microeconomics

Topics: Supply and demand, Goods, Demand curve Pages: 6 (825 words) Published: February 21, 2014
Part 1 : Demand For Goods and Services
Definition of demand
Classification of Goods and Services
Law of demand
Factors That Influence Demand (Determinants of demand)

Definition of demand

One of the definition of demand is known as the desire to buy goods and services with the ability to pay at a given time period.

Classification of Goods and Services

From conventional Economic Perspective:

i) Free goods – zero production cost. i.e. rain water and air ii) Public Goods – goods that will benefit the entire community.
i.e. radio stations
iii) Economic Goods – which supply is limited and involve cost to obtain them. i.e. clothing

From Islamic Perspective:

There are four types of consumer goods :

i) Dharuriyat (Essentials) – to satisfy human basic needs & necessary for living. i.e. clothing, houses, defense and etc. ii) Hajiyat (Complementary) – to improve the quality of life. i.e. furniture, car, phone and TV. iii) Kamaliat (Perfection) – to contribute towards the perfection of life. i.e. bungalows, luxury cars, high-powered motorbike and etc. iv) Tarafiat (Extravagant) – goods are considered wasteful and extravagant. i.e. golden chairs and etc.

Law of demand

The law of demand states that as price raises, the quantity demand decreases, ceteris paribus (all other factors remain the same), or as price decreases, the quantity demand increases, ceteris paribus (all other factors remain the same)

As price decreases, the quantity demand increases, ceteris paribus (all other factors remain the same)

As price rises, the quantity demand decreases, ceteris paribus (all other factors remain the same) Factors That Influence Demand (Determinants of demand)

In the real world, there are other factors besides price that can affect the demand for goods.

The factors are:
Consumer’s income
The price of related goods
Consumer’s taste and preferences
The number of buyers in the market
Expectation of future price
Weather
Availability of credit facilities

Change In Demand (Shift in Demand)

1. Consumer’s income

If there is an increase in the consumer’s income then the demand for goods and services will increase. For example income increase, demand for cars, houses, insurance policies and etc will increase.

Note : If consumer’s income increased, the quantity demand for cars will also increased , ceteris paribus, then the demand for cars will shift to the right. 2. The price of related goods:

a. Substitute Goods --- ie Coke Vs Pepsi

Pcoke Q coke => P pepsi Q pepsi

Note : If price of substitute good, i.e. Coke has increased, ceteris paribus, the quantity demand of Coke will decreased. The price of Pepsi will remain unchanged and the quantity demanded for Pepsi will increase due to reduction on consumption of Coke. Thus the Demand for Pepsi will shift to the right.

b. Complementary Goods ---ie Cars Vs Petrol

Ppetrol Q petrol => Pcars Qcars

Note : If price of complementary good, i.e. Cars has increased, ceteris paribus, the quantity demand of Cars will decreased. The price of Petrol will remain unchanged and the quantity demanded for Petrol will decrease due to decrease demand for Cars. Thus the Demand for Cars will shift to the left.

3.Consumer’s taste and preferences

Note : If consumer’s taste and preferences has increased towards drinking milk, the quantity demand for milk also will increased, ceteris paribus, then the demand for cars will shift to the right.

4. The number of buyers in the market

Note : If the number of buyers in the market has increased due to ‘baby boom’, the quantity demand for baby food will also increased, ceteris paribus, then the demand for baby food will shift...
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