theory of demand

1. Theory of Demand

2. Overview
• Introduction
• Law of Demand
• Non price factors
• Short fall analysis

3. What is Demand?

4. • Quantities of a good or service consumers are willing and able
to buy at different possible prices.
What is Demand?

5. Consumers buy more of a good when its price decreases and
less when its price increases.
The Law of Demand…

6. Law of Demand
When price
Goes up
Demand
goes down
When demand
goes down
demand
goes up

7. The Law of Demand…

9. Changes in income
When income Consumers
goes up buy more
When income Consumers
goes down buy less

10. Prices of substitutes

11. Tastes and Preferences

12. Short run analysis
• An increase in demand
causes equilibrium price and
quantity to rise
• A decrease in demand causes
equilibrium price and quantity
to fall.

13. Application: Sales of SUVs in the U.S.
Gasoline in the U.S. is
increasingly expensive S0
D0
P
Q
Q0
SUVs
Excess
supply
D1
Q1
P1
P0
Increasing gas costs causes
the demand curve to shift left
Price for SUVs fell
from P0 to P1 where
Q demanded = Q supplied

14. Thank You