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Let's consider the demand for office space by a firm, which produces computer software. A software company will rent office space for its programmers, customer service representatives, and other workers. Similarly, other companies like pizza shops or banks will need space for their activities. In each region, there will be a downward sloping demand curve for office space linking the rental being charged by landlords to the amount of office space desired by companies the lower the price, the more space companies will want to rent.
But there is n essential difference between ordinary demands by consumers and the demand by firms for inputs. Consumers demand final goods like computer games or pizzas because of the direct enjoyment or utility these consumption goods provide. By contrast, a business does not pay for inputs like office space because they yield direct satisfaction. Rather, it buys inputs because of the production and revenue that it can gain from employment of those factors.
The analysis is not limited to office space. Consumer demands determine the demand for all inputs, including farmland, oil, pizza ovens, and even college professors.
But there is n essential difference between ordinary demands by consumers and the demand by firms for inputs. Consumers demand final goods like computer games or pizzas because of the direct enjoyment or utility these consumption goods provide. By contrast, a business does not pay for inputs like office space because they yield direct satisfaction. Rather, it buys inputs because of the production and revenue that it can gain from employment of those factors.
The analysis is not limited to office space. Consumer demands determine the demand for all inputs, including farmland, oil, pizza ovens, and even college professors.
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Other things being equal the quantity demanded of a commodity extends with a fall in its price and contracts with a rise in its price. In other words the quantity demand of a commodity changes inversely with its price. The inverse relationship between the price and quantity demanded of a commodity. Where Qd means quantity demanded and P is the price of a commodity. The changes in demand due to changes in price are called expansion or contraction in demand. Increase in demand of a commodity due to decrease in its price is called expansion in demand. Expansion in demand is also called "Increase in quantity demanded".
Decrease in demand of a commodity due to increase in its price is called contraction in demand. Contraction in demand is also called "Decrease in quantity demanded". When changes in demand are related to price then these change of demand are on the same demand curve and are called movement on a demand curve. The changed in demand due to changes in other things are called rise or fall in demand. Increase in demand of a commodity due to changes in other things is called rise in demand. Rise in demand is also called " Increase in demand". Decrease in demand of a commodity due to changes in other things is called fall in demand. Fall in demand is also called "Decrease in demand".
Decrease in demand of a commodity due to increase in its price is called contraction in demand. Contraction in demand is also called "Decrease in quantity demanded". When changes in demand are related to price then these change of demand are on the same demand curve and are called movement on a demand curve. The changed in demand due to changes in other things are called rise or fall in demand. Increase in demand of a commodity due to changes in other things is called rise in demand. Rise in demand is also called " Increase in demand". Decrease in demand of a commodity due to changes in other things is called fall in demand. Fall in demand is also called "Decrease in demand".
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