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Demand

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Micro - Economics: Demand
Starting with the types of Economies, the presentation will take you to Demand, the demand schedule and curves, determinants & factors of demand.

Published in: Economy & Finance
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Demand

  1. 1. CENTRAL PROBLEMS OF AN ECONOMY There are three types/ forms of economy: • Capitalist economy • Socialist economy • Mixed economy
  2. 2. CAPITALIST ECONOMY In a capitalist economy like USA, the central problem of what, how and for whom to produce are solved through interaction between market forces of demand and supply (price mechanism). There is least government interference.
  3. 3. SOCIALIST ECONOMY In a socialist economy like erstwhile U.S.S.R (Union of Soviet Socialist Republics), the central problems of what, how and for whom to produce are solved by the government agency known as the Central Planning Commission.
  4. 4. MIXED ECONOMY In a mixed economy like India, the central problem of what, how and for whom to produce is solved through the market forces of demand and supply government regulation known as ‘regulated price mechanism’
  5. 5. DEMAND Demand refers to the quantity of a good or service that the consumers are willing and able to purchase at a certain price during a specific time period.
  6. 6. DEMAND SCHEDULE A demand schedule is the tabular representation of different quantities of a commodity demanded at different price levels.
  7. 7. DEMAND CURVE A demand curve is the graphical representation of a demand schedule. It depicts the relationship between the price of a commodity and its quantity demanded.
  8. 8. DETERMINANTS OF DEMAND  Price of the commodity: There is an inverse relationship between the price and the quantity demanded of a commodity. When the price of a commodity rises, its quantity demanded falls and when the price falls, its demand rises (provided the other things remain constant). This is the Law of demand.
  9. 9.  Price of related goods: Goods are said to be related when the price of one good influences the demand for other good. Related goods are of two types: • Substitute goods • Complementary goods
  10. 10. SUBSTITUTE GOODS If the price of a substitute good increases, the demand for the related good will increase and vice versa. For example, tea and coffee are the substitutes of each other. If the price of coffee increases, the demand for tea will increase because the customers will substitute tea for coffee.
  11. 11. COMPLEMENTARY GOODS If the price of a complementary good rises, the demand for other related good will fall and vice versa. For example, car and petrol. If the price of car rises, the demand for petrol will fall. So, there is an inverse relationship in case of complementary goods. Y
  12. 12.  Income of the consumer: The effect of change in income on demand depends upon the nature of the good, on the basis of which the goods can be classified as: • Normal good- The demand for normal goods increase with the increase in income. There is a direct relationship between the income and the demand for a normal good. • Inferior good- The demand for inferior goods decrease with the increase in income, irrespective of the price change. Thus, there is an inverse relationship between the income and the demand for an inferior good.
  13. 13.  Change in taste : A favourable change in the taste of the consumer will shift the demand curve to the right whereas an unfavourable change in the taste will shift the demand curve to the left. RIGHT WARD SHIFT OF DEMAND CURVE
  14. 14. LEFTWARD SHIFT OF THE DEMAND CURVE

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