Cik Aloi: How Markets Work (Week Three)

Definition of demand
** Demand = willingness to buy + ability to buy

Law of demand
** If, Price increase then Quantity decrease ( P↑ → Qd ↓)

** But, if Price decrease then Price increase ( P↓ → Qd ↑)

Demand schedule and Demand curve
** To make you all clear about demand curve diagram, Please refer an example that we created below.

COMBINATION	PRICE ( RM )	QUANTITY (units)
A	5	100
B	4	200
C	3	300
D	2	200
E	1	100

Hopefully, diagram above fulfill our explaination about demand curve, now we will highlight more about this diagram

According to the law of demand, it's a NEGATIVE SLOPE cause the demand curve MUST slope downwards.

INDIVIDUAL DEMAND AND MARKET DEMAND

Individual- The relationship between the quantity of a product demanded by a single and its price

Markets-Combination of all consumer to get the total quantity of a product in the markets and its price

Individual 1 + Individual 2 = MARKET DEMAND

Refers diagram below for futher explaination.

COMBINATION	PRICE (RM)	FIRST CONSUMER (units)	SECOND CONSUMER (units)	MARKET DEMAND (units)
A	15	4	2	6
B	10	5	8	13

Now you already know how to plot the combination of consumer to get the market demand curve. Lets we move to the next points.

Determinants of demand

~ Changes in Quantity Demanded

~ Changes in Price

Price of related goods

-Substitute goods

-Complementary goods

Substitute goods

- The types of goods or services is same but the brand is totally different

- We rarely used certains goods or services but if the price for our choices increase. So that, we will change to other brands that looks similiar.

- For an example, Pepsi and Cola is the carbonate drinks. But the brand and price for both products is different.

- Basically, we as consumer will choose the lower price rather than higher price.

- So, if the price of Pepsi increase but Cola remains maintain. The consumer will started to buy Cola.

- The price for Pepsi will increase and the quantity demanded for Cola will increase based on law of demand

Refers diagram below if you still cant imagine the curve

Complementary goods

- Goods or services that need each other.

- Those goods or services jointly together to satisfy a want

- For an example, Car and Petrol

When the Price of Car Increase, The Quantity of Petrol Decrease

Consumer's Income

- When income increase, Quantity demanded increases

- Goods that increse in demand as income increase are NORMAL GOODS (E.g cars, shirts and books)

- Goods that decrease in demand as income increases are inferior goods (E.g used cars, salt-fish and low grade rice)

Taste & Fashions

- If a product become trend, the demand will increase

- But, if outdated, the demand will decrease

- For an example, change in music, brand handphone, types of cars

Population

- Demand of goods or services depends on the size of population in the market.

- A large number of population will creates a greater demand for goods or services.

- For an example, if the population in Kuala Lumpur increases, demand for the others also increase.

- Increasing population will shift the supply curve to the right.

Festive Seasons and Climatic Condition

-Products will follow the flow during festive seasons

- It based on what are the citizens celebrating.

- For an example, Chinese New Year.

- The consumer will buy mandarin oranges. So, the demand for it will increase

- Increasing demanded will shift to the right demand curve

Price Expected

- An expectation price for the future. So that the consumer will be prepared if there is the increasing of price.

- For an example, if the government said the price of sugar will increase the next three days. The consumer will buy more immediately to keep it as their stock before the price of sugar increase. The next three days, the quantity demanded of sugar decrease.

- Price expected increase, demand curve for today will shift to right.

Movement along and shift in the demand curve

Situation

Movement along the demand curve

Factor

Occurs when price of a product changes (own price of the product) Other factors remain constant

Evidence

Upward movement Decrease in quantity demanded (contraction)Example : form B to A
Downward movement Increase in quantity demanded (expansion)Example : form B to A