Demand in Economics

Demand Determinants

· P Price of the good [-]

· Ps Prices of related goods – substitutes [Ps+] and compliments [Pc-]

· E Expectations of future prices [+]

· Y Average household income(hh) [+] (yincome)

· N Population[+]

· T Tastes (preferences) [+]

· Z other factors (error term) [+/-]

Qd = f(P,Ps,Y,T,N,E,z) cet. Par.

“The law of demand”

· “The higher the price of a good, the smaller is the quality demanded” cet. Par. (Parkin et al., 2008:59)

· Why does higher P reduce Qd?

· Substitution Effect

· Income Effect

A demand schedule (table)

· Qd at each of several different prices, cet. par.

Point	Price (R000)	Qd (million)
R	5	0
S	4	5
T	3	15
U	2	25
V	1	53

A demand curve (WTP – willingness and ability to pay – marginal benfit curve)

Curve = (delta)quantity demanded

A shift in demand – change in the other variables.

(Change) in quantity demand vs demand

· An increase in P does not change demand only Qd.