Demand and supply analysis
CHAPTER THREE
DEMAND, SUPPLY AND EQUILIBRIUM
DEMAND
Definition of demand
Demand refers to the quantity of a commodity1 that consumers are willing and able to purchase at any given price over some given period of time.
The quantity demanded is the amount of a product people are willing to buy at a certain price; the relationship between price and quantity demanded is known as the demand relationship.
Three important aspects that must be mentioned in the definition of demand are
1. Quantity
2. Price
3. Time period
Demand is not the same thing as need, want or desire, only when want is supported by ability and willingness to pay the price, dose it become effective demand and have influence the market prices hence resource allocation2. (Hence in economics demand always means effective demand).
Determinants of demand
The demand for a commodity can be considered from two points of view
1. Individual demand
2. Market demand
Individual Demand
Individual demand for a commodity is the amount an individual is willing and able to buy at any given price over a given period of time. This demand is influenced by several factors.
Thus factors influencing the demand (dx ) for good X over a given period are;
1. Price of the good (Px)
2. Price of other goods related to the good (PR)
3. Consumers’ income (Y)
4. Consumers taste and preferences for good X (T)
5. Consumers’ expectations about future prices (E)
6. Advertising (A)
7. Any other factors (O)
As a functional notation, demand for commodity X can be expressed as follows dx = f ( Px, PR ,Y ,T ,E ,A,O)
Which means that an individuals demand for commodity X is a function of all factors listed in the brackets.
Price of the good
The price of a commodity is the most important factor or determinant influencing an individual’s demand for it. All other factors other than price are called conditions for demand.
In analysing the relationship between an individual’s demand for commodity X and the price
DEMAND, SUPPLY AND EQUILIBRIUM
DEMAND
Definition of demand
Demand refers to the quantity of a commodity1 that consumers are willing and able to purchase at any given price over some given period of time.
The quantity demanded is the amount of a product people are willing to buy at a certain price; the relationship between price and quantity demanded is known as the demand relationship.
Three important aspects that must be mentioned in the definition of demand are
1. Quantity
2. Price
3. Time period
Demand is not the same thing as need, want or desire, only when want is supported by ability and willingness to pay the price, dose it become effective demand and have influence the market prices hence resource allocation2. (Hence in economics demand always means effective demand).
Determinants of demand
The demand for a commodity can be considered from two points of view
1. Individual demand
2. Market demand
Individual Demand
Individual demand for a commodity is the amount an individual is willing and able to buy at any given price over a given period of time. This demand is influenced by several factors.
Thus factors influencing the demand (dx ) for good X over a given period are;
1. Price of the good (Px)
2. Price of other goods related to the good (PR)
3. Consumers’ income (Y)
4. Consumers taste and preferences for good X (T)
5. Consumers’ expectations about future prices (E)
6. Advertising (A)
7. Any other factors (O)
As a functional notation, demand for commodity X can be expressed as follows dx = f ( Px, PR ,Y ,T ,E ,A,O)
Which means that an individuals demand for commodity X is a function of all factors listed in the brackets.
Price of the good
The price of a commodity is the most important factor or determinant influencing an individual’s demand for it. All other factors other than price are called conditions for demand.
In analysing the relationship between an individual’s demand for commodity X and the price