In economics, demand is the utility for a goods or service of an economic agent, relative to his/her income.[citation needed] (Note: This distinguishes "demand" from "quantity demanded", where demand is a listing or graphing of quantity demanded at each possible price. In contrast to demand, quantity demanded is the exact quantity demanded at a certain price. Changing the actual price will change the quantity demanded, but it will not change the demand, because demand is a listing of quantities that would be bought at various prices, not just the actual price.) The law of demand is a microeconomic law that states, all other factors being equal, as the price of a good or service increases, consumer demand for the good or service will decrease, and vice versa. The law of demand says that the higher the price, the lower the quantity demanded, because consumers’ opportunity cost to acquire that good or service increases, and they must make more tradeoffs to acquire the more expensive product.

1. Managerial Economics
Law Of Demand

2. 5 December 2016Law Of Demand Group 1 2
New Delhi Institute of Management
Tughlakabad-New Delhi
2016--2018
Shikha Tyagi- 357
Shivambi Mishra- 358
Shubhanshi Mishra- 359
Shubham Bhatia- 360
Snehashish Mandal- 361
Shweta Gahlot- 361

3. The Basic Decision-Making Units
• A firm is an organization that transforms resources (inputs) into
products (outputs). Firms are the primary producing units in a
market economy
• An entrepreneur is a person who organizes, manages, and
assumes the risks of a firm, taking a new idea or a new product
and turning it into a successful business
• Households are the consuming units in an economy
5 December 2016Law Of Demand Group 1 3

4. The Circular Flow of Economic Activity
The circular flow of economic activity
shows the connections between firms
and households in input and output
markets
5 December 2016Law Of Demand Group 1 4

5. Demand
• Demand for a particular product
or service represents how much
people are willing to purchase at
various prices. Demand is
represented graphically as a
downward sloping curve with
price on the vertical axis and
quantity on the horizontal axis
5 December 2016Law Of Demand Group 1 5

6. Determinants of Household Demand
• The price of the product in question.
• The income available to the household.
• The household’s amount of accumulated wealth.
• The prices of related products available to the
household.
• The household’s tastes and preferences.
• The household’s expectations about future income,
wealth, and prices.
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7. Law OF Demand
• The law of demand states, all other factors being constant, as the price
of a good or service increases, consumer demand for the good or
service will decrease, and vice versa
• The law of demand says that the higher the price, the lower the
quantity demanded, because consumers’ opportunity cost to acquire
that good or service increases, and they must make more trade offs to
acquire the more expensive product
5 December 2016Law Of Demand Group 1 7

8. Cont…..
• The law of demand states
that there is a negative, or
inverse, relationship
between price and the
quantity of a good
demanded and its price.
• This means that demand
curves slope downward.
Price
5 December 2016Law Of Demand Group 1 8

9. The Demand Curve
• The demand curve is a
graph illustrating how
much of a given product a
household would be willing
to buy at different prices.
PRICE
(PER
CALL)
QUANTITY
DEMANDED
(CALLS PER
MONTH)
$ 0 30
0.50 25
3.50 7
7.00 3
10.00 1
15.00 0
ANNA'S DEMAND
SCHEDULE FOR
TELEPHONE CALLS
5 December 2016Law Of Demand Group 1 9

10. Individual Consumer’s Demand
QdX = f(PX, I, PY, T)
Quantity demanded of commodity X by an
individual per time period
Price per unit of commodity X
Consumer’s income
Price of related (substitute or
complementary) commodity
Tastes of the consumer
QdX =
PX =
I =
PY =
T = 5 December 2016Law Of Demand Group 1 10

11. Household to Market Demand
• Demand for a good or service can be defined for an
individual household, or for a group of households that
make up a market
• 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
5 December 2016Law Of Demand Group 1 11

12. Market Demand Function
QDX = f(PX, N, I, PY, T)
Quantity demanded of commodity X
Price per unit of commodity X
Number of consumers in the market
Consumer income
Price of related (substitute or complementary)
commodity
Consumer tastes
QDX =
PX =
N =
I =
PY =
T =
5 December 2016Law Of Demand Group 1 12

13. Market Demand Curve
• Assuming there are only two households in the market,
market demand is derived as follows:
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14. Factors Affecting Demand Curve
Change in consumer real incomes-
• A consumer's demand for goods and services is limited by
income, higher income levels allow the consumer to purchase
more products, and the opposite occurs when a decrease in
real income
• When the economy enters a recession and more people
become unemployed, the demand for many goods and
services shifts to the left
5 December 2016Law Of Demand Group 1 14

15. Contd….
• Normal Goods are goods for which demand goes up
when income is higher and for which demand goes down
when income is lower
• Inferior Goods are goods for which demand falls when
income rises
5 December 2016Law Of Demand Group 1 15

16. Contd….
• Substitutes are goods that can serve as replacements for one
another; when the price of one increases, demand for the
other goes up. Perfect substitutes are identical products.
• Complements are goods that “go together”; a decrease in the
price of one results in an increase in demand for the other,
and vice versa.
5 December 2016Law Of Demand Group 1 16

17. Shift of Demand V/S Movement Along a
Demand Curve
• A change in demand is not the
same as a change in quantity
demanded.
• In this example, a higher price
causes lower quantity demanded.
• Changes in determinants of
demand, other than price, cause
a change in demand, or a shift of
the entire demand curve, from
DA to DB. 5 December 2016Law Of Demand Group 1 17

18. • When demand shifts to the
right, demand increases.
This causes quantity
demanded to be greater than
it was prior to the shift, for
each and every price level.
A Change in Demand V/S a Change in
Quantity Demanded
5 December 2016Law Of Demand Group 1 18

19. Contd…..
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).
5 December 2016Law Of Demand Group 1 19

20. Thank You
5 December 2016Law Of Demand Group 1 20