Page 29 - DECO101_MICRO_ECONOMICS_ENGLISH

Micro Economics

Notes
P
D

P 2
Price of Tea 1 D
P

D 1
Q 2 Q 1 Q
Amount demanded of coffee/milk SUBSTITUTE GOODS CASE
P D

P
Price of Butter P 2 1 D D

D 1
Q 2 Q 1 Q
Amount demanded of butter per day COMPLEMENTARY GOODS CASE

2.5 Summary

In economics demand has a specific meaning. Demand for any commodity implies: desire
to acquire it, willingness to pay for it, ability to pay for it and at a particular time.
Demand depends on not only the price of a commodity, but also income, price of related
goods – both substitutes and complements – taste of consumer, price expectation and all
other factors.

According to Law of Demand, there is an inverse relationship between the price of a
commodity and the quantity demanded (other things remaining equal)

Sometimes, we find that with a fall in the price demand also falls and with a rise in price
demand also rises. These cases are referred to as exceptions to the general law of demand.
The demand curve in these cases will be an upward sloping. This happens in case of
inferior goods, Giffen goods and Veblen goods.

For economics, the “movements” and “shifts” in relation to the demand curves represent
very different market phenomena. A movement refers to a change along a curve. On the
demand curve, a movement denotes a change in both price and quantity demanded from
one point to another on the curve.

A shift in a demand curve occurs when a good’s quantity demanded changes even
though price remains the same. This happens due to a change in other factors that affect
demand.

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