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ion of demand

The amount of a particular economic good or service that a consumer or group of consumers will to purchase at a given price. Demand represents the choice making behavior of buyers or amount of a good or service that consumer are willing and able to buy. The demand curve is usually downward sloping, since consumers will want to buy more as price decreases. Demand for a good or service is determined by many different factors other than price, such as the price of substitute goods and complementary goods.

The relationship between demand and price

The headlines announce, ‘Major crop failures in Brazil and East Africa: coffee prices soar.’ Shortly afterwards you find that coffee prices have doubled in the shops. What do you do? Presumably you will cut back on the amount of coffee you drink. Perhaps you will reduce it from, say, six cups per day to two. Perhaps you will give up drinking coffee altogether.

This is simply an illustration of the general relationship between price and consumption: when the price of good rises, the quantity demanded will fall. This relationship is known as the law of demand. There are two reasons for this law.

People will feel poorer. They will not be able to afford to buy so much of the good with their money. The purchasing power of their income (their real income) has fallen. This is called the income effect of a price rise.

The good will now cost more than alternative or substitute goods, and people will switch to these. This is called the substitute effect of a price rise.

Similarly, when the price of a good falls, the quantity demanded will rise. People can afford to buy more (the income effect), and they will switch away from consuming alternative goods (the substitute effect).

Therefore, returning to our example of the increase in the price of coffee, we will not able to afford to buy as much as before, and we will probably drink more tea, cocoa, fruit juices or even water instead.

Example for Changes in Quantity Demand

Price of a can of cola

Quantity demanded at that particular price

From the cola example in table above, it can be seen that as the price of a can of cola increase, there is less demand for that soft drink. Now if this is reverse order (the price of a can of cola is decreasing), there would be an increase in demand for that soft drink.

Change in Quantity Demand

If movement upward (A to B to C to …E) , it is indicating decrease in quantity demand.

Movement along the demand curve

All other remain in equal

Other things being equal (Ceteris Paribus), when price of good rise, the quantity demand will fall or when price of good fall, the quantity demand will rise.

Other Determinants of Demand

Price is not only factor that determines how much of a good people will buy. Demand is also affected by Income, Price of other goods, Expectation of future price, Number of buyers, Taste, and other.

Income: Typically, a consumer’s spending habit is quite predictable with a given stable income. This is because the consumer assuming that he/she is a working adult, would have to put aside a certain amount of money for the following important expenses: rent, transportation, food, clothing, and saving. If t本论文由英语论文网提供整理，提供论文代写，英语论文代写，代写论文，代写英语论文，代写留学生论文，代写英文论文，留学生论文代写相关核心关键词搜索。