Concept of Demand and Supply

Back to: ECONOMICS SS1

 

Welcome to class! 

In today’s class, we will be talking about the concept of demand and supply. Enjoy the class!

Concept of Demand and Supply

 

Demand can be defined as the quantity of a commodity (goods and services) that consumers are willing and able to buy at a given price and at a particular place and time. Demand is quite different from wants, need or desire. ‘Effective Demand’ in economics must meet three conditions which are:

1. Ability to pay
2. Willingness to pay
3. Authority to buy a commodity

Demand must be related to price because to a great extent, price determines the quantity which consumers are willing to buy.

Law of demand

The law of demand states that all things being equal (Ceteris Paribus), ‘The higher the price, the lower the number of goods that will be demanded, or the lower the price, the higher the number of goods that will be demanded’. This law is often regarded as the first law of demand and supply. It simply means that when the price of a commodity, like a yam, for instance, is high in the market, very few quantities of it will be demanded by the consumers and vice-versa.

Demand schedule

It is a table of value showing the relationship between prices and quantity of that commodity demanded.

This is a table, which shows the magnitude of demand at various prices. That is the different quantities of a commodity, which would be bought at various prices, at a particular time.

Example: The table below shows Mr Tunde’s demand schedule for milk.

Price (₦)                                   Quantity Demanded (Tin)

35                                                                      9

30                                                                     12

25                                                                     15

20                                                                     18

15                                                                     21

10                                                                     24

5                                                                     27

From the table, we can observe that as price changes the quantity of milk demanded also changes.

The total of the individual demand schedule gives the market or aggregate demand schedule.

Demand curve

The demand curve is the graphical representation of the information contained in the demand schedule. The price is plotted on the vertical axis and the quantity demanded is plotted on the horizontal axis. The normal demand curve slopes downwards from left to right. From Mr Tunde’s demand schedule, a demand curve is drawn as follows.

 

 

In our next class, we will be talking about Supply.  We hope you enjoyed the class.

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