VAE 321: Livestock Economics, Marketing and Business Management (2+1)

DEMAND

Meaning of Demand

• Demand in economics is the desire for something plus the willingness and ability to pay a certain price in order to possess it.

Demand schedule

• Demand schedule is a statement which shows varying quantities of a commodity purchased at an alternative prices at a given time.
• Demand Schedule represents a functional relationship between price and quantity demanded. It is usually represented in a form of a table.

Demand Curve (Click here to view graph)

• The graphical representation of demand schedule is demand curve.
• Usually the demand curves slopes downward from left to right indicating inverse relationship between price and demand for the commodity.

Law of demand

• A greater quantity of a commodity is demanded at a lower price and a smaller quantity is demanded at a higher price.
• This inverse relationship between price and quantity demanded is called as "Law of demand".

Reasons for the inverse relationship

• There are two reasons why demand curve slopes downwards (or why people buy more when the price falls).
  • Consumer is able and willing to buy more of a good when its price falls. Because, a fall in the price of a good is equivalent to an increase in the income of the consumer, i.e. with the commodity being cheaper, the consumers’ real income increases which can be used for purchasing some more units of the commodity. This is called as ‘income effect’.
  • If the price of a good falls, it tends to be substituted wholly or partly for other commodities raising the quantity demanded of this good. This is called as ’substitution effect’.
    • The income and substitution effects combine to increase the ability and willingness of the consumer to buy more of the commodity whose price has fallen.