GROUP 1 MEMBERS:

CONLEY KWENDA SHINGAI MOLILLA

PAT I E N C E R . C H I D E U MAGUREYI
I S A A C M U D YA N H O R A M A LV E R N M U S I M WA
E T H E L D R E D A C H I K O PA A N N A M A RY
CHIKWIRAMAKOMO
S H I E L L A S A M A K O M VA
M I T C H E L L M A N YA N G A
T E L M O R E T I N A S H E M AT E K A
P R I N C E TAVA Z I VA
ETHEL HELGA MVULA
WINNET AGNES
TAT E N D A N J A N I K E MODZERE
N YA S H A TA K AVA R A S H A KENNEDY GEORGE
M U S E M WA L O V E M O R E TA B A Z I B A
S TA N L E Y
FA C U LTY O F C O M M ER C E: BANCYA
HM UDA
E LO RHO
OFN D
BUO S I N ES S
M A N A G EM EN T
C O U R SE : EC O N O M I C S
PRESENTATION QUESTION
With reference to a commodity of your choice,
outline its determinants of demand:
Introduction:

 Economic theory holds that demand consists of

two factors, which are taste and ability to buy.
 Taste, which is the desire for a good, determines
the willingness to buy the good at a specific price.
 Ability to buy means to buy a good at specific
price, an individual must possess sufficient wealth
or income.
Introduction:
What drives demand? In economics, there are several determinants of
individual demand.
Own Price Income Tastes and
Preferences & Advertising

Determinants of
Demand

Prices of
Expectations Other goods
Population
(Complimentary & substitute goods)
Definition of key terms

 Demand is the amount of a good that consumers

are willing and able to buy at a given price.
Willingness refers to people’s desire to own a
good
 Determinants: A factor that affects either increase
or decrease demand of a commodity
 The good chosen for this presentation is
VEHICLES
 1. OWN PRICE of VEHICLES as a determinant
Price is referred to as the value attached to a
product .The law of demand states that when prices
rise, the quantity of demand falls and also if the
P1 price falls ,the quantity demand will increase . If the
price of a vehicle goes up from P0 to P1 due to an
increase in price of spare parts, the quantity
P0 demand will automatically fall from Q0 to Q1

 Own price is the only determinant that causes a

D movement on the demand curve. If one of the
Q1 Q0 other determinants change the entire demand
curve will shift.
 
2. Income as a determinant
Income is money that an individual or
business receives for providing a good or
service . An increase in the demand of a
product depends on whether the product is
normal or inferior.

P1 Normal good are goods for which the demand

increases when income increases. In this
regard an increase in income for a household
will cause an increase in the demand for
D1
D0 vehicles CETERIS PARIBAS . This is shown
Q1 Q0 by a rightward shift of the demand curve
from D0 to D1
3. Tastes and preferences on the demand for
VEHICLES
 Consumer tastes and preferences are affected by
various factors such as life styles, customs,
common habits, and change in fashion, standard
of living, religious values, age, and sex.

 Change in any of these factors leads to change in

the tastes and preferences of consumers. For
example when consumers prefer Lexus rather
than Nissan due to a change in the standard of
living. The demand curve for Lexus will shift
outward, holding all other things constant .This is
indicated by a shift of the demand curve from D
to D1
 4. Price of substitutes as a determinant
Substitutes are goods which can be used
for the same purpose or goods which can
Toyota Honda
be used in place of another.
Vitz Fit Suppose the price of Toyota Vitz
increases from P0 to P1. This would
P1 cause people to buy less of Toyota Vitz,
the quantity will decreases from Q0 to
P0 P1 Q1. For the substitute good Honda Fit
D1 the demand curve shifts out for all price
D1
D0 levels from D0 to D1 because consumers
Q1 Q0 will be buying more of Honda Fits.
Q0 Q1
5. Expectations as a determinant
This is the anticipation that the price will change in
the future . When Car Dealers expect the future
price of vehicles to increase, the demand for
vehicles will increase , holding all other thing
constant.
 Example: When car dealers were anticipating the
Government to announce payments of duty in
forex, they actually expected a price increase.
This caused an increase in the demand for
vehicles as indicated by the shift from D to D1
 6. Price of complementary goods
Complementary good are those goods
that are sold separately but used together
Fuel Vehicles or goods which can be used in
conjunction. As the price of these
products increases also the cost of using
P1 the product increases, therefore the
P1 demand for the product decreases. For
instance, if the price of fuel increase
P0
from P0 to P1 due to economic
D1 D0 instability. This will cause a reduction in
D1
quantity demand for vehicles. For the
Q1 Q0 Q1 Q0 complementary good vehicle the
demand curve will shift inwards that is
from D0 to D1 indicating a fall in
demand.
7. Population as a determinant
 The population size affects aggregate demand
which is the summation of demand for final goods
and services in an economy at a given time.
 A population increase maybe due to high birth
rate which is caused by poor family planning
methods will cause the demand curve for vehicles
to shift to the right even if the prices remain
constant. This is indicated by a shift of the
demand curve from D to D1 showing an increase
in demand. Also if there is a decrease in
population the demand curve will shift inwards
that is from D1 to D
8. Advertising as a determinant
Advertising is one of the most important factors of determining the demand of a product
Advertising of own product
 Advertising affects consumer’s tastes and preferences in a positive way, and this will
result in an increase in demand.
 For example if advertisements for Honda Fits is intensified, this increases awareness of
the product thereby increasing demand.
Advertising of substitutes
 If the level of advertising for Toyota Vitz is greater than the level of advertising for
Honda Fit the demand for Toyota Vitz will increase and the demand for Honda Fit will
decrease.
Advertising of compliments
As vehicles are advertised, this will increase the demand for fuel.
 As the demand for vehicles increases the demand for fuel will also increase.
The price of the product is the
same but because of advertising
the demand curve has shifted to
the right. D1 is before
advertising and D2 is after
advertising. The quantity
demanded has moved from Q1 to
Q2.
Question 2
Consider the following information on the price quantity demanded, and
quantity supplied of a commodity:
Data

Required
2.1 Derive the equations of demand and Supply
2.2 Based on the demand and supply functions derived in equation 2.1, find
the market clearing price and quantity.
Suggested Solutions
2.1 Calculation of demand and supply equations
In this case, both the equations of demand and supply
are straight lines whose equations can be drawn by
calculating their respective gradients and constants. In
order to calculate the equation of a straight line we use
the general formula
Y = mx + c
Where Y = Y axis (price)
M= gradient
 y1
= yx
2

 x1
2

X = x- axis (quantity demanded or

supplied)
C= y intercept
Calculation of demand equation
Using the general formula outlined above, we take any
two points from the data table for instance A(120,2) and
B(90, 4) and use them to calculate the gradient first:
y2  y1
Gradient = m = x2  x1

4−2
=
90−120
−1
M = 15
Using one of the points A(120,2) and the gradient
calculated above, we can now calculate the value of the
y-intercept by substituting the above into the general
formula and make c the subject of the formula as below:
Y = mx + c
−1
2 = ሺ
120ሻ+ 𝑐
15

2 = −8 + 𝑐
C = 10
Thus the equation of the demand curve would be:
−𝟏
𝒀 = 𝒙 + 𝟏𝟎
𝟏𝟓
Calculation of Supply equation
Using the general formula outlined above, we take any two points
from the data table for instance A(35,2) and B(75, 4) and use
them to calculate the gradient first:
y2  y1
Gradient = m =
x2  x1

4−2
=
75−35
1
M =
20

Using one of the points A(35,2) and the gradient calculated

above, we can now calculate the value of the y-intercept by
substituting the above into the general formula and make c the
subject of the formula as below:
Y = mx + c
1
2 = ሺ
35ሻ+ 𝑐
20

2 = 1.75 + 𝑐
C = 0.25
Thus the equation of the supply curve would be:
𝟏
𝒀 = 𝒙 + 𝟎. 𝟐𝟓
𝟐𝟎
2.2 Calculation of clearing price and quantity
The clearing price and quantity in this scenario is the
equilibrium price and quantity which can be found by
either plotting both the demand and supply curves on
the same graph and identify the coordinates of that
point where the two graphs intercept or by solving the
two calculated equations in 2.1 simultaneously as
follows:
−𝟏
Equation i………. 𝒀 = 𝒙 + 𝟏𝟎
𝟏𝟓
1
Equation ii……… 𝑌 = 𝑥 + 0.25
20
By substitution that is taking the equivalent value of y
in equation ii and replacing y in equation (i.) we get:
1 −𝟏
𝑥 + 0.25 = 𝒙 + 𝟏𝟎
20 𝟏𝟓
To remove the denominators, we multiply both sides by
60 and get

3𝑥 + 15 = −𝟒𝒙 + 𝟔𝟎𝟎
Solving for x

7𝑥 = 𝟓𝟖𝟓
X = 83.6

Thus our clearing quantity would be 83.6 units

For the clearing price, we substitute the value of x in
equation i as follows

−𝟏
𝒀= (𝟖𝟑. 𝟔) + 𝟏𝟎
𝟏𝟓
𝒀 = −𝟓. 𝟓𝟕 + 𝟏𝟎
𝒀 = 𝟒. 𝟒𝟑

Hence the clearing price would be $4.43

The clearing price would be $4.43 and the graphical representation of the
solution would have looked like below:
Questions?