THEORY OF DEMAND
DEFINITION OF DEMAND
Demand can be defined as the quantity of a commodity (goods and services) that consumers are willing and able to buy at a given price and at a particular place and time. Demand is quite different from wants, need or desire. Effective Demand’ in economics must meet three conditions which are:
- Ability to pay
- Willingness to pay
- Authority to buy a commodity
Demand must be related to price because to a great extent, price determines the quantity which consumers are willing to buy.
LAW OF DEMAND
The law of demand states that, all things being equal (Ceteris Paribus), The higher the price, the lower the quantity of goods that will be demanded, or the lower the price, the higher the quantity of goods that will be demanded. This law is often regarded as the first law of demand and supply. It simply means that when the price of a commodity, like yam for instance, is high in the market, very few quantity of it will be demanded by the consumers and vice-versa.
It is a table of value showing the relationship between prices and quantity of that commodity demanded. This is a table, which shows the magnitude of demand at various prices. That is, the different quantities of a commodity, which would be bought at various prices, at a particular time.
The demand curve is the graphical representation of the information contained in the demand schedule. The price is plotted on the vertical axis and the quantity demanded is plotted on the horizontal axis. Normal demand curve slopes downwards from left to right. From Mr. Tunde's demand schedule, a demand curve is drawn as follows.
FACTORS INFLUENCING THE DEMAND OF A COMMODITY
- Price of the commodity: This is the most important factor influencing supply. The higher the price of the commodity, the higher the quantity supplied and vice versa.
- Cost of production: If the cost of producing a commodity falls, then more of that commodity could be supplied at the existing price. It therefore means that a producer will be able to produce more commodities with the existing raw materials, hence increase in supply.
- Technological development: An improvement in the level of technology will equate to improvement in the methods or techniques of production. This will encourage large scale production at lower costs which in turn increases supply e.g. the use of modern farming techniques and equipment