Economics theory of demand

1. Theory of Demand

2. What is Demand and Quantity
Demanded?
Quantity demanded is a particular amount the buyers are willing
and able to buy at a given price during a given time, other things
being equal.
Demand is the quantities that buyers are willing and able to buy at
alternative prices during a given period of time, other things being
equal.

3. What are the elements of Demand?
Desire for a commodity
Money to fulfill that desire
Readiness to spend money

4. What is a demand Schedule?
Individual demand schedule
Quantity of a given commodity which a
consumer will buy at all possible prices, at a
given moment.]
Market Demand Schedule
Total demand of all consumers in the market at
difference prices of the commodity

5. What is a Demand Curve?
Individual Demand Curve : represents
different quantities of the commodity
demanded by a consumer at different prices
Market Demand Curve : The horizontal
summation of the individual demand curves.
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5
10
15
Quantity
Price

6. What is the LAW OF DEMAND?
Law of demand states that other things
remaining constant; quantity demanded of a
commodity increases with a fall in price and
diminishes when price increases.
Assumptions
1. Tastes and preferences of the consumer
remain constant.
2. No change in the income of the consumer.
3. Prices of related goods do not change.
4. Consumers do not except any change in the
price of the commodity in the near future.
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0
5
10
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Quantity
Price

7. What are the Reasons for Downward
Sloping Demand Curve?
1. Law of Diminishing Marginal Utility
2. Income Effect: Positive/ Negative
3. Substitution effect
4. Size of the consumer group
5. Different Uses

8. What are the Exceptions to the Law of
Demand?
Analysed by Sir Robert Giffen
Causes are:
1. Articles of Distinction
2. Ignorance
3. Giffen goods :
All giffen goods are inferiors goods, but all
inferior goods are not giffen goods.
Negative income effect is always stronger than
positive substitution effect. 0 2 4 6
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5
10
15
Quantity
Price

9. What do we mean by Change in Quantity
Demanded?
Extension of Demand
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10
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Quantity
Price
Contraction of Demand
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Quantity
Price

10. What do we mean by Change in Demand?
Increase in Demand
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0
5
10
15
Quantity
Price
Decrease in Demand
0 2 4 6
0
5
10
15
Quantity
Price

11. What are the Causes of Change in
Demand?
1. Prices of Related Goods: Substitutes/ Complements
2. Change in Income: Normal Goods/ Inferior Goods
3. Impact of Tastes and Preferences for a commodity

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