Demand

2.0       PRICING THEORIES

2.1       Demand

Definition of demand

Demand is refers to ability and willingness to buy specific quantities of goods in a given period of time at a particular price, ceteris paribus. Ceteris paribus is a Latin phrase that means holding other factors constants while some other factors change. 

Demand =  willingness to buy + ability to buy

Law of Demand

The law of demand states that there is a negative relationship between price of the product and quantity demanded. When the price of the product increase, the quantity demanded of that product will be decrease and when the price of the product decrease, the quantity of that product will be increase, ceteris paribus. 

P increase, Qs increase
P decrease, Qs decrease

Demand schedule and Demand curve

The demand schedule for a product is a list of the quantity that a buyer is willing to buy at different prices at one particular time. Table 2.1 shows the quantity of apples demanded at each price level.

Table 2.1: Individual Demand and schedule for apples.

Combination	Price (RM)	Quantity (units)
A	80	2
B	60	4
C	40	6
D	20	8

The above demand schedule can be shown in a diagram to show how we obtain a demand curve (see Figure 2.1)

The demand curve shows the relationship between the quantities demanded of a product and its price. The demand curve must slope downwards (negative slope) because the inverse relationship between price and quantity demanded (according to the law of demand).

 Individual Demand and Market Demand

Individual demand is shows the relationship between the quantity of a product demanded by a single and its price.

Market demand is shows the relationship between the total quantity of a product demanded by additional all quantities demanded by all consumers in the market and its price.

To discuss about the market demand, assume only have two individual in the market, for example Musa and David. Table 2.2 shows both the individual demand and market demand for the apples.

Table 2.2: The individual and market demand for apples

Combination	Price (RM)	Musa’s Demand (units)	David’s Demand (units)	Market Demand (units)
A	80	2	4	6
B	60	4	6	10
C	40	6	8	14
D	20	8	10	18

Plot the demand curve based on the information given in table 2.2 to show the market demand in a graph paper (see figure 2.2).