Chapter 7

Demand
 Learning objectives
By the end of this chapter you will be able to:
define demand
draw a demand curve
recognise the link between individual and market
demand in terms of aggregation distinguish
between extensions and contractions in demand
analyse the causes of shifts en the demand curve
 7.1 Definition of demand
When economists discuss demand, they are
discussing effective demand. They define this
as the willingness and ability to buy a product.
An individual may want a product, but if they
cannot afford it, their demand is not effective
as a firm will not be prepared to sell it to them
 7.2 Demand and price
Demand and price are inversely related. This
means demand will rise as price falls and fall as
price rises. A higher price will mean that fewer
people will be able to afford the product. They
will also be less willing to buy it and will be more
likely to switch to rival products. So, as price
rises, the willingness and ability to buy a product
falls.
7.3 Individual and market demand
Economists study individual and, more commonly.
market demand As its name suggests individual
demand is the amount of a product an individual would
be willing and able to buy. at different prices. Market
demand is the total demand for a product at different
prices It is found by adding up each individuals demand
at different prices. This totalling up of the demand of all
of the potential buyers is sometimes referred to as
aggregation.
Table 7.1: Daily demand for train tickets from Station X to Station V.
Demand Curve
 A demand curve
The information from a demand curve can be
plotted on a diagram. Price is measured on the
vertical axis (the line going up) and quantity
demanded on the horizontal axis (the line
going across), Figure 7.1 shows the
information in Table 7.1 as a diagram
Fig. 7.1: Daily demand for train tickets from Station X to Station V
• This demand curve and the demand schedule
on which it is based do not show the demand
over the full range of prices It is possible to do
this Figure 7.2 illustrates such a curve
Fig. 7.2: A demand curve over the full range of prices
Fig. 7.3: A straight line demand curve
Answer
The effect of a change in price on demand

As noted earlier, a fall in the price of a product

is likely to lead to a rise in demand for It.
Economists refer to this as
Extension in demand,
Expansion in demand or
An increase in the quantity demanded
Fig. 7.4: An extension in demand
Fig. 7.5: A contraction in demand
Answer
 7.4 Conditions of demand
Price is not the only influence on demand.
There are a range of causes for changes in
demand — either more or less of a product
being demanded — even if price is
unchanged. These reasons are sometimes
known as the conditions of demand .
 7.4 Conditions of demand
• For example, in a period of hot weather there
is likely to be an increase in demand for ice
cream. The quantities demanded will rise at
each and every price. A new demand schedule
can be drawn up to show the higher level of
demand.
Table 7.2: Demand for ice cream
Fig. 7.6: An increase in demand
Fig. 7.7: A decrease in demand
 Causes of changes in demand
Among the factors that can cause consumers to demand
different quantities of a product, even if the price has not
changed are
1.changes in income,
2. changes in the
price of related products (Substitute, Complementary)
3. advertising campaigns,
4. changes in population
and changes in taste and fashion.
 Changes in income
An increase in income raises consumers
purchasing power. For most of the products, this
results in an increase in demand. In fact, so
common is this positive relationship between
income and demand that such products are
referred to as normal goods. A few products have
a negative relationship with income. These
products are called inferior goods. When income
rises, demand falls as consumers switch to better
quality products.
 Answer
• Demand for mobile (cell) phones increased in
China. This would have caused the demand
curve to shift to the right.
 Answer
• b A mobile phone is a normal good. This is
because demand for mobile phones increases
as income rises. Some of those without
phones, purchase them and those with
phones upgrade them for better models.
Changes in the price of related products

An increase in demand can be caused by a rise in

the price of a substitute product. If the price of
holidays to Morocco rises, demand for holidays to
Mauritius may increase. Demand will also
increase if the price of a complement falls. For
example, if travel insurance becomes cheaper,
demand for holidays to most of the destinations
will increase.
• Substitute product
• Products which can be used in place of
another product such as tea and coffee .
• Compliment product
• Products which are used with other products
such as car and patrol
 Answer
1 a Usually a substitute. People may travel to a
place by car, bus or by train. Occasionally, they
may drive to a train or bus station and then
use public transport – in which case, they are
a complement.
B A complement. People buy petrol to use in
their cars.
C A substitute. People choose from a range of
makes of cars.
 Advertising campaigns
A successful advertising campaign will
increase demand for a product. It may bring
the product to the notice of some new
consumers and may encourage some existing
consumers to purchase more quantities of the
product.
 Changes in the population
The population of a country can change In
terms of both size and age composition. If
there is an increase in the number of people in
the country. demand for most products will
increase If there is an ageing population. with
people living longer, and a fall in the birth rate,
demand for wheelchairs is likely to increase
while demand for toys is likely to decrease.
 Changes in the taste and fashion
• Certain products are particularly influenced by changes
in taste and fashion These Include food, clothes and
entertainment. A rise in vegetarianism in a number of
countries has caused the demand for meat to decrease
Health reports can have a significant influence on
demand for particular foods Designer trainers have
become more popular in many countries, and the rise in
the popularity of football in Asia and Africa has
increased demand for football shirts and football
merchandise
 Other factors
• A range of other factors can influence demand
for a product. It was mentioned earlier that a
change in weather conditions will affect the
demand for ice cream. Such a change would
also shift the demand curve for umbrellas. soft
drinks and clothing
 Other factors
• Expectations about future price rises can
Influence current demand. Demand for oil
increased during the revolution in Libya in 2011
This was because it was widely anticipated that
such an event would disrupt supplies of oil and
raise prices. Special events can have an impact on
demand for a particular product. For instance,
the Summer Olympic Games held in Rio in 2016
may have increased the demand for holidays in
Brazil.
 Answer
2 a 79% (100% − 21%)
B One reason is that young people do not have
the time to read newspapers and so do not
buy them. Another reason is that young
people have less need to buy newspapers, as
they can receive the news from a variety of
other sources such as the internet.
 Answer
C It suggests that the internet is a substitute to
newspapers. It mentions that it is a rival to
newspapers – a number of young people get their
news from the internet rather than newspapers.
D Newspaper publishers could raise demand for
their papers by lowering their prices or
advertising. A cut in price should cause an
extension in demand. An advertising campaign, if
successful, should cause an increase in demand.
 Answer
3 a a contraction in demand
B an increase in demand
C a decrease in demand – fewer people to eat
fish.
D a decrease in demand – some people will
switch from eating fish to eating chicken.
 Multiple choice questions
I What is measured on the vertical axis of a
demand diagram?
A Cost
B Price
C Quantity demanded
D Wants
 Multiple choice questions
2 What happens to people’s willingness and ability
to buy a product when its price falls?
Willingness Ability
A increases increases
B increases decreases
C decreases decreases
D decreases increases
 Multiple choice questions
3 An increase in demand is represented by:
A A movement down the demand curve
B A movement up the demand curve
C A shift to the left of the demand curve
D A shift to the right of the demand curve
 Multiple choice questions
• 4 The price of a product rises. What will
happen to the demand for s complement?
A It will contract
B It will extend
C It will decrease
D It will increase
Answer Multiple choice questions
• 1B
• Price is on the vertical axis of a demand curve
and quantity demanded or quantity on the
horizontal axis.
• 2A
• If the price of a product falls, people are not
only likely to be willing to buy more of it but
they will also be able to afford to buy greater
quantities of the same product.
Answer Multiple choice questions
• 3D
• An increase in demand moves the demand curve out
to the right. A is a contraction in demand, B is an
extension demand and C is a decrease in demand.
• 4C
• A rise in the price of a product will cause the demand
to contract. The demand for a product used with it
will decrease – less will be purchased – not because it
has risen in price but because a related product has
become more expensive.
 Four-part question
A Define market demand. (2)
B Explain the relationship between demand and
a change in price. (4)
C Analyse the effect of a rise in the price of tea
on the demand for milk and the demand for
coffee. (6)
D Discuss whether or not the demand for
bicycles will rise in the future. (8)
 Answer Four-part question
A Market demand is the total demand for a product. It is
found by adding up the demand from each individual at
a particular price.
B The relationship between quantity demand and price is
an inverse one. This is because a rise in price would
reduce people’s willingness and ability to buy a
product. The higher price is likely to encourage some
people to substitute products. As the product is more
expensive, it is also likely to mean that not as many
people will be able to afford to buy it in the same
quantity.
 Answer Four-part question
C A rise in the price of tea will be likely to result in
people buying less tea. The demand for tea will
contract. Milk is a complement to tea as some
people put milk into tea. As less tea is being
drunk, the demand for milk will decrease. The
demand for milk decreases rather than contracts
because the change has not been caused by a
change in the price of milk. Demand for milk will
be less at each and every price of milk.
 Answer Four-part question
Coffee is a substitute to tea. If tea becomes
more expensive, some people will switch from
buying tea to buying coffee. As a result, the
demand for coffee will increase. Again, this
change has not been caused by a change in
the price of coffee but due to the change in
the price of a related product.
 Answer Four-part question
D The demand for bicycles may decrease in the
future. This is because in a number of
countries, bicycles are an inferior good. As
income rises, people switch to other forms of
transport, particularly car travel. Many people
find it more comfortable to travel in a car
especially during bad weather.
 Answer Four-part question
Changes in the size and age structure of the population
may reduce demand for bicycles in particular countries.
For instance, the population of Japan is declining so
there are fewer people to buy bicycles. Japan is also
experiencing a decline in the proportion of young
people in the age population. Young people are more
likely to ride a bicycle than older people. There are,
however, some reasons for thinking that demand for
bicycles may rise in the future. Population size is still
increasing in many countries, including in some
countries where average income is low.
 Answer Four-part question
More people are also cycling in a bid to get fitter
and because of concern about the environmental
effects of car driving. Some governments are
encouraging an increase in cycling by providing
cycle lanes. There is, in addition, the possibility
that with advances in technology, the price of
bicycles may fall in the future. This would make
the bicycles more affordable and so would be
likely to cause an extension in demand.