Demand

 Why goods are demanded?

 Who demand a good?

 Who producers a good ?

 What is desire ?

Wish to have a commodity

Eg: suppose a person wish to have a BMW car.

 What is want ?
When desire is backed by ability and
willingness to satisfy it.
Eg: suppose a person wins a lottery and now he
can purchase a BMW car.
 Extension of want becomes a demand.

 1.demand is always defined with reference

to price

 2.
demand is always with respect to a time
period.
 Demand is the quantity of a commodity that
a consumer is willing and able to buy , at
each possible price during a particular period
of time.
Quantity of a commodity

Willingness to buy
 DEMAND
Price of a commodity

Period of time
 Demand for a commodity can be either

 Individual Demand: quantity of a commodity

that a consumer is willing and able to buy at
each possible price during a given period of
time.
 Market Demand : quantity of a commodity
that all the consumers are willing and able
to buy at each possible price during a given
period of time.
 Demand for a commodity can either increase
or decrease due to various factors.
 1. price of a commodity

 Most important factor

 Inverse relationship between price and
demand

 Eg:price of tea increases, demand for tea

will fall.
 2. Price of related good

 Changein the price of one good will change

the demand of another good.
Related Goods

Substitute Goods Complementary

Goods
 Substitute Goods  Complementary
 Goods used in place of one Goods
another for satisfaction of
 Goods which are used together
particular want to satisfy a particular want
 Eg: Tea and Coffee  Eg: Tea and Sugar
 Increase in the price of
 An increase in the price of complementary goods will result
substitute goods will increase in decrease in the demand for
other good.
the demand of other good.
 Increase in price of tea, will
 Eg: if the price of sugar
increase the demand for
increases , demand for tea will
coffee. fall.
 3. Income of the consumer
 Relationship between income and demand of
a commodity depends upon the nature of
the commodity
 A) if good is normal good: increase in
income will result in increase in demand for
normal good.
 B) if good is inferior good : increase in
income will result in fall in demand for
inferior good.
 Eg:suppose the income of the consumer
increases, the consumer reduces the
consumption of toned milk and shifter to full
cream milk,

 So toned milk – inferior good

 Full cream – normal good

 Incomeof the consumer will determine if

the good is normal or inferior
 4. Taste and preferences :

 Fashion,
customs, habits etc determine
demand for a commodity.

 5. Expectations about future prices:

 If Future price = Present Demand
 Eg: if prices of onion are going to increase,
the present demand will increase
Change in quantity Change in demand
demanded  When demand for
 When demand for a commodity changes,
commodity changes due to change in
due to change in its factors other then
own price . the price
 Eg: demand for coke  Eg: demand for coke
changes due to changes due to
change in its own change in price of
price pepsi, income of
consumer, taste or
preferences etc.
 1. size and composition of population

 2. season and weather

 3. Distribution of income
 Relationship between quantity demanded for
a particular commodity and factors
influencing it.

 Demand function

Individual Demand Market Demand

Function Function
 Relationship between individual demand and
all the factors affecting individual demand.

 D= f( P, Pr, Y, T, F)

Future Price
Price
of commodity

Taste and
Price of preferences
Income of
related of Consumer
Consumer
Good
 Functional
relationship between market
demand and all the factors affecting market
demand

 D=f( P,Pr,Y,T,F,Po,S,D)

Size and Distribution of

Season and
composition of nation income
weather conditions
Population
 Tabular statement showing different
quantities of a commodity being demanded
at various levels of prices, during a given
period of time.

 Demand Schedule

Individual Market Demand

Demand schedule schedule
 Refers to tabular statement showing various
quantities of a commodity that a consumer is
willing to buy at various level of prices
during a given period of time.

Price Quantity Demanded
5 1
4 2
3 3
2 4
1 5
 Refersto tabular statement showing various
quantities of a commodity that all the
consumer are willing to buy at various level
of prices during a given period of time.
 Sum of all individual demand

Price Consumer A Consumer B Market

Demand
5 1 2 1+2=3
4 2 3 2+3=5
3 3 4 3+4=7
2 4 5 4+5=9
1 5 6 5+6=11
 Graphical representation of demand schedule

 Locus of all the points showing various

quantities of commodity that a consumer is
willing to buy at various levels of prices
during a given period of time, assuming no
change in other factors
 Demand curve

Individual demand Market demand

curve curve
 Graphical
representation of individual
demand schedule

 Price
( independent variable)- Y axis ,
Demand – Dependent variable ( X axis)
 Graphical representation of market demand
schedule
 Horizontal summation of individual demand
curve
 Market demand curve is more flatter. (
proportionate change in market demand is
more than proportionate change in
individual demand)
 Change in the variable on Y axis divided by
change in the variable of X axis.

 Slope = ∆Price / ∆Quantity

 Slope is negative – inverse relationship

between demand and price.

 Inverse relationship- downward graph –

negative slope
 Positive relationship- upward graph- positive
slope
 Price
falls from 8 to 4 , demand increases
from 2 units to 4 units .

 Slope ?
 Slope = ∆Price / ∆Quantity
 = -4 / 2
 -2 , negative slope – inverse relationship
between price and demand
 Slope = ∆Price / ∆Quantity
 4-8/4-2
 = -2
 States the inverse relationship between price
and quantity demanded, keeping other factors as
constant ( Ceteris paribus)
 Assumptions of Law- keeping other factors as
constant
 1. prices of substitute do not change
 2. prices of complementary goods do not change
 3. income of the consumer remain same.
 4. there is no expectations about change in
future prices
 5. tastes and preferences of consumer remain
same.
 Inverse relationship
 Qualitative not quantitative relationship
 No proportional relationship
 One – sided
 1.law of diminishing marginal utility
 As we consume more and more units of a
commodity , the utility derived will decline.
 Consumer will only pay more , if he gets
more satisfaction.
 Consumer will not be ready to pay more for
additional unit.
 Consumer will only pay now when price
declines
 2.Substitution Effect :
 When price of one commodity falls , it
become cheaper in comparison to other
commodity ( assuming no change in price of
substitute) , demand for a commodity rises.
 Eg: If price of coke decreases, with no
change in price of substitute , say pepsi.
 Demand for coke will increase
 3.Income Effect
 Real income of the consumer changes with
the change in price of commodity.

 Rahul was buying chocolates

4 chocolates @10 Total -40
Price changes
from 10 to 8
5 chocolates @8 Total = 40
 4. Additional consumers:
 When price falls, some new consumer will
start buying the product
 Old consumer start buying more due to
decrease in price

 Total demand increases

 5. Different Uses:

 Some commodities like milk, electricity have

different uses.
 If the price of such commodity increase, we
restrict its use to most important uses only .
 If price decrease, commodity can be put to
different uses.
 Rise in price will result in rise in demand

1. Giffen Goods- type of inferior goods

demand rises with increase in price and
demand falls with fall in price
When price of goods like jowar and bajra falls,
consumers have a tendency to shift to
superior goods like rice and wheat.
 2. Good of status symbol:
 Diamonds, gold, antique paintings are all
symbols of status.
 Such goods are demand because their prices
are high
 When price of such goods falls , they are no
longer be considered as prestigious,
therefore there demand decreases.
 3. Fear of shortage

 Fear of shortage of commodity , consumer

end up buying more and more at high market
price.
 4. ignorance :
 Consumers may buy at a higher price if they
are not aware of market prices.
 5. Necessities of life :
 Basic goods like wheat, rice, salt, biscuits
are all demanded even if there prices are
rising.
 6. change in weather :
 Woolens for winters, umbrella for rainy
season.
 Demand for such commodities will be thee
even if prices are rising.
 When quantity demanded of a commodity
changes, due to change in its prices, all
other factors remain constant.

 Known as movement along the demand

curve.
 Rise in quantity
demanded due to fall
in price, other
factors remain
constant.
 Leads to downward
movement along the
same demand curve
 Also known as
extension in demand
/ increase in quantity
demanded
 Fall in the quantity
demanded due to
rise in price,
other factors
remain constant.
 Upward movement
 Also known as
decrease in
quantity
demanded
 Due to change in factors other than the
price
 When demand of a commodity changes , due
to change in any other factor other than the
price, it is known as change in demand.

 Change in the price of substitutes goods

 Change in the income
 Change in taste and preferences
 Change in population etc
 Rise in demand of a  Rightward shift
commodity due to any
other factor other
than the price of a
commodity
 Demand rises at the
same price .
 Eg: Study : eating
green vegetables will
help you live longer.
 Everyone will start
buying more at same
price as they want to
live longer.
 Fall in demand of  Leftward shift
a commodity due
to any other
factor, other then
price of
commodity
 Demand falls at a
same price
\Price Demand
20 100
15 150

Price Demand
20 100
25 70
Price Demand
20 100
20 150

Price Demand
20 100
20 70
 Substitute goods
can be used in
place of one
another for
satisfaction of
want.
 Eg: tea and coffee
 Direct
Relationship.
 Complementary
goods
 Which are used
together to satisfy
a particular want
 Eg: tea and sugar

 Inverse
relationship.
 Normal goods
 Demand increases
with increase in
income
 If demand for TV
increases with
increase in income
, TV – normal good
 Inferiorgoods
 Demand decreases
with increase in
income
 If income of
consumer increases,
he wants to shift to
color TV from B/W
tv ,
 B/W TV – inferior
good
 Increase
in income
Demand increases with increase in income
 Decrease
in income
 Demand decreases with decrease in income
 Increase
in Income
 Demand fall with increase in income
 Decreasein Income
 Demand rise with decrease in income