1. DEMAND AND SUPPLY
Meaning of demand
Demand is the quantity of a product that buyers are willing and able to buy
at a given price over a given period of time.
Factors that determine the demand for a product (determinants of
demand)
1. The price of a product: if the price is low, more will be demanded, if
high less will be demanded.
2. The buyer’s income: the higher the people’s income the higher the
demand for gods and services and vice versa.
3. Government policy: if the government imposes high taxes on a
commodity, it becomes expensive and less of it is demanded. The
effects of a subsidy are to lower the price of the product leading to an
increase in its demand. The government may also influence the
demand of a product by enacting laws that either limits or promotes
the consumption of a product.
4. The population: with many people available more of the goods are
demanded and if the people are few, less is bought from the market.
5. Tastes, fashions and preferences: if people have a preference for
a product they will demand more of it. If their preferences changes to
another product, they will reduce the demand of the product they were
using before.
6. The distribution of incomes: where income is well distributed, the
demand for goods and services is high as opposed to when the income
in the hands of a few people.
7. Future expectations of price changes: if the prices are expected
to go up in the future, more goods will be demanded in the present
and if the price is expected to go down in the future, fewer goods will
be demanded in the present.
8. The weather: certain goods are demanded more during certain
weather conditions e.g heavy clothes during cold seasons or umbrellas
during rainy seasons.
9. Price of related products: for goods that are compliments of one
another, e.g pen and ink, a fall in the price of one leads to an increase
in the demand of the other. In the case of the goods that are
substitutes of one another, e.g soda and fruit juice, an increase in the
price of one leads to an increase in the demand of the other.
10. The terms of sale: the better the terms of sale, for example,
provision of credit or better discounts, the higher the demand for a
given product.
Types of demand
Derived demand: a product is said to have derived demand when it is
demanded to help in the production of other goods and services for
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, example the demand of building materials arising from the demand of
houses.
Joint demand: items are said to have joint demand if the use of one will
require the use of another. The goods are complimentarily used together
like pen and ink.
Demand schedule and demand curve
Demand schedule
A demand schedule is a table showing the quantities of a commodity that
consumers are willing and able to buy at different prices within a given
period of time. A demand schedule can be prepared for an individual or
for the entire market.
Demand curve
A demand curve is the graph showing the quantities demanded against
the prices. On the y-axis is recorded price and the x-axis the quantities
demanded.
Draw a demand curve given the following demand schedule
Price of the product in Quantity of the goods
shs demanded in kg
10 40
20 35
30 30
40 25
50 20
60 15
70 10
80 5
The graph shows that the demand curve (DD) slopes from the left to the
right, indicating that as prices goes down the quantity demanded
increases and vice versa.
This tendency of demand to increase as price decrease and to reduce as
the price increase is referred to as the law of demand. Therefore a
normal demand curve slopes from left to right.
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Prepared By Mburugu Ken
, Movement along a demand curve and a shift in demand curve
Movement along the demand curve
A movement along a demand curve refers to changes in quantity of a
product demanded as a result of change in its price only. As the price
of the product increases the quantity demanded decreases. It leads to a
movement from one point to another on the same demand curve as
shown below:
(i) (ii)
(i) In a movement along the demand curve no new demand curve is
created. If price increase from P0 to P1 in the diagram above
quantity demanded will fall from Q1 to Q2 i.e. movement from a to
b.
(ii) If price fall from P2 to P3, the quantity demanded increase from Q2 to
Q3 i.e. movement from a to c.
Shift of the demand curve
This is when the demand curve moves either to the right or left. It occurs
as results of changes in factors influencing demand other than price of
the product concerned. This can be illustrated as below:
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, In (i) at price OP the quantity demanded is OQ. After the demand curve
shift from D0D0 to DD a different quantity OQ1 is demanded although the
price remains at OP. thus points L and M are on different demand curves.
Similarly when the demand curve shifts from D1D1 to D2D2 as in (ii) a
different quantity OQ3 is demand at the same price OP2 as before. Thus
the two points R and S are on two different demand curves.
A shift of demand curve to the left (decrease in demand) can be
brought about by the following factors:
✔ A decrease in people’s incomes.
✔ A decrease in the price of a substitute product.
✔ Lower population in the area.
✔ Negative changes in tastes, fashions and preferences towards the
product.
✔ The introduction of a new but cheaper substitute.
✔ Deterioration in the terms of sale e.g. lower discounts
A shift of demand curve to the right (increase in demand) can be
as a result of:
✔ An increase in the people’s incomes.
✔ An increase in the price of a substitute product.
✔ An increase in population.
✔ An improvement in terms of sale e.g. where better discount are
given
✔ A decrease in the price of a complementary product.
✔ An improvement in tastes, preferences towards particular product.
Differences between a movement along a demand curve and a
shift of a demand curve
Movement along a demand Shift of a demand curve
curve
(i) It involves only one It involves two demand curves
demand curve
(ii) It is brought about by Brought about a change in other
changes in the quantity factors that influences demand
demanded. other the price of the product.
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Prepared By Mburugu Ken
Meaning of demand
Demand is the quantity of a product that buyers are willing and able to buy
at a given price over a given period of time.
Factors that determine the demand for a product (determinants of
demand)
1. The price of a product: if the price is low, more will be demanded, if
high less will be demanded.
2. The buyer’s income: the higher the people’s income the higher the
demand for gods and services and vice versa.
3. Government policy: if the government imposes high taxes on a
commodity, it becomes expensive and less of it is demanded. The
effects of a subsidy are to lower the price of the product leading to an
increase in its demand. The government may also influence the
demand of a product by enacting laws that either limits or promotes
the consumption of a product.
4. The population: with many people available more of the goods are
demanded and if the people are few, less is bought from the market.
5. Tastes, fashions and preferences: if people have a preference for
a product they will demand more of it. If their preferences changes to
another product, they will reduce the demand of the product they were
using before.
6. The distribution of incomes: where income is well distributed, the
demand for goods and services is high as opposed to when the income
in the hands of a few people.
7. Future expectations of price changes: if the prices are expected
to go up in the future, more goods will be demanded in the present
and if the price is expected to go down in the future, fewer goods will
be demanded in the present.
8. The weather: certain goods are demanded more during certain
weather conditions e.g heavy clothes during cold seasons or umbrellas
during rainy seasons.
9. Price of related products: for goods that are compliments of one
another, e.g pen and ink, a fall in the price of one leads to an increase
in the demand of the other. In the case of the goods that are
substitutes of one another, e.g soda and fruit juice, an increase in the
price of one leads to an increase in the demand of the other.
10. The terms of sale: the better the terms of sale, for example,
provision of credit or better discounts, the higher the demand for a
given product.
Types of demand
Derived demand: a product is said to have derived demand when it is
demanded to help in the production of other goods and services for
1
Prepared By Mburugu Ken
, example the demand of building materials arising from the demand of
houses.
Joint demand: items are said to have joint demand if the use of one will
require the use of another. The goods are complimentarily used together
like pen and ink.
Demand schedule and demand curve
Demand schedule
A demand schedule is a table showing the quantities of a commodity that
consumers are willing and able to buy at different prices within a given
period of time. A demand schedule can be prepared for an individual or
for the entire market.
Demand curve
A demand curve is the graph showing the quantities demanded against
the prices. On the y-axis is recorded price and the x-axis the quantities
demanded.
Draw a demand curve given the following demand schedule
Price of the product in Quantity of the goods
shs demanded in kg
10 40
20 35
30 30
40 25
50 20
60 15
70 10
80 5
The graph shows that the demand curve (DD) slopes from the left to the
right, indicating that as prices goes down the quantity demanded
increases and vice versa.
This tendency of demand to increase as price decrease and to reduce as
the price increase is referred to as the law of demand. Therefore a
normal demand curve slopes from left to right.
2
Prepared By Mburugu Ken
, Movement along a demand curve and a shift in demand curve
Movement along the demand curve
A movement along a demand curve refers to changes in quantity of a
product demanded as a result of change in its price only. As the price
of the product increases the quantity demanded decreases. It leads to a
movement from one point to another on the same demand curve as
shown below:
(i) (ii)
(i) In a movement along the demand curve no new demand curve is
created. If price increase from P0 to P1 in the diagram above
quantity demanded will fall from Q1 to Q2 i.e. movement from a to
b.
(ii) If price fall from P2 to P3, the quantity demanded increase from Q2 to
Q3 i.e. movement from a to c.
Shift of the demand curve
This is when the demand curve moves either to the right or left. It occurs
as results of changes in factors influencing demand other than price of
the product concerned. This can be illustrated as below:
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Prepared By Mburugu Ken
, In (i) at price OP the quantity demanded is OQ. After the demand curve
shift from D0D0 to DD a different quantity OQ1 is demanded although the
price remains at OP. thus points L and M are on different demand curves.
Similarly when the demand curve shifts from D1D1 to D2D2 as in (ii) a
different quantity OQ3 is demand at the same price OP2 as before. Thus
the two points R and S are on two different demand curves.
A shift of demand curve to the left (decrease in demand) can be
brought about by the following factors:
✔ A decrease in people’s incomes.
✔ A decrease in the price of a substitute product.
✔ Lower population in the area.
✔ Negative changes in tastes, fashions and preferences towards the
product.
✔ The introduction of a new but cheaper substitute.
✔ Deterioration in the terms of sale e.g. lower discounts
A shift of demand curve to the right (increase in demand) can be
as a result of:
✔ An increase in the people’s incomes.
✔ An increase in the price of a substitute product.
✔ An increase in population.
✔ An improvement in terms of sale e.g. where better discount are
given
✔ A decrease in the price of a complementary product.
✔ An improvement in tastes, preferences towards particular product.
Differences between a movement along a demand curve and a
shift of a demand curve
Movement along a demand Shift of a demand curve
curve
(i) It involves only one It involves two demand curves
demand curve
(ii) It is brought about by Brought about a change in other
changes in the quantity factors that influences demand
demanded. other the price of the product.
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