1 Meaning of Demand
What is Demand?
In economics, Demand is not just a mere desire or wish to buy a commodity. It refers to the quantity of a good or service that
consumers are both willing and able to buy at various prices during a given period of time.
The Core Equation of Demand:
Demand = Desire + Ability to Pay + Willingness to Spend
Definition
Demand is defined as the willingness and ability of a consumer to purchase a specific quantity of a commodity at a particular price
during a specific period of time.
Difference Between Desire and Effective Demand
It is vital to distinguish between a simple desire and economic demand:
• Desire: It is a mere wish or longing to possess a commodity without backing it up with purchasing power. Anyone can desire
anything, regardless of their financial capacity.
• Effective Demand: This occurs when a desire is backed by both the financial capability (ability to pay) and the readiness
(willingness) to part with money to satisfy that desire.
Example: A pauper desiring a luxury sports car worth $200,000 is a mere desire because there is no ability to pay.
Conversely, a billionaire who has the money but refuses to spend it on that car also doesn't constitute demand.
Demand only exists when a person wants the car, has the cash, and is actively ready to buy it.
Economics Notes: Demand Page 1
, 2 Law of Demand
Statement of the Law
The Law of Demand states that, ceteris paribus (other factors remaining constant), there is an inverse or negative relationship
between the price of a commodity and its quantity demanded. When the price of a good rises, its demand falls, and when the price
falls, its demand rises.
Assumptions of the Law (Ceteris Paribus)
For this law to operate successfully, several factors must remain unchanged:
• The consumer's income remains constant.
• Tastes, habits, and preferences of consumers do not change.
• Prices of related goods (substitutes and complements) stay the same.
• No expectations of future changes in prices or supply conditions.
• Size and composition of the population remain stable.
Explanation with Schedule & Diagram
Let's observe how quantity demanded falls as price increments step-by-step:
Price of Ice Cream ($) Quantity Demanded (Units per week)
5 10
4 20
3 30
2 40
1 50
Economics Notes: Demand Page 2
What is Demand?
In economics, Demand is not just a mere desire or wish to buy a commodity. It refers to the quantity of a good or service that
consumers are both willing and able to buy at various prices during a given period of time.
The Core Equation of Demand:
Demand = Desire + Ability to Pay + Willingness to Spend
Definition
Demand is defined as the willingness and ability of a consumer to purchase a specific quantity of a commodity at a particular price
during a specific period of time.
Difference Between Desire and Effective Demand
It is vital to distinguish between a simple desire and economic demand:
• Desire: It is a mere wish or longing to possess a commodity without backing it up with purchasing power. Anyone can desire
anything, regardless of their financial capacity.
• Effective Demand: This occurs when a desire is backed by both the financial capability (ability to pay) and the readiness
(willingness) to part with money to satisfy that desire.
Example: A pauper desiring a luxury sports car worth $200,000 is a mere desire because there is no ability to pay.
Conversely, a billionaire who has the money but refuses to spend it on that car also doesn't constitute demand.
Demand only exists when a person wants the car, has the cash, and is actively ready to buy it.
Economics Notes: Demand Page 1
, 2 Law of Demand
Statement of the Law
The Law of Demand states that, ceteris paribus (other factors remaining constant), there is an inverse or negative relationship
between the price of a commodity and its quantity demanded. When the price of a good rises, its demand falls, and when the price
falls, its demand rises.
Assumptions of the Law (Ceteris Paribus)
For this law to operate successfully, several factors must remain unchanged:
• The consumer's income remains constant.
• Tastes, habits, and preferences of consumers do not change.
• Prices of related goods (substitutes and complements) stay the same.
• No expectations of future changes in prices or supply conditions.
• Size and composition of the population remain stable.
Explanation with Schedule & Diagram
Let's observe how quantity demanded falls as price increments step-by-step:
Price of Ice Cream ($) Quantity Demanded (Units per week)
5 10
4 20
3 30
2 40
1 50
Economics Notes: Demand Page 2
