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2. Factors Affecting Individual Demand
  A. Income
  Different effects on individual demand for different goods :
 
1.
 
Superior goodsMean : also called normal goods, they are goods which we buy more when our income increases.
 
 
Diamond
Superior good - "Diamond"
The effect of an increase in income on a superior good.
The effect of an increase in income on a superior good.
 
  • An increase in come leading to an increase in demand. (shift of demand curve from D1 to D2)
  • The effect is an increase in the purchase of superior good from Q1 to Q2.
 
 
2.
 
 
Inferior goodsMean : goods which we buy less as our income increases. They are goods of inferior quality, which we cosume more when we are poor. When our income increases, we will turn to goods of higher quality.
 
  The effect of an increase in income on an inferior good.
The effect of an increase in income on an inferior good.
 
  • The increase in income shifts the demand curve from D1 to D2.
  • The quantity of inferior good bought at P1 is decreased from Q1 to Q2.
 
  B. Taste and fashion
 
Our preferences may change with taste and fashion. A taste in favour of a good leads to an increase in the demand and vice versa. A fashion may come suddenly but usually does not last long.
 
 
Our taste may be affected by factorslike age and education. For example, a university graduate and a primary school student may read different magazines.
Different people may have different taste.
Different people may have different taste.
 
  C. Prices of substitutes
 
SubstitutesMean : are good that can replace one another to satisfy a given want.
e.g.
to satisfy a want of fruit, oranges, apples, pears, bananas and grapes are substitutes of each other.
If the price of a good increases, there will be greater demand for its substitute(s), and vice versa.

e.g.
if apples and oranges are substitutes to you, when the price of oranges rises, you tend to buy more apples.
 
  An increase in price (orange) caused by a decrease in supply.
Increase in price of orange
 
An increase in price (orange) caused by a decrease in supply.
 
 
  • Assume the supply of oranges decreases, shifting the supply curve from S1 to S2.
  • Consequently, the price of oranges increases from P1 to P2.
 
  An increase in demand (apples) caused by an increase in the price of a substitute (oranges).
Increase in demand of apple
 
An increase in demand (apples) caused by an increase in the price of a substitute (oranges).
 
 
  • The increase in the price of oranges leads to an increase in the demand for apples.
  • If the price of apples remains the same at P1, the quantity of apples demanded increases from Q1 to Q2.
 
  D. Price of complements
 
ComplementsMean : are goods that have to be used jointly to satisfy a given want.
e.g.
car and petroleum, CD player and disc, pen and ink, etc.
 
 
Petroleum
Car
Petroleum and Car
Disc
CD Player
CD Player and Disc
Ink
Pen
Pen and ink
Example of complements
 
 
Take the example of car and petroleum : if the price of petroleum increases, the demand for motor cars will fall.
 
  An increase in price (petroleum) caused by a decrease in supply.
Increaes in price of  petroleum
 
An increase in price (petroleum) caused by a decrease in supply.
 
 
  • Suppose the supply of petroleum decreases, shifting the supply curve from S1 to S2.
  • Consequently, the price rises from P1 to P2.
 
  An increase in price (petroleum) caused by a decrease in supply.
 
A decrease in demand (cars) caused by an increase in price of a complement (petroleum).
 
 
  • The increase in the price of petroleum leads to an decrease in the demand for cars.
  • Given the price P1, the quantity demanded for cars also decreases from Q1 to Q2.
 
  E. Weather
  The intensity of want for certain goods may vary with climatic conditions.
  e.g. we consume more ice-cream in summer than in winter.
 
  Demand of ice-cream is greater in summer than in winter.
ice_cream
 
Demand of ice-cream is greater in summer than in winter.
 
  F. Derived demand
  The demand for factors of productionis a derived demandMean .
 
e.g.
An increase in demand for educationresultsin an increase in demand for teachers.
 
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