective demand for a particular good or service is called quantity demanded.

INDIVIDUAL AND MARKET DEMAND

(Individual demand is the demand from one consumer, while market demand for a
product is the total (aggregate) demand for the product, or the sum of all individual
demands of consumers

LAW OF DEMAND
The law of demand states that an increase in price leads to a decrease in demand, and a
decrease in price leads to an increase in demand (it’s an inverse relationship between price
and demand
The higher price of a good = fewer people demand that good; hence, demand is inversely
related to the price

Price∝1/Demand

EXTENSION & CONTRACTION IN DEMAND

A Change in the price of the good or service will cause movement along the curve. The
movement can be either contraction or extension.

Contraction is caused when the demand falls due to a price increase; This causes the point go
upwards.

Extention is caused when the demand increases because of a price decrease; This causes the
point to go downwards.
Example

This is an example of a demand curve for Coca-

Cola.Here, a decrease in price from 80 to 60 has increased its demand from 300 to 500.The
increase in demand due to changes in price (without changes in other factors) is called an
extension in demand. Here the extension in demand is from A to B.In the above example, an
increase in price from 60 to 80, will decreased the demand from 500 to 300. The decrease in
demand due to the changes in price (without changes in other factors) is called a contraction
in demand. Here the contraction in demand will be from B to A.

SHIFT OF THE DEMAND CURVE

Changes in Non-Price factors cause the demand curve to shift. These factors include tastes,
prices of substitute goods, consumer incomes and many more.

INCREASE IN DEMAND

An increase in demand causes the demand curve to shift rightwards

Example

In this example, there is a rise in the

demand of Coca-Cola from 500 to 600, without any change in price. A rise in the demand for a
product due to the changes in other factors (excluding price) causes the demand curve to
shift to the right (from A to B).

FALL IN DEMAND
Decrease in demand shifts the curve towards the left.

Example

In this example, there is a fall in demand of

Coca-Cola from 500 to 400, without any change in price.A fall in demand for a product due to
the changes in other factors (excluding price) causes the demand curve to shift to the left
(from A to B).

Factors that cause shifts in a DEMAND CURVE:

Consumer incomes: a rise in consumers’ incomes increases demand, causing a shift to right. Similarly,
a fall in incomes will shift the demand curve to the left.

Taxes on incomes: a rise in tax on incomes means less demand, causing a shift to the left; and vice
versa.

Price of substitutes: Substitutes are goods that can be used instead of a particular product. Example:
tea and coffee are substitutes (they are used for similar purposes). A rise in the price of a substitute
causes a rise in the demand for the product, causing the demand curve to shift to the right; and vice
versa.

Price of complements: Complements are goods that are used along with another product. For
example, printers and ink cartridges are complements. A rise in the price of a complementary good
will reduce the demand for the particular product, causing the demand curve to shift to the left; and
vice versa.

Changes in consumer tastes and fashion: for example, the demand for DVDs have fallen since the
advent of streaming services like Netflix, which has caused the demand curve for DVDs to shift to the
left.

Degree of Advertising: when a good is very effectively advertised (Coke and Pepsi are good examples),
its demand rises, causing a shift to the right. Lower advertising shifts the demand curve to the left.

Change in population: A rise in the population will raise demand, and vice versa.

Other factors, such as weather, natural disasters, laws, interest rates etc. can also shift the demand
curve.