Introduction to Demand

Nota:

• Consumers must be willing to buy and be capable of paying the price set by the supplier. It is demand backed by the necessary purchasing power.

Nota:

• Derived demand occurs when one commodity is an essential part of another commodity and it is demanded not for its own sake. e.g. steel and cars.

Nota:

• Composite demand occurs when a commodity is required for a number of different uses. e.g. sugar

Nota:

• Joint demand occurs when the demand for one commodity is joined with the demand for another. Also called complementary goods. e.g. petrol and cars.

1. Substitute goods
2. Complementary Goods

Nota:

• A rise in income causes more normal goods to be demanded, while a fall in income leads to more inferior goods to be demanded.

Nota:

• e.g. if there is a sudden heat wave, there would be an increase in the quantity demanded for sunscreen.

Nota:

• e.g. the plastic bad levy is aimed to reduce consumption of plastic bags. The smoking ban is aimed at curtailing tobacco consumption

Nota:

• Giffen Goods are goods with a positive price effect, i.e. more is bought as the price rises and less is bought as price falls

1. Bread, rice and potatoes

Nota:

• Some commodities are attractive to some buyers because of their exclusiveness or high price. A rise in price makes them more exclusive.

1. Yachts, sport cars and designer clothes

Nota:

• e.g. if a person is considering buying stocks and shares, the possibility that prices are likely to be even higher in the future will stimulate and probably increase quantity demanded at current prices

Nota:

• Even when the price of the commodity increases, they will probably continue to purchase these goods and their demand for the commodity may actually increase because of their addiction.