What is Demand? Diff. bet Demand and quantity demand Types of demand - Individual and Market What is the Law of Demand? Assumptions of Law of Demand Why demand curve sloping downward? Reasons for inverse relationship Determinents of Demand What is Band Wagon & Snob effect

2. What is Demand?
“Demand means effective desire or want for a commodity
which is backed up by the ability (purchasing power) and
willingness to pay for it”.
 Demand = Desire + Ability to pay +Willingness to spend
 Demand is a relative concept – not absolute
It is related to price , time and place.
“The demand for a commodity refers to the amount of it which
will be bought per unit of time at a particular price
( in a particular market)”.

3. Demand
 Period of time concept
 Flow concept
Quantity Demand
At a point of time
concept
Stock concept
Diffrence Between Demand & Quantity Demand

4. Individual and Market demand
 Individual Demand : Individual demand for a
product is the quantity of it a consumer would buy at
a given price, during a given period of time.
 Market demand : Market demand for a product is
the total demand of all the buyers in the market
taken together at a given price during a given period
of time.
Demand Schedule: ‘ A tabular statement of price –
quantity (demanded) relationship at a given period of
time’
 Individual demand schedule
 Market demand schedule.

5. Individual Demand Schedule
Price of Com X
(Rs per kg)
Quantity demanded of
Com X (Qty in kg)
80 2
70 4
60 6
50 10

6. Market Demand Schedule
Price in (Rs) Units of Commodity X Market demanded
per day Demand
by Individuals Total
A B C
4 1 1 3 5
3 2 3 5 10
2 3 5 7 15
1 5 9 10 24

7. What is the Law of Demand?
 When the other things remain constant, if
price rises of a commodity quantity
demanded contracts and vice-versa.
 Inverse relationship between price and
quantity demanded.

8. What are the Assumptions of
the Law of Demand?
 Tastes and Preferences of a consumer are
constant.
 No change in the income of the consumer
 Prices of related goods do not change
 No future expectations of price.

9. Why is the demand curve sloping
downwards?
 Law of Diminishing Marginal Utility
 Income effect (positive or negative)
 Substitution effect
 Size of the consumer group
 Different uses of a commodity

10. Reasons for Inverse Relationship
 Income effect- the decline in the price of a commodity leads to an
equivalent increase in the income of a consumer because he has to
spend less to buy the same quantity of goods.The part of the money
left can be used for buying some more units of commodity.
 For e.g.- suppose the price of mangoes falls from Rs.100/- per
dozen to 50/- per dozen.Then with the same amount of 100/- you
can buy one more dozen, i.e.,2 dozens at Rs. 50/-
 Substitution effect-When the price of a commodity falls, the
consumer tends to substitute that commodity for other commodity
which is relatively expensive.
 For e.g. – Suppose the price of the Urad falls, it will be used by some
people in place of other pulses.Thus the demand will increase.

11. What are the causes of Upward
sloping Demand Curve?
 Veblen goods
 Future expectations
 Giffen goods

12. Contd…
 Giffens goods:
It is a special type of inferior goods where the fall in the price results
into the decrease In the quantity demanded.This happens because
of people’s preference for superior commodity
 Consumer’s Psychological bias:
Many a times consumer judges the quality of a good from its price.
Such consumers may purchase high price goods because of the
feeling of possessing a better quality.
The exceptional demand curve shows a positive relation between
the price and the quantity demanded.

13. Determents of Demand
 Dx = f(Px,Pr,Y,T,P,E,Yd,A,C,D...)
 Px - It is a inverse relationship between price and
quantity demand
 Pr -They are two types of goods
1.Complementry goods(Negative Relationship)
2.Substitute goods(Positive relationship)

14.  Consumer income – It is basic determinants of
the quantity demanded of a product. It is a
common knowledge that the people with higher
disposable income spend a large amount on a
normal goods and services than those with
lower income. For the purpose of income
demand analysis goods and services . May be
group of under four broad category –
1) Normal 2) Inferior 3) Luxury goods 4) Initial of
consumer group

15.  Taste & preferences – In this those goods are
more in demand which are favourable to
consumers and vice-versa.
 Population –When population increases,
demand increase and vice-versa. It is direct
relationship.
 Consumer expectation –Their is a direct
relationship.When income rises demand rises
and vice-versa.

16.  Distribution of National Income – the
distribution pattern of national income also
affect the demand for a commodity. If national
income evenly distributed market demand for a
normal good will be largest. If national income
unevenly distributed majority of population
lower income group market demand for a
essential good will be largest where as the same
for a other kind of good will be relatively low.

17.  Advertisement Expenditure – It is a direct
relationship it become a stagnant
Assumptions
 Customer should be sensitive towards advt.
 Rival should not copy you
 Advt. Cost is included in price

18.  Credit Facility – If credit facility is easily
available, its demand increases.
Ex-Demand for cars and residential flats have
had an unprecedented increase in demand in
India due to mainly to availability of bank loan.

19. What is a Bandwagon Effect?
 Individuals’ demand depends on others’
demand
 Commodity is in Fashion

20. What is a Snob Effect?
 Demand depends on the Prestige value of a
commodity.
 Exclusive
 Demand curve is steeper (Inelastic)

21. Changes in quantity demanded & Changes in
demand
Changes in quantity demanded is related to law of
demand i.e. due to changes in price.
 When with a fall in price more of a commodity is demanded,
there is EXTENSION of demand & when with a rise in price less
of a commodity is purchased, there is CONTRACTION of
demand.
Changes in demand is caused by changes in various
other determinants of demand, the price remaining
unchanged.
 When more of a commodity is bought than before at any given
price there is INCREASE in demand & when less of a
commodity is bought than before at any given price there is
DECREASE in demand.

22. In what direction does the
shift occur?

23. What are the Causes of Increase
in Demand?
 Increase in Income of the Consumer
 Increase in Price of Substitute goods
 Decrease in Price of Complementary goods
 Favorable change in tastes
 Expected increase in future prices
 Increase in number of consumers
 Expected increase in future income

24. What are the Causes of Decrease
in Demand?
 Decrease in Income of the Consumer
 Decrease in Price of Substitute goods
 Increase in Price of Complementary goods
 Un-Favorable change in tastes
 Expected decrease in future prices
 Decrease in number of consumers
 Expected decrease in future income

25. Change in Quantity Demanded
vs. Change in Demand
 Change in Quantity
Demanded
 Occurs due to change in
prices
 Results in movement from
one point to another on a
fixed demand curve
Also called extension and
contraction of demand
 Change in Demand
 Occurs due to changes in
determinants other than
price
 Results in shifting of the
demand curve either to the
right or to the left
 Also called rise and fall of
demand