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-/ Demand Key Points * Clear definitions of desire, want, and demand. + How price and non-price factors shift demand curves. + The law of demand and scenarios where it breaks down. + Real-world examples that illustrate each concept. © Demand Basics Demand - the quantity of a commodity that a consumer is willing, able to purchase at a given price during a specific time period. + Demand exists only when all three conditions are met: willingness, ability, and price-condition. (7) Desire, Want & Demand Desire - a mere wish or aspiration for a product (e.g., dreaming of a “dream car”). Want - a desire that is shaped by personal preferences and social influences. Demand - the economic expression of a want that is backed by purchasing power at a particular price. & Individual vs. -/ Market Demand Aspect Definition Unit of analysis Notation (conceptual) Individual Demand Quantity a single consumer will buy at each price. One consumer’s willingness, ability, and price. $q_i(p)$ - quantity demanded by consumer at price p. Market Demand Sum of all individual quantities demanded in the market. Whole population (or segment) of consumers. $Q(p)=\sum_{i=1}*{N} q_i(p)$ where N = number of consumers. lil Factors Influencing Individual Demand 1. Price of the commodity « Higher price > lower quantity demanded (inverse relationship). + Lower price > higher quantity demanded. 2. Price of related goods + Substitutes - goods that can replace each other. + Complements - goods used together. 3. Income of the consumer + Normal goods: demand rises with income. * Inferior (cheap) goods: demand falls as income rises. 4. Taste, preferences & social influences + Cultural trends, advertising, peer effects, personal experiences. 5. Future price expectations + Anticipated price rise > current demand increases (stock-up). + Anticipated price fall > current demand postpones. Related Goods Type Description Example from transcript Substitute Coffee price * > consumers switch to One good can replace another; price rise of one @ Market-Level Determinants 1. Population size & composition + Larger population > higher total demand. + Age structure influences product mix (e.g., toys for young populations, medicines for older populations). 2. Season & weather + Rainy season > higher demand for umbrellas, raincoats. « Winter > higher demand for sweaters, heaters. 3. Income distribution « More equal income > broader base of consumers able to buy similar products > higher aggregate demand. « High inequality > demand concentrated on luxury items for rich; cheap substitutes dominate for low-income groups. ia Demand Function Overview Demand function - a mathematical relation that links quantity demanded ($Q$) to its influencing factors (price $p$, income $/$, price of related goods $p_r$, tastes $T$, expectations $E$, population $N$) General symbolic form: $ Q=f(p,; 1; pts Ts EN) $ + Each argument represents one of the factors discussed above. ‘\ Summary of Key Points (Bullet Recap) + Desire « Want « Demand - only demand is economically operative. « Individual demand aggregates to market demand. « Five core determinants: price of own good, price of substitutes/complements, income, tastes, future expectations. + Substitutes boost each other’s demand when one becomes pricier; complements pull each other’s demand down when one becomes pricier. + Normal goods see demand rise with income; inferior goods see demand fall. « Population size/composition, seasonality, and income distribution shape market-level demand. * The demand function compactly captures all these relationships. iu] Demand Function & Schedule Demand function - the relationship that links the quantity demanded ($Q$) of a commodity to all factors that influence it (price $p$, income $$, price of related goods $p_r$, tastes $T$, expectations $E$, and population $N$). Mathematically: $ Q = f(p,; 1h; pti Ts; Es N) $ + Demand schedule - a tabular (tabular) representation of the quantities demanded at various price levels while holding every other factor constant. (© Individual Demand Schedule (example from transcript) Price (2) Quantity demanded (units) 5 1 4 2 3 3 2 4 1 5 Observation: As price falls, quantity demanded rises - the classic inverse relation. (© Market Demand Schedule (combining two individuals) Price (2) Individual A Individual B Market $Q$=A+B 5 1 2 3 4 2 3 5 3 3 4 7 2 4 5 9 Reason Diminishing marginal utility Substitution effect Income effect Description Additional units provide less satisfaction, so consumers need a lower price to justify extra purchases. Higher price of a good makes its substitutes relatively cheaper, shifting consumption away. Higher price reduces real purchasing power, lowering quantity demanded. @ Exceptions to the Law of Demand Not all goods obey the inverse relationship. The lecture highlighted several exceptional cases. Exception Special inferior goods (Giffen-type) Fashion / Status-symbol goods Fear of shortage Ignorance of cheaper alternatives Why the usual law fails When a price rise does not reduce demand because the good occupies a large share of the budget; the income effect outweighs the substitution effect. Desire for prestige overrides price sensitivity; demand may rise with price. Anticipated scarcity triggers panic buying, increasing demand despite price hikes. Consumers purchase at higher price because they are unaware of lower-priced options. Example from transcript Basic staples (e.g., rice, dal) - consumers keep buying even if price rises. Designer jeans, luxury watches - “the higher the price, the more desirable.” COVID-19 hoarding of staples, fuel during war. Paying 250/kg for potatoes while 230/kg is available elsewhere. Necessities of life Survival goods are bought Blood bags for medical regardless of price spikes. emergencies, essential medicines. Seasonal-specific Weather changes shift Lungi in summer, sweater in demand (e.g., summer vs. preferences so that a winter — price changes less winter) higher price does not deter relevant. purchase. Note: In each exception, one or more of the “ceteris paribus” conditions are violated (e.g., income, expectations, or availability change). ‘\ Movements vs. Shifts in Demand @ Change in Quantity Demanded - Movement along the same demand curve * Triggered only by a price change while all other determinants stay constant. + Expansion (price ¥) > movement down-wards along the curve (higher $Q$). + Contraction (price +) > movement up-wards along the curve (lower $Q$). Term Direction Price change Quantity change Expansion in Downward v * demand movement Contraction in Upward movement ” v demand Change in Demand - Shift of the entire curve + Caused by a change in any non-price determinant (income, tastes, price of related goods, expectations, population, season). + Rightward shift > increase in demand at every price level. + Leftward shift > decrease in demand at every price level. The lecture emphasized that when analyzing the law of demand we must hold all non-price factors constant; otherwise we confuse a shift with a movement. Increase in Demand - a right-ward shift of the entire demand curve triggered by a change in any non-price determinant (income, tastes, price of related goods, etc.) while the commodity’s own price stays unchanged. The reverse concepts—decrease in quantity demanded (movement up the curve) and decrease in demand (left-ward shift)—follow the same logic. li] Visual Representation Scenario Price (2) Quantity What Curve (units) changes? behavior Movement v (from 20to (from 100 to Price only falls Upward (4 QD) 150) movement along the same curve Shift Right 20 (fixed) * (from 100 to Income rises Entire curve (*D) 150) from 10000 to shifts right 20000 Shift Left (VD) 20 (fixed) v (from 100 to Income falls Entire curve 70) from 10000 to shifts left 5000 &€ Determinants that Cause a Shift in Demand Determinant Price of substitutes Price of complements Income How it shifts the curve + substitute price > right shift of the original good’s demand * complement price > left shift of the original good’s demand income > right shift for normal goods; left shift for inferior goods Example from transcript Tea price * > coffee demand * Petrol price * > car demand V Income * from 10000 to 20000 > demand for T-shirts * Tastes / preferences Future price expectations Population / demographic composition Income distribution Season / weather Other expectations (e.g., policy, technology) Positive change > right shift; negative change > left shift Expect price rise > right shift today; expect price fall > left shift today Larger / more relevant population > right shift More equal distribution > broader right shift for many goods Seasonal need > right shift during relevant period Anticipated change in availability or regulation > shift Advertising makes a brand fashionable > demand * Anticipated gold price rise > current gold demand * Growing young population ~» demand for smartphones * Higher middle-class share > demand for mid-priced apparel * Rainy season > umbrella demand * Expected tax cut on electric cars > demand * © Varieties of Demand Type of Demand Price demand Income demand Cross demand (substitutes & complements) Core Idea Quantity demanded varies only with the good’s own price (ceteris paribus). Changes in consumer income alter demand; distinguishes normal vs. inferior goods. Demand for a good responds to price changes of related goods. Typical Example Higher price of oranges > lower orange quantity demanded. Income rise > demand for branded shoes * (normal). Income fall > demand for cheap sandals * (inferior). Coffee price V > tea demand \ (substitutes). Petrol price * > car demand v (complements). (normal) (inferior) (substitut@x)mplements) Own v - - - - - - - price * quantity (movement) Income - * v - - - - - * demand demand (right (left shift) shift) Substitute = - - - * - - - - price * demand (right shift) Complement — - - - v - _ _ price * demand (left shift) Population - - - - - - - - (via + higher primary-| demand) = Mapping the Concepts + Movement along the curve = price effect only > quantity demanded changes, curve unchanged. « Shift of the curve = any non-price factor changes while price stays fixed > increase or decrease in demand. + Types of demand classify whya shift occurs (income, related-good prices, joint usage, etc.). These distinctions enable precise analysis of market reactions and are essential for constructing accurate demand schedules and predicting equilibrium outcomes. 
