Introduction to Demand & Supply

According to one of the microeconomic textbook from Oxford demand & supply is the basis of economic of pricing that the prices are determined using the demand and supply concept. In other words, the demand and supply system is to show the dependence of demand and supply on price.

Demand

This session is the description of what is demand in economics. Joseph and Kamil (1996) stated that demand is the rate at which consumers want to buy a product. There is difference between demand and want, according to Oxford microeconomics textbook (2008, p.28) want is meant to have a desire or a wish for something while demand is the desire or need of customers for goods and services which they want to buy or use. When the product price that is high in the market, the demand will be low. When the product price is low in the market then the demand will be high as many consumers will be able to purchase the product if the product price is low.

• Law of Demand

Law of demand is to explain that when higher the price of a good, the lower is the quantity demanded for that good. When the price is lower down, the quantity demanded is higher. Besides that, law of demand also explains there will be a negative or an inverse relationship between price and quantity demanded.

Oxford microeconomics textbook (2008, p.28) stated that every individual and society practices the law of demand. Peoples will always buy more goods when the goods of the price is reduced. For example people will definitely buy more goods in a mega sales confirm to the normal season of the sale. This statement can clearly relates to on October 2, 2014 government increased the petrol and diesel price by 20 cent per liter as in line with the federal government’s subsidy rationalization policy. The new retail price of RON95 will be RM2.30 and diesel will be RM2.20 per liter. When government increase the petrol and diesel price by 20 cent, definitely there are a lot of Malaysian consumers struggle with the price of it.

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• Determinants of Demand

Determinants of demand can be defined as when there is changes in price, quantity demanded will change. It is a movement along the same demand curve and when the factors other than price changes, demand curve will shift. Below are the information of the determinants of demand.

• Income: Income is define as the rise of the individual’s income will lead to an increase of demand it is because income of a consumer can influence the purchasing decision of an individual. Rise of income will lead individual demand for more goods and services such as houses, cars and others. But when there is income unfavorable, definitely it will lead individuals to decrease their demand.
• Tastes and fashions: Changes in tastes and fashions of consumers can change significantly the demand for goods and services.
• Population or number of buyers: Demand of goods and services are all depends on the size of the population of buyers in the market. If there is a large population with a high rate of growth creates greater demand for the goods and services.
• Expectation: The event that consumer expect in the future will also give a impact on the demand it is because the higher the expected future price of a good, the current demand for that good will be higher and vice versa.
• Advertisement: Goods that have advertisement are normally goods with high demand. It needed the advertisement to create the awareness and attract the consumer to buy the goods and services when they are aware of the existence of the goods.
• Price of related goods: This to explain that demand for a good is affected by the changes in price of related goods. There are two categories which are substitute goods and complementary goods.

– Substitute goods: Substitute goods is define as the goods can be replace by another goods. For example, coffee and tea, chicken and pork and many others goods that can find a similar replacement.