3.5: Demand

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Page ID: 210829

Martin Medeiros
Chabot College

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It takes two to tango and it also takes two to make a deal. On each side of a transaction there must be a supplier and a demander. And their ability to communicate their needs and wants is at the heart of the free market system.

The textbook and videos explain how not everyone can be a member of the demand club. To be considered a demander of a good or service, you must meet two criteria:

You have the ability (i.e., you can afford it)
You have willingness (i.e., you want it)

Think of demand as a survey of intensions. It is like a pollster asking someone how much they are willing and able to demand at different prices. So, demand is survey on intensions and not actual sales.

Demand and Price Changes – Movement along the Demand Curve

Now, price is not the only determining factor when pondering a purchase. There are many other determinants to demand. When, say, tastes change, this has an impact on demand (even though other determinants, like prices, have not changed). We will focus our attention on how price changes affect demand. All the other determinants (e.g., tastes, income, expectations, etc.) must be considered but held constant if we are to be certain that the change in demand was to solely to a price change. If both price and, let’s say, income change then it would be difficult to say with certainty that a change in demand was due solely to a change in price.

A graph of a priceDescription automatically generated with medium confidence

Figure 5

Movements along the demand curve when prices change (↑price → ↓quantity demand, ↓price → ↑quantity demanded) demonstrates the law of demand. We describe a change in demand due to a movement along the demand curve (due to a price change) as a change in quantity demanded.

Demand and other Determinants – Shifts of the Demand Curve

What if prices remain the same and one of the other determinants of demand changes? Well, just as price changes affect demand, so do changes in the other determinants. We use the demand curve to show how changing determinants affect demand.

Let’s say the income of working students increases. What impact would this have on the demand for tutoring? Since tutoring is considered a normal good, we would expect that students would demand more tutoring at all price levels. We can show this by shifting the demand curve to the right.

A graph of a shift in demandDescription automatically generated

Figure 6

We describe a change in demand due to a shift in the demand curve (caused by a change in a determinant of demand) as a change in overall demand.

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