Demand, Types of demand, factors affecting demand, Law of Demand and assumptions, Shifts in demand curve, case study, Demand shocks, Quiz

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I am studying ECONOMICS,
so to save time let’s just
assume I am always right

2. Suresh Sundar
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3. WHAT IS DEMAND?
In Economics – quantity of a good/service
which the consumers are willing to buy at a
particular price at a particular time.
Consumer’s need or desire backed by
willingness and ability to purchase it.
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4. TYPES
 Direct and Indirect (derived) demand
 Recurring and non-recurring (replacement)
 Complementary and competing demand
 Composite demand
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5. TYPES OF DEMAND
Direct: demand due to its consumption by the
end user
Eg: TV, medicines, food products
Indirect: demand for producing goods/services
which are consumed by the end user
Eg: labour, raw materials
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6. TYPES OF DEMAND
Complementary (Joint): demanded for goods
that must be used together for a need
Eg: printer & cartridge, razor & blade
Competing (Substitute):demand due to the
price change in competing goods
Eg: tea & coffee, pepsi and coke
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7. TYPES OF DEMAND
Recurring (Consumable/short term): demand
for goods that are consumed at frequent
intervals
Eg: beverages, news paper
Replacement (Durable/long term): demand for
goods that are used for a long period of time
Eg: Television, bike
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8. TYPES OF DEMAND
Composite demand: demand for a product
which has a variety of uses
Eg: Fuels, Steel
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9. AFFECTING FACTORS
 Price of the product(P)
 Income of the consumer(I)
 Price of the related goods(Ps)
 Consumer tastes and preferences(T)
 Consumer expectations in future(E)
 Population(N)
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10. DEMAND FUNCTION LAW OF DEMAND
The mathematical
relationship of demand
and its determinants
D = f(P, I, Ps, T, E, N,…)
Demand for a product is
inversely proportional to
its price, keeping other
factors constant
D = f(P)
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11. ASSUMPTIONS IN LAW OF DEMAND
 There is No change in price of related goods.
 No change in Fashion.
 No change in consumer preferences.
 No change in future price of a commodity.
 No change in government policy.
 No change in weather conditions.
 No change in distribution of income.
 Population is constant.
 State of business is constant.
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12. REASONS FOR LOD
 Income effect
 Substitution effect
 Law of diminishing marginal
utility
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13. DEMAND SCHEDULE DEMAND CURVE
Tabular representation Graphical
representation
Price(P) Quantity
Demanded(Q)
10 350
15 300
20 250
25 200
30 150
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14. CHANGE IN DEMAND
Along the
curve
Extension
Contraction
Parallel to
the curve
Right hand
shift(+ve)
Left hand
shift(-ve)
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15. SHIFT IN DEMAND CURVE
Along the curve Parallel to the curve
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16. EXCEPTIONS TO LOD
 Giffen/inferior goods
 Veblen/snob goods
 Goods in speculative market
 Essential goods
 Psychological bias-price and quality
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17. GROUND BEEF IN USA
Month -
2014
Price/lb($) Quantity(l
bs)
Jan 3.467 10.000
Feb 3.555 9.842
Mar 3.698 9.597
Apr 3.808 9.419
May 3.856 9.346
Jun 3.880 9.309
Jul 3.884 9.303
Aug 4.013 9.112
Sep 4.096 8.995
Oct 4.454 8.506
Two droughts in 2012 and
2014
Price of food grains rose
very high
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18. SEQUENCE OF THE EFFECT
Substitution
effect
Increase in
demand
Increase in
price
Decrease
in demand
Unaltered
supply
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19. THE 007 CAR IS HERE!
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20. ASTON MARTIN IN INDIA
Aston Martin, the car immortalized by the superspy James Bond, is
the latest entrant into the Indian luxury car market. In 2011 alone,
this is the fourth super car to be launched in India after the Rs.4.5
crore worth Maybach in February and the Rs.1.4 crore Maserati in
early April. The top end of the Indian luxury car market is already
crowded with more than two dozen models carrying a price tag of
over Rs.1 crore.
Aston Martin has added nine more to te array of super luxury
cars, among them one-77 at Rs.20 crore, is the priciest car to be
launched in India. As for the rest of the models priced between
Rs.1.4-2.6 crore, Lalit Choudhury, Managing Director, Performance
cars, the dealer of AM in India said they expect to sell 30 units this
year.
The company has sold just 55,000 cars in its 97-year history
and about 5000 cars each year to the richest across Europe, the US
and Asia. The company expects to sell a quarter of its cars to Asian
and Middle Eastern countries in the next five years.
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21. DISCUSSION
1. Which economical concept related to
demand can be associated with the case
given?
2. What will be the consumer behaviour in
case of such high priced cars, by comparing
with other similar products?
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22. DEMAND SHOCKS
Unpredicted event that causes temporary
changes in aggregate demand
 Positive shock – demand increases
Eg: Interest rate cuts, tax cuts by government
 Negative shock – demand decreases
Eg: Natural disasters, stock market crash,
terrorist attacks(hurricane Katrina – New
Orleans)
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23. GLOBAL FINANCIAL CRISIS 2007-09
 Worst since the Great depression of 1930’s
 Cost an estimated $648 billion to the US
 Lost $3.4 trillion in real estate wealth
 Lost $7.4 trillion in stocks
 5.5 million Americans lost their jobs
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24. CAUSE
Sub-prime mortgage crisis
 Federal rate cuts from 6.5 to 1.75 in 2001
 Cheap money  dream home
 More home loans  more home buyers 
more appreciation in home prices
 Rise in federal rates  rise in defaults 
depreciation in home prices
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26. ENERGY CRISIS IN 2000’S
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27. REASONS
 Venezuela cut-off sales to ExxonMobil
 Iraq was not recovered from wartime
damage
 Nigerian union workers went on strike at
ExxonMobil
 Militant attacks to Shell oil fields
 Rapid increase in demand from China
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28. CHINA’S DEMAND
 China became second in oil
consumption(11,968,000 bbl/day) after USA
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30. 1. If the price of a good increases, then
a) Demand for complementary goods will
increase
b) Demand for the good will increase
c) Demand for the substitute goods will
increase
d) demand for the good will decrease
Ans: c
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31. 2. If consumer income declines, then the
demand for
a) Normal goods will increase
b) Inferior goods will increase
c) Substitute goods will increase
d) Complementary goods will increase
Ans: b
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32. 3. The demand by a firm for inputs used in the
production of a commodity that the firm offers
for sale
a) Is called a derived demand
b) Is directly related to the demand for a
commodity
c) Is negatively sloped
d) Is all of the above
Ans: d
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33. 4. Which of the following will not cause a shift
to the right of the demand curve for coke?
a) A change in the price of the cold drink
b) An increase in price of pepsi
c) A decrease in price of french fries
d) A health study showing the positive health
benefits of moderate cold drink consumption
Ans: a
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34. 5. Growth of the economy would affect demand
for a commodity in which of the following
ways?
a) Lower paying capacity of consumers
b) Lower price for quality
c) Higher paying capacity of consumers
d) Higher price for quality
Ans: c
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35. 6. Which of the following explains an exception
to the law of demand?
a) High value of a commodity in the
consumption basket
b) Uncertainty about the change in price in
future
c) High utility of a commodity
d) Availability of substitutes
Ans: b
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