Economics, SS1, Week 7
Topic: Changes in Quantity Demanded.
For previous not on “Demand” see:http://passnownow.com/namaste-lesson/theory-of-demand/
Contents:
- Factors affecting demand
- Change in quantity demanded
- Abnormal demand
- Causes of abnormal demand
A change in demand is when the whole curve shifts and a change in quantity demanded is movement along the demand curve due to a change in price.
Factors affecting demand
The following can affect demand. They are:
- The price of other commodities: This applies to commodities that have close substitute. If the price of such commodity is high, the consumer may demand for close substitutes.
- Income of the consumer: The higher the income of the consumer the higher the quantity of commodities that he/she will demand and vice versa
- Population: The increase in population of a particular area will bring about increase in the commodities sold in such area and vice versa
- Weather and climate: Weather, climate and season affects the demand for some certain goods, for instance during Christmas period, the demand for chicken, clothes and Christmas trees will be high. During rainy season; demand for umbrella also will be high.
- Advertisement: Good and constant advertisement for a particular commodity will lead to increase in the demand of such commodity.
- Changes in taste of consumer: If consumers decide to change their taste on a particular product, the demand for that commodity will decrease.
- Government policy: Government policy over the consumption of some goods will either encourage or discourage people to demand for such goods or commodities
- Price: This goes with the law of demand that states”the higher the price of a commodity the lower the quantity demanded and vice versa”
- Taxation: An increase in taxation means a reduction in purchasing power of the consumer which may result in decrease in the demand for certain commodities.
- Changes in fashion: As fashion changes, people’s demand for some things will also change.
Change in Quantity Demanded
A change in the quantity demanded of a commodity means a movement from one point to another on a demand curve. This change that occur in the quantity demanded can be as a result of changes in the price of commodity under consideration.
Change in quantity demanded can be of two part, which are:
- Increase in the quantity demanded: There is an increase in the quantity demanded provided the quantity purchased increases as a result of a decrease in the price of the commodity.
In the diagram above a decrease in the price of the commodity from $70 to $40 brought about an increase in the quantity demanded from 30 to 60.
2. Decrease in the quantity demanded: Decrease in quantity demanded occurs if the quantity of the commodity purchased decreases as a result of an increase in price.
In the diagram above,the decrease in the quantity purchased from 30 to 15 was as a result of increase in price from $10 to $25.
Exceptional (Abnormal) Demand
It is a demand pattern which does not abide by the laws of demand and therefore give rise to the reverse of the basic laws of demand; which means that at a higher price, increased quantities are demanded.
Causes of abnormal demand
Abnormal demand is caused as a result of the following points mentioned below:
- Rare commodities: Some consumers have the tendency to buy certain rare or unique commodity at higher prices, this commodities are special and not easily affordable as a result of high value attached to them.
- Articles of necessity: These are articles that are regarded as essential to the extent that people cannot do without them. Examples of such articles are salt, food items because even the poor can suspend other needs to ensure they buy food stuffs.
- Articles of ostentation: These are commodities or goods which command or have prestige value, they are goods that add value to the users. Examples of such commodities are gold chain, wrist watch, luxury cars. Some consumers take pleasure in buying such commodities because they believe that the higher the price, the higher it is valued.
- Future expectation: If people expect price of certain commodities to rise in the future, they will buy more of them but if they expect price to fall in the future, they will buy less of such commodities.
Test and Exercise
- List and explain the factors affecting demand
- Define Exceptional(abnormal) demand
- Give reasons why some goods have exceptional demand
- With the aid of graphs explain change in quantity demand
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