uh welcome to the third module of the uh (lect) of this weeks lecture on uh demand and supply
uh we started with the demand supply framework and we discussed how demand is determined
in the market and we have not yet talked about the supply side uh in this module i am going
to discuss about the price and non price determinants of demand so i showed in the previous module
that demand is a function of the price of a good and also a lot of factors which could
influence demand . so so what are the determinants of demand
now other things remaining same demand curve is relationship between price and quantity
of a particular good that the consumers are willing to buy now other things remaining
same this is italicized uh because as i had mentioned earlier that there are lot of factors
which influence demand and the demand curve that i drew for say for tom the relationship
between price and quantity price and quantity of ice creams .
so this this was the demand curve for either the individual tom or we can imagine this
to be the demand curve for the market of ice creams other things remaining same means that
the price of other products say for example frozen desserts or cold drinks or other alternatives
of ice cream that the consumer might (consid) consider those prices are same peoples tastes
are same the weather is same outside so given all the variables that can influence
demand being same how changes in price is going to change my demand for a certain good
say in this example the demand for ice creams so if the price of ice cream falls i am going
to demand more of it if the price of ice cream increases i am going to demand less of it
so that is the demand of ice creams now now focusing on the other things these
other things are the non price determinants of demand or demand curve shifters so say
for example if any of the variables that i talked about in the which determine demand
any of the variables they change then the demand curve is going to basically change
right or left that is for the same price now the consumer is going to demand either more
of that good or less of that good depending on which variable has changed so lets lets
uh see some examples . so these are the non price determinants of
demand number one is the number of buyers say let us take an example of a college campus
where there is a uh book shop now if the college campus the the college has increased the number
of seats for students this year and more number of students have joined the college the demand
for books is going to go up so basically the demand curve shifts to the right if the number
of students has gone up in the college campus this year so the number of buyers increasing
increases the market demand curve second is income as i already said that if
someone has more of income he is he or she is probably going to demand more of a good
if i if i am rich probably i can afford more ice creams more pizzas more of the good stuff
and if i am not so rich i am going to demand less so if my income goes up i have a big
promotion i am going to probably demand more of some goods
now there is a difference uh there is something called normal good and there is something
called inferior good now what is normal good normal good is the demand for normal good
increases with income so this is what i said the good stuff about its the it it is uh all
those things that i would ideally like to consume more but i could not because i had
less income so when my income goes up i am going to uh
start consuming more of these goods so in in case of normal goods again my demand curve
is going to shift to the right if if my income goes up but there are certain goods which
are called inferior goods these are goods where if my income goes up i would like to
probably like to consume less of these goods or maybe i am probably shifting to other kind
of goods a good example could be the quality of rice
that i consume so if my income goes up i am going to consume probably better quality rice
and the existing quality of rice that i am currently consuming probably ill stop consuming
those rice so in that case if my income goes up my demand curve is going to shift to the
left so for the same price i am going to consume less of that product so these are called inferior
goods third is the prices of related goods related
goods means one could be it could be a substitute as i said in case of ice creams the price
of uh frozen dessert kulfi uh cool drinks so these are probably substitute goods and
the demand increases with increase in price of substitute lot of substitute products one
can imagine say for example uh say say tea and coffee beverages
so uh imagine in the railway platform there is a person who is selling tea and the price
going price is 5 rupees and that 5 rupees he is probably selling 1000 cups of tea 1000
cups of tea now say there is a coffee outlet somewhere and suddenly that person decides
i am going to charge a he was earlier charging a certain price and he decides i am going
to charge much more okay people are really fond of coffee and i am going to charge a
much higher price for coffee so in that case lot of people who were earlier
uh buying coffee they are going to now shift to the tea seller and at the same price that
the tea seller was selling his tea at rupees 5 now he is going to sell instead of 1000
units he is going to sell more of those units say 1500 okay so at the same price his demand
increases so his demand shifts to the right uh on the other hand there are certain kinds
of products which have compliments they are they are these are called compliments say
for example uh say a person who is selling coffee uh or say say say in the uh say say
for example uh compliments is uh say a uh printer printer and the uh ribbon that you
use in the printer they are complimentary goods so if the price of ribbon goes up the
demand for printer probably is going to go down
so or if the more more importantly say if the price of printer goes up the demand for
ribbons is probably going to go down so these are in case of complimentary goods your uh
the the price the way you respond to a price is the same that you respond to uh the the
same good and in case of substitute goods your response is going to be in the opposite
direction say for example if the the price of the substitute
good goes up your demand for the for the good goes up if the price of the complimentary
good goes up your demand for this good goes down so uh this was about price of related
goods another is taste and preference taste and preference say uh uh say people have become
very environment conscious and they decide we are no longer going to drive petrol driven
or diesel driven cars so what is going to happen
the demand for these petrol driven or diesel driven cars is going to go down and maybe
the demand for say battery operated cars are going to go up or say for example people uh
are turning into vegetarians so the demand for non veg goods or nonveg items are going
to go down and when demand goes down for the same price the demand curve is going to shift
to the left and in case of the battery operated car for the same price people are going to
demand more of the good so the demand curve shifts to the right
another uh determinant of demand is expectations if people are expecting say prices to rise
people are expecting say say some uh festival is coming up and you expect the price of sugar
to go up or price of some other fruits and vegetables generally to go up so you might
like to buy more of it and hoard it in your fridge so uh your expectation about the price
in the future makes you demand more right now
uh say there is some uh uh some disturbance in the middle east and you uh speculate that
the price of oil is going to go up so you might like to fill up your tank right now
because you know that probably in the next 15 days 1 month uh prices are going to really
shoot up uh so this is how expectation influences your demand
so these are the non price determinants of demand and the what is price determinant of
demand is the price itself so if the price changes your demand is your uh movement is
going to be along the demand curve and if the non price determinants they change in
the economy the demand curve is basically going to shift to the right right or the left
. so lets take an example what happens to demand for ebooks in the following scenarios
so there is a demand for ebooks so lets say this is the demand for ebooks and these are
the prices of ebooks and this is the demand curve .
so what happens to demand for ebooks in the following scenarios say price of ereader falls
so what happens when the price of ereader falls what is ereader basically ereader is
what you use the ereader to read the ebooks so if the price of ereader falls lot of people
are going to start buying the ereaders say for example the the demand for kindle
goes up in the and you start purchasing kindle online on amazon and when the price of ereader
falls you buy more of ereaders the people have started buying more of ereaders and so
so when they buy ereaders they have to buy ebooks also to read on those ebook ereaders
so the demand for ebooks also go up so for the same price of ebooks if this is
the average price of ebooks for the same price of ebooks demand goes up so demand curve shifts
to the right so demand curve shifts to the right so at every price at every price now
the number of ebooks that is demanded is more than what was there earlier
second say price of ebooks fall so what happens in that case do the does the demand curve
shift does the demand curve shift to the right or left no the demand curve does not shift
because the price has changed so when price of ebooks fall so if this was the existing
price and price has now fallen movement is basically along the demand curve and when
movement is along the demand curve and this is the new price p1 and this is the new quantity
q1 which is more than the earlier quantity so when the price of ebooks ebook falls movement
is along the demand curve and the total quantity demanded goes up price of books fall say price
of paperbacks the price of paperbacks fall then what happens what are books books are
basically substitute of ebooks books are substitute of ebooks
so when price of books fall the demand for ebooks is going to go down people would like
to maybe continue to buy more of paperbacks or books so the demand goes down so for the
same price of ebooks now people are demanding less of the ebooks people are demanding less
of the ebooks so this is what happens in case of when price of books fall
so so this summarizes how the what are the price and non price determinants of demand
are and we have seen that if the price changes the output changes along the demand curve
and all other determinants of demand when they change the demand curve basically shifts
to the right or the left so the quantity demanded can change uh in response to both price and
non price determinants of demand so price is also a determinant of demand and
other factors are also determinants of demand but uh only the non price determinants shift
the demand curve and the price determinant basically leads to movement along the demand
curve in the next module we are going to talk about we are going to develop the supply curve
we are going to see what are the determinants of supply curve and we are going to see what
are the shifters of supply curve thank you