3. Law of Demand
• Law of demand – there is an inverse relationship
between price and quantity demanded.
-Quantity demanded rises as price falls, other things constant.
-Quantity demanded falls as prices rise, other things constant.
• What accounts for the law of demand?
People tend to substitute for goods whose price has gone up.
4. Assumptions of Law of Demand
• No change in price of related commodities.
• No change in income of the consumer.
• No change in taste and preferences, customs, habit
and fashion of the consumers.
• No change in size of population.
• No expectation regarding future change in price.
5. Individual Demand
“The individual demand is the demand of
one individual or firm. It represents the
quantity of a good that a single consumer
would buy at a specific price point at a
specific point in time”.
7. MARKET DEMAND
• Market demand is the aggregate of individual demands of
a homogeneous commodity
• A market demand curve is the horizontal sum of all
individual demand curves.
• This is determined by adding the individual demand
curves of all the demanders.
• Sellers estimate total market demand for their product
which becomes smooth and downward sloping curve.
8. MARKET DEMAND FUNCTION
• The market demand function is the horizontal
summation of the individuals' demand functions.
9. From Individual Demands
to a Market Demand Curve
(1)
Price
per X
Rs.0.50
1.00
1.50
2.00
2.50
3.00
3.50
4.00
(2)
A’s
demand
(3)
B”s
demand
(2)
C’s
demand
(3)
Market
demand
9
8
7
6
5
4
3
2
6
5
4
3
2
1
0
0
1
1
0
0
0
0
0
0
16
14
11
9
7
5
3
2
A
B
C
D
E
F
G
H
C B A
D
A
C
E
F
G
Quantity of X demanded per week
2
Rs4.00
3.50
3.00
2.50
2.00
1.50
1.00
0.50
0
PriceperX(inRs
4 6 8 10 12 14 16
B
Market demand