Introduction to Demand

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• 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.

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• 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.

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

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• 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

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

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

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

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• 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

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• 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

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• 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

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• 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.