To understand the meaning of demand To understand what determines demand To get an insight into the law of demand To Know

the exceptions to the law of demand To understand the Expansion and contraction in demand To understand the Increase and decrease in demand

Concept of demand
Is the quantity of a good or service that consumers are willing to purchase ability to purchase Desire to purchase at various price during a period of time.

Effective demand depends on

Desire Means to purchase ,and On willingness to use those means for that purchase.

Ferguson defines

Demand refers to the Quantities of Commodity that the Consumers are Able to Buy at each possible Price during a given Period of Time, other things being equal

B. R. Schiller defines

Demand is the Ability and Willingness to buy Specific Quantity of a Good at Alternative Prices in a given Time Period, Ceteris Paribus

By demand, we mean that

the various quantities of a given commodity or services consumers would buy in one market in a given period of time at various prices at various income at various prices of related goods

Factors which influence household demand are

Price of the commodity Price of related commodities Level of income of the household Taste and preferences of consumers Other factors like size of population, composition of population, and distribution of income

Price of a commodity

Ceteris Paribus i.e. other things being equal, the demand of a commodity is inversely related to its price It implies that a rise in price of a commodity brings about a gall in its purchase and viceversa

1 D P

Related commodities are of two types:

Complementary goods are those goods which are consumed together or simultaneously Competing goods or substitutes are those goods which can be used with ease in place of one another

Complementary goods Competing or substitute goods

Level of income of household:

Other things being equal, the demand for a commodity depends upon the money income, of the household In case of Inferior goods when average level of income increases the quantity demand for goods decreases

Taste and preference of consumer:

The demand for a commodity also depends upon tastes and preference of consumers and changes in them over a period of time Goods which are more in fashion command higher demand than goods which are out of fashion Demonstration effect plays an important role in affecting the demand for a product

Other factors:
Size of population Composition of population Distribution of income Class, groups, education, marital status, consumers expectation with future price Weather conditions

Most important laws of economic theory

Other things being equal if the price of a commodity falls, the quantity demanded of it will rise if the price of a commodity rises, its quantity demanded will decline

There is an inverse relationship between price and quantity demanded

Samuelson defines
Law of demand states that People will Buy more at Lower Prices Buy less at Higher Prices Ceteris paribus or other things Remaining the Same

Marshall defines

Quantity Demanded Increases with a Fall in Price Diminishes when Price Increases Other things being equal

Demand Function:

Dx=f (PX, Pr, Y, T, E) Dx = Demand for commodity Px = Price of Commodity X Pr = Price of Other Goods Y = Income of the Consumer T = Tastes

It is a Series of Quantities which Consumer would like to Buy per unit of Time at Different Prices Two Aspects of Demand Schedule
Individual Demand Schedule Market Demand Schedule

Demand Schedule of an individual Consumer

Price (Rs.) Quantity Demanded (units) 10
15 20

A
B C

5
4 3

D E

2 1

35 60

Individual Demand Schedule

Y D 5

4
Price 3 2 1 D 0 10 20 30 40 Quantity 50 X

Market Demand Schedule

Quantities of a Given Commodity which all Consumers will buy at all Possible Prices at a given Moment of Time In Market there are many Consumers of a Single Commodity The Schedule is based on the Assumption that there are in all, 2 Consumers A & B of Commodity X By aggregating their Individual Demand, the Market Demand Schedule is constructed

Price of Commodity X (in Rs.)

Demand of A

Demand of B

Market Demand (Units)

1 2 3 4

4 3 2 1

6 5 4 3

4+6=10 3+5=8 2+4=6 1+3=4

It indicates that when price of X is Rs 1.00 per unit, Demand of A is for 4 units and that of B is for 6 units. Thus the Market Demand is 10 units. As the Price Increases, Demand Decreases

4 Price 3 2 1 D 0 4 6 8 10 Quantity

Income Effect :

It is the Effect that a Change in a Persons Real Income caused by Change in the Price of a Commodity The Increase in Demand on Account of Increase in Real Income is known as Income Effect

Substitution Effect :

It is the Effect that a Change in Relative Prices of Substitute Goods has on the Quantity Demanded
Substitutes are Goods that can be used in place of each other

Different Uses:

Demand for Commodities with Alternative Uses tends to Extend Consequent upon the fall in their prices

Size of Consumer Group:

When the Price of a Commodity falls, then many Consumers, who are unable to buy that Commodity at its Previous Price, Come Forward to buy it

Article of Distinction or Veblen Goods:

Goods like Jewellary, Diamonds & Gems are considered as Articles of Distinction These Goods command More Demand when their Prices are High The commodity is expensive consume think that it has got more utility Conspicuous consumption

Ignorance:
Many a time, Consumers out of sheer Ignorance or Poor Judgment consider a Commodity to be of Low Quality If its Price is Low and of High Quality if its Price is High

Giffen Goods :
Giffen Goods are those Inferior Goods whose Demand falls even when their Prices Falls For example, Bajra. Only those Inferior Goods are called Giffen Goods The goods which exhibit direct price-demand relationship Law of Demand Fails

Expectation of Rise or Fall in Price in Future:

If Prices are likely to Rise More in the Future then even at the Existing level Higher Price people Demand more Units of the Commodity in the Present and vice versa For example, when there is wide-spread drought, people expect that prices of food grains would rise in future

Demand for Necessaries:

The law of demand does not apply much in the case of necessaries of life Irrespective of price changes, people have to consume the minimum quantities of necessary commodities

Speculative goods:
In stock and shares, more will be demanded when the price are rising less will be demanded when the price declines

The law of demand also fail

Significant change in other factors Change in the income of household Price of the related goods Taste and fashion

Expansion in the demand:

when the price decrease then the quantity of demand increase There will be a downward movement along the demand curve

Contraction in the demand:

When the price increases then the quantity demand will decrease There will be a upward movement along the demand curve

Y D

P`` Price Contraction of Demand P Expansion of Demand

P` D O L M N Quantity Demanded X

In the demand curve where price remains same when the quantity of demand increase due to change in other factors Makes demand curve shift towards right

In the demand curve where price remains same When the quantity of demand decrease Due to change in other factors Makes the demand curve shift towards left

Increase in Demand D` D

Decrease in Demand

D
D`

Price

D` D Quantity Demanded

Price

D
D` Quantity Demanded

The concept demand refers to the quantity of a good or service that consumers are: Willing and able to purchase Willing and able to sell Unwilling to desire None of the above

a. b. c. d.

The concept demand refers to the quantity of a good or service that consumers are:

a. Willing

and able to purchase b. Willing and able to sell c. Unwilling to desire d. None of the above

Rise in the price of a commodity brings about: Increase in its purchase Fall in its purchase No change in its purchase None of these

a. b. c. d.

Rise in the price of a commodity brings about:

a. Increase

in its purchase b. Fall in its purchase c. No change in its purchase d. None of these

Competing goods are also known as

Complementary goods Substitute goods Independent goods None of these

a.

b.
c. d.

Competing goods are also known as

a. Complementary

goods b. Substitute goods c. Independent goods d. None of these

Larger the size of population of a country

Greater is the demand for goods in general Lower is the demand for a goods in general Stable is the demand for goods in general None of the above

a.

b.
c. d.

Larger the size of population of a country

a. Greater

is the demand for goods in general b. Lower is the demand for a goods in general c. Stable is the demand for goods in general d. None of the above

The law of demand is one of the most important law of Social theory Psychological theory Economical theory Mathematical orientation

a. b. c. d.

The law of demand is one of the most important law of

a. Social

theory b. Psychological theory c. Economical theory d. Mathematical orientation

The demand curve is also known as:

Marginal revenue curve Marginal utility curve Average revenue Average utility curve

a.

b.
c. d.

The demand curve is also known as:

a. Marginal

revenue curve b. Marginal utility curve c. Average revenue d. Average utility curve

When two goods are perfect substitutes of each other then MRS is falling MRS is raising MRS is constant None of the above

a. b. c. d.

When two goods are perfect substitutes of each other then

a. MRS

is falling b. MRS is raising c. MRS is constant d. None of the above

A rightward shift in the demand curve refers to More demanded at each price Less demand at same price More demand at lower price And less demand at higher price

a. b. c. d.

A rightward shift in the demand curve refers to

a. More

demanded at each price b. Less demand at same price c. More demand at lower price d. And less demand at higher price