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    o o Presentation Transcript

    • Demand by- Sunit Chakraborty
    • Demand  Demand refers to the quantities of a product that purchasers are willing and able to buy at various prices per period of time , all other things being equal.
    • Demand curve  Definition  curve that normally slopes downward towards the right of the chart showing quantity of a product  (good or service) demanded at different price levels.
    • DETERMINANTS OF DEMAND  Price of the commodity  Income of the consumers  Consumers tastes and preferences  Price of related goods:- a) substitute goods b) complimentary goods
    •  Consumers expectations  Population of the country  Distribution of income  Government policy
    • Demand Schedule
    • Demand Schedule and Demand Curve Price of Ice-Cream Cone $3.00 2.50 1. A decrease in price ... 2.00 1.50 1.00 0.50 0 1 2 3 4 5 6 7 8 9 10 11 12 Quantity of Ice-Cream Cones 2. ... increases quantity of cones demanded. Copyright © 2004 South-Western
    • Shift in demand curve  The Law of Demand states that the demand curve is downward sloping.  When price goes up, there is a decrease in quantity demanded.  When price goes down, there is an increase in quantity demanded.  There are TWO types of change in demand; 1. Movement ALONG the demand curve 2. SHIFTS in the demand curve.
    • Shift in the demand curve  A movement ALONG the demand curve  A movement along the demand curve is caused by a change in PRICE of the good or service. For instance, a fall in the price of the good results in an EXTENSION of demand (quantity demanded will increase), whilst an increase in price causes a CONTRACTION of demand (quantity demanded will decrease).
    • Changes in Quantity Demanded Price of IceCream Cones A tax that raises the price of icecream cones results in a movement along the demand curve. B $2.00 A 1.00 D 0 4 8 Quantity of Ice-Cream Cones
    • Shift in the demand curve  A SHIFT in the demand curve  A shift in the demand curve is caused by a change in any non-price determinant of demand. The curve can shift to the right or left.  A rightward shift represents an increase in the quantity demanded (at all prices), D1 to D2, whilst a leftward shift represents a decrease in the quantity demanded (at all prices). D1 to D3
    • Figure 3 Shifts in the Demand Curve Price of Ice-Cream Cone Increase in demand Decrease in demand Demand curve, D2 Demand curve, D1 Demand curve, D3 0 Quantity of Ice-Cream Cones Copyright©2003 Southwestern/Thomson Learning
    • Shift in the demand curve
    • A Change in Demand Versus a Change in Quantity Demanded 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).
    • Consumer Income Normal Good Price of IceCream Cone $3.00 An increase in income... 2.50 Increase in demand 2.00 1.50 1.00 0.50 D1 0 1 2 3 4 5 6 7 8 9 10 11 12 D2 Quantity of Ice-Cream Cones
    • Consumer Income Inferior Good Price of IceCream Cone $3.00 2.50 An increase in income... 2.00 Decrease in demand 1.50 1.00 0.50 D2 0 1 D1 2 3 4 5 6 7 8 9 10 11 12 Quantity of Ice-Cream Cones
    • Causes of Shift in the demand curve The movements can be caused by the following;  change in consumer income - If consumer income increases, then consumers buy more normal/luxury items and the demand curve shifts to the right.  Change in the price of other goods - if the price of a complementary good increases then the demand for the good will fall. This will result in a leftward shift in the demand curve of any complementary good . However, if the price of a substitute good increases, then the demand for the other good would increase as consumers switch their consumption patterns.  Changes in tastes and fashions - if a good becomes fashionable then the demand for the good will shift to the right.