MARKET FORCES OF DEMAND

Prepared By: Nirali Dudhagara.(39) Nirav Shah.(40)

Guided By: Prof.Rajinder Kaur.

DEMAND
Quantity demanded is the amount of a good that

buyers are willing and able to purchase. Law of Demand

The law of demand states that, other things equal, the quantity demanded of a good falls when the price of the good rises.

The Demand Curve: The Relationship between Price and Quantity Demanded
Demand Schedule The demand schedule is a table that shows the relationship between the price of the good and the quantity demanded.

Demand for Ice cream

The Demand Curve: The Relationship between Price and Quantity Demanded
Demand Curve

The demand curve is a graph of the relationship between the price of a good and the quantity demanded.

Figure 1 Catherines Demand Schedule and Demand Curve

Price of Ice-Cream Cone $3.00 2.50 1. A decrease in price ...

2.00
1.50 1.00 0.50 0 1 2 3 4 5 6 7 8 9 10 11 12 Quantity of Ice-Cream Cones 2. ... increases quantity of cones demanded.
Copyright 2004 South-Western

Market Demand versus Individual Demand

Market demand refers to the sum of all individual

demands for a particular good or service. Graphically, individual demand curves are summed horizontally to obtain the market demand curve.

Shifts in the Demand Curve

Change in Quantity Demanded Movement along the demand curve. Caused by a change in the price of the product.

Changes in Quantity Demanded

Price of IceCream Cones

$2.00

A tax that raises the price of ice-cream cones results in a movement along the demand curve.
A

1.00

D
0

Quantity of Ice-Cream Cones

Shifts in the Demand Curve

Consumer income Prices of related goods Tastes Expectations Number of buyers

Shifts in the Demand Curve

Change in Demand A shift in the demand curve, either to the left or right. Caused by any change that alters the quantity demanded at every price.

Figure 3 Shifts in the Demand Curve

Price of Ice-Cream Cone Increase in demand

Decrease in demand
Demand curve, D2 Demand curve, D1 Demand curve, D3 0 Quantity of Ice-Cream Cones
Copyright2003 Southwestern/Thomson Learning

Shifts in the Demand Curve

Consumer Income As income increases the demand for a normal good will increase. As income increases the demand for an inferior good will decrease.

Consumer Income Normal Good(Right shift)

Price of IceCream Cone

$3.00
2.50 2.00 1.50 1.00 0.50 Increase in demand

An increase in income...

D1
0 1 2 3 4 5 6 7 8 9 10 11 12

Quantity of Ice-Cream Cones

D2

Consumer Income Inferior Good(Left shift)

Price of IceCream Cone

$3.00
2.50 2.00 1.50 1.00 0.50 Decrease in demand

An increase in income...

D2
0 1

D1

2 3 4 5 6 7 8 9 10 11 12

Quantity of Ice-Cream Cones

Shifts in the Demand Curve

Prices of Related Goods When a fall in the price of one good reduces the demand for another good, the two goods are called substitutes. When a fall in the price of one good increases the demand for another good, the two goods are called complements.

Table 1 Variables That Influence Buyers

Copyright2004 South-Western

Case Study On Demand

TWO WAYS TO REDUCE THE QUANTITY OF SMOKING DEMAND

o Public policymakers often want to reduce the

that people smoke.

amount

oThere are two ways that policy can attempt to achieve this goal. o One way to reduce smoking is to shift the demand curve for cigarettes and other tobacco products.

o Public service announcements, mandatory health warnings on cigarette packages, and the prohibition of cigarette advertising on television are all policies aimed curve for cigarettes to the left, as in diagram.

oAlternatively, policymakers can try to raise the price of If the government taxes the manufacture of cigarettes.

cigarettes.

For example, cigarettes companies pass much of this tax on to consumers in the form of higher prices. a higher price encourages smokers to reduce the numbers of cigarettes they smoke. o In this case, the reduced amount of the smoking represents a MOVEMENT along the demand curve.
o How much does the amount of smoking respond to changes in

the prices of cigarettes? economists have attempted to answer this question by studying what happens when the tax on cigarettes changes.

o They have found a 10% increase in the price causes a 4%

reduction in the quantity demanded.

o Teenagers are found to be especially sensitive to the price of

cigarettes: A 10% increase in the price causes a 12% drop in teenage smoking.

o A related question is how the price of cigarettes affects the

demand for illicit drugs, such as marijuana.

o Opponents of cigarette taxes often argue that tobacco and

marijuana are substitutes for that high cigarette prices encourage marijuana use.

o By contrast, many experts on substance abuse view tobacco

as a gateway drug leading the young to experiment with other harmful substances.
o Most studies of the data are consistent with this view:

They find that lower cigarette prices are associated with greater use of marijuana. In other words, tobacco and marijuana appear to be complements rather than substitutes.

THANK YOU..