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Demand

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What is Demand?
Diff. bet Demand and quantity demand
Types of demand - Individual and Market
What is the Law of Demand?
Assumptions of Law of Demand
Why demand curve sloping downward?
Reasons for inverse relationship
Determinents of Demand
What is Band Wagon & Snob effect






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Demand

  1. 1. What is Demand? “Demand means effective desire or want for a commodity which is backed up by the ability (purchasing power) and willingness to pay for it”.  Demand = Desire + Ability to pay +Willingness to spend  Demand is a relative concept – not absolute It is related to price , time and place. “The demand for a commodity refers to the amount of it which will be bought per unit of time at a particular price ( in a particular market)”.
  2. 2. Demand  Period of time concept  Flow concept Quantity Demand At a point of time concept Stock concept Diffrence Between Demand & Quantity Demand
  3. 3. Individual and Market demand  Individual Demand : Individual demand for a product is the quantity of it a consumer would buy at a given price, during a given period of time.  Market demand : Market demand for a product is the total demand of all the buyers in the market taken together at a given price during a given period of time. Demand Schedule: ‘ A tabular statement of price – quantity (demanded) relationship at a given period of time’  Individual demand schedule  Market demand schedule.
  4. 4. Individual Demand Schedule Price of Com X (Rs per kg) Quantity demanded of Com X (Qty in kg) 80 2 70 4 60 6 50 10
  5. 5. Market Demand Schedule Price in (Rs) Units of Commodity X Market demanded per day Demand by Individuals Total A B C 4 1 1 3 5 3 2 3 5 10 2 3 5 7 15 1 5 9 10 24
  6. 6. What is the Law of Demand?  When the other things remain constant, if price rises of a commodity quantity demanded contracts and vice-versa.  Inverse relationship between price and quantity demanded.
  7. 7. What are the Assumptions of the Law of Demand?  Tastes and Preferences of a consumer are constant.  No change in the income of the consumer  Prices of related goods do not change  No future expectations of price.
  8. 8. Why is the demand curve sloping downwards?  Law of Diminishing Marginal Utility  Income effect (positive or negative)  Substitution effect  Size of the consumer group  Different uses of a commodity
  9. 9. Reasons for Inverse Relationship  Income effect- the decline in the price of a commodity leads to an equivalent increase in the income of a consumer because he has to spend less to buy the same quantity of goods.The part of the money left can be used for buying some more units of commodity.  For e.g.- suppose the price of mangoes falls from Rs.100/- per dozen to 50/- per dozen.Then with the same amount of 100/- you can buy one more dozen, i.e.,2 dozens at Rs. 50/-  Substitution effect-When the price of a commodity falls, the consumer tends to substitute that commodity for other commodity which is relatively expensive.  For e.g. – Suppose the price of the Urad falls, it will be used by some people in place of other pulses.Thus the demand will increase.
  10. 10. What are the causes of Upward sloping Demand Curve?  Veblen goods  Future expectations  Giffen goods
  11. 11. Contd…  Giffens goods: It is a special type of inferior goods where the fall in the price results into the decrease In the quantity demanded.This happens because of people’s preference for superior commodity  Consumer’s Psychological bias: Many a times consumer judges the quality of a good from its price. Such consumers may purchase high price goods because of the feeling of possessing a better quality. The exceptional demand curve shows a positive relation between the price and the quantity demanded.
  12. 12. Determents of Demand  Dx = f(Px,Pr,Y,T,P,E,Yd,A,C,D...)  Px - It is a inverse relationship between price and quantity demand  Pr -They are two types of goods 1.Complementry goods(Negative Relationship) 2.Substitute goods(Positive relationship)
  13. 13.  Consumer income – It is basic determinants of the quantity demanded of a product. It is a common knowledge that the people with higher disposable income spend a large amount on a normal goods and services than those with lower income. For the purpose of income demand analysis goods and services . May be group of under four broad category – 1) Normal 2) Inferior 3) Luxury goods 4) Initial of consumer group
  14. 14.  Taste & preferences – In this those goods are more in demand which are favourable to consumers and vice-versa.  Population –When population increases, demand increase and vice-versa. It is direct relationship.  Consumer expectation –Their is a direct relationship.When income rises demand rises and vice-versa.
  15. 15.  Distribution of National Income – the distribution pattern of national income also affect the demand for a commodity. If national income evenly distributed market demand for a normal good will be largest. If national income unevenly distributed majority of population lower income group market demand for a essential good will be largest where as the same for a other kind of good will be relatively low.
  16. 16.  Advertisement Expenditure – It is a direct relationship it become a stagnant Assumptions  Customer should be sensitive towards advt.  Rival should not copy you  Advt. Cost is included in price
  17. 17.  Credit Facility – If credit facility is easily available, its demand increases. Ex-Demand for cars and residential flats have had an unprecedented increase in demand in India due to mainly to availability of bank loan.
  18. 18. What is a Bandwagon Effect?  Individuals’ demand depends on others’ demand  Commodity is in Fashion
  19. 19. What is a Snob Effect?  Demand depends on the Prestige value of a commodity.  Exclusive  Demand curve is steeper (Inelastic)
  20. 20. Changes in quantity demanded & Changes in demand Changes in quantity demanded is related to law of demand i.e. due to changes in price.  When with a fall in price more of a commodity is demanded, there is EXTENSION of demand & when with a rise in price less of a commodity is purchased, there is CONTRACTION of demand. Changes in demand is caused by changes in various other determinants of demand, the price remaining unchanged.  When more of a commodity is bought than before at any given price there is INCREASE in demand & when less of a commodity is bought than before at any given price there is DECREASE in demand.
  21. 21. In what direction does the shift occur?
  22. 22. What are the Causes of Increase in Demand?  Increase in Income of the Consumer  Increase in Price of Substitute goods  Decrease in Price of Complementary goods  Favorable change in tastes  Expected increase in future prices  Increase in number of consumers  Expected increase in future income
  23. 23. What are the Causes of Decrease in Demand?  Decrease in Income of the Consumer  Decrease in Price of Substitute goods  Increase in Price of Complementary goods  Un-Favorable change in tastes  Expected decrease in future prices  Decrease in number of consumers  Expected decrease in future income
  24. 24. Change in Quantity Demanded vs. Change in Demand  Change in Quantity Demanded  Occurs due to change in prices  Results in movement from one point to another on a fixed demand curve Also called extension and contraction of demand  Change in Demand  Occurs due to changes in determinants other than price  Results in shifting of the demand curve either to the right or to the left  Also called rise and fall of demand

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