Demand of Goods and Services

Classification of Goods and

Services
From conventional perspective
Free goods
Public goods
Economic goods

From Islamic perspectives

Al-tayyibat
Al-Rizq
 Conventional Perspectives
Free Good
Goods that have no production cost (air, sunlight, rain
water).
Public Goods
Goods that have a common use and are benefit to
everyone (public clinics, schools, hospital and others.)
Economic goods
Goods which supply is limited and require costs to
purchase them (books, clothes, houses, movies)
Price is involved in obtaining them.
 Islamic Perspective
Al-Tayyibat
 Al-tayyibat means good things, good and pure things,
clean and pure things, good and wholesome things
and sustenance of the best.
 Bad goods are not considered as goods in Islam.

Al- Rizq
 Al-rizq is used to denote the following meanings;
- Godly sustenance, divine bestowal, godly provision
and heavenly gifts
 All these meanings denote that Allah s.w.t is the only
sustainer and provider for all creatures.
Hierarchy of needs
 Dharuriyah
 Goods that are classified as basic needs and
necessary for a living.
 Hajiyat
 Goods that will improve the quality of human life
 Kamaliat
 Goods that contribute towards the perfection of
human life
 Tarafiat
 Goods that are consider extravagant and wasteful
DEMAND OF GOODS AND
SERVICES
Definition of demand
 The quantity of various goods that
people are willing and able to buy at a
particular time and at a given range of
prices.

 Thedesire to buy goods and

services with the ability to pay.
Steps to draw demand curve:
 Draw a horizontal(x-axis) and vertical(y-
axis) axis
 Name x-axis as quantity and y-axis as
price Price

Quantity
 Plotthe graft according to the data
given
The Individual Demand Curve and
the Law of Demand

Demand Schedule for Pizza

Quantity of pizzas
Price ($) per month
2 13
4 10
6 7
8 4
10 1
The Individual Demand Curve and
the Law of Demand
The individual demand
curve shows the relationship
between the price of a good
and the quantity that a single
consumer is willing to buy, or
quantity demanded.

• The law of demand states that

the higher the price, the
smaller the quantity
demanded, ceteris paribus
(Other thing remain constant).
Market Demand
 Market demand is the sum of all the
quantities of a good or service
demanded per period by all the
households buying in the market for
that good or service.
 From Household Demand to Market
Demand
 Assuming there are only two households in the market,
market demand is derived as follows:
 How to calculate market demand?
Price Ind.1 Ind. 2 Market Demand

RM 2.00 600 300 (600 + 300) = 900

RM 3.00 400 200

RM 4.00 200 100

RM 5.00 100 50
Determinant of Demand
 Price of the goods
 Price of related goods or complementary
goods
 Consumers income
 Taste and preference
 The number of buyers in the market
 Expectation about the future price
 Weather
 Availability of credit facilities
What happens when the
price increases for a good
that has a complement?

The demand curve for

the substitute good
decreases
 What are
substitute goods?
Goods that compete
with one another for
consumer purchases
 The Impact of a Change in the
Price of Related Goods
• Demand for complement good
(ketchup) shifts left

• Demand for substitute good (chicken)

shifts right

• Price of hamburger rises

• Quantity of hamburger
demanded falls
 The Impact of a Change in
Income
• Higher income • Higher income
decreases the demand increases the demand
for an inferior good for a normal good
 Change in Quantity Demanded vs.
Change in Demand
Change in quantity Change in demand
demanded
Referto a movement Refer to a shift in the
along a given demand demand curve (left / right)
curve
 As a result of a change in
As a result of a change in the economics variable and
the commodity price not the price
When price changes,
what happens?
The curve does not
shift.
There is a change in
the quantity demanded
 P A change in price causes a
change in the quantity
$20 demanded

$15 A
B
$10
D
$5
Q
10 20 30 40 50
When something
changes other than
price, what happens?
The whole curve
shifts,there is a
change in demand
 P
When the ceteris paribus assumption
is relaxed, the whole curve can shift

$20
A B
$15
$10 D
$5 D12
Q
10 20 30 40 50
 A Change in Demand Versus a Change
in Quantity Demanded
To summarize:
Change in price of a good or service
leads to

Change in quantity demanded

(Movement along the curve).

Change in income, preferences, or

prices of other goods or services
leads to

Change in demand
(Shift of curve).
 Inter related demand
1.Joint Demand
 A demand for a particular good is likely to increase the demand for another
good.
 Complementary goods
 Pen and ink, toothbrush and toothpaste

2.Competitive Demand
 An increase in the demand for one good will reduce the demand for another
good.
 Substitutes goods
 Pepsi cola and coca cola, KFC and McDonalds, PROTON and HONDA

3.Derived Demand
 The demand for a good increases, demand for the factor of production to
produce goods will also increase.
 House: bricks, cement, tiles etc

4.Composite Demand
 Refer to multi purpose products
 Rubber can be used to produce tires and shoes.
What is an
inferior good?
Any good for which
there is an inverse
relationship between
changes in income
and its demand curve
What is a normal
good?
Any good for which
there is a direct
relationship between
changes in income
and its demand curve
What does an inverse
relationship between price &
quantity mean?

It means that the two

move in opposite
directions
 Exceptional Demand
P d  Doesn't follow
the law of
demand
 Giffen goods
 The demand
curve for giffen
goods is
normally
upward
Q sloping.
 Luxuries goods  Those products
that have an
income elasticity
P of demand
d greater than 1.
 The more
expensive the
goods, the
greater will be the
demand.
 Jewellery,
Q antique furniture,
picture of Mona
Lisa etc