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# Law of demand

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### Law of demand

1. 1. DEMAND ANALYSIS
2. 2. WHAT IS DEMAND• Every want supported by the willingness and ability to pay.• To have a demand three conditions are to met• - Desire on the part of the buyer to buy.• - Willingness to pay for it.• - Ability to pay the specified pay for it.
3. 3. TYPES OF DEMAND• Three types of demand;• - price demand,• - income demand,• - cross demand.• Price demand- quantity of a particular product demanded at a given price.• Income demand- quantity demanded at a given level of income of a consumer.• Cross demand- quantity demanded given the price of related goods. The related goods may be complementary or a substitute.
4. 4. NATURE OF DEMAND• Consumer goods Vs Producer goods.• Autonomous demand Vs Derived demand.• Durable Vs Perishable goods.• Firm demand Vs industry demand.• Short- run demand Vs Long-run demand.• New demand Vs Replacement demand.• Total market Vs Segment market demand.
5. 5. FACTORS DETERMINING DEMAND• Price of the product (P).• Income level of the consumer (I).• Tastes and preferences of the consumer (T).• Prices of related goods which may be substitutes/complementary(P^R).• Expectations about the price in future (E^P).• Expectations about the income in future(E^I).• Size of population(S^P).• Distribution of consumers over different regions(D^C).• Advertising efforts (A).• Any other factors capable of affecting the demand (D).
6. 6. DEMAND FUNCTION• Q^d= f(P,I,T,P^r,E^p,E^i,S^p,D^c,A,O)• IMPACT OF DEMAND FACTORS:• Price of the product.• Income of the consumer.• Price of substitutes or complementaries.• Tastes and preferences.
7. 7. LAW OF DEMAND• Other things remaining the same, the amount of quantity demanded rises with every fall in the price and vice versa.• The Law of Demand states the relationship between price and demand of a particular product or service.•
8. 8. ASSUMPTION OF LAW OFDEMAND• CAN U PLS TELL ME THE ASSUMPTION?• ANSWER………………………….• LIMITATION OF LAW OF DEMAND.
9. 9. OPERATION OF THE LAW OFDEMAND • PP1 Q Q1
10. 10. LAW OF DEMAND AND INCOMEEFFECT• When there is a fall in the price of a commodity- rise in real income of the consumer.• Real income- consumer will be able to buy more commodities for a given amount of money.
11. 11. LAW OF DEMAND ANDSUBSTITUTION EFFECT• Price of a commodity falls, the price of its substitutes remaining the same, the commodity will now be cheaper compared to the substitutes.
12. 12. IMPACT OF INCOME ANDSUBSTITUTION EFFECT• The substitution effect is considered to be stronger than the income effect because consumers generally buy inexpensive commodities in place of expensive ones.• There are certain exceptions:• -When there is a shortage of necessaries feared.• - When the product is such that it confers distinction- Veblen goods.• - Giffen’s Paradox.• - In case of ignorance of price change.• - Speculative commodities.
13. 13. CHANGE IN DEMAND• The increase or decrease in demand due to change in the factors other than price is called change in demand.• Increase in demand- if the consumer are willing and able to buy more of a particular product which will increase the demand. The demand curve will shift to the right.• Decrease in demand- if the consumer buys less of a product, a decrease in demand occurs.
14. 14. EXTENSION ANDCONCENTRATION IN DEMAND• Extension- downward movement along the demand curve- indicating that a higher quantity is demanded for a given fall in price.• Contraction- upward movement along the demand curve- indicating a lower quantity is demanded for a given increase in the price.
15. 15. LAW OF SUPPLY• Supply depends upon the prices of factor inputs, infrastructure facilities, technological advances, and several other factors.• Supply means the quantity of goods or service offered for sale at various prices at any moment of time or during a specific time period.• LAW OF SUPPLY: more quantities of commodity will be offered for sale at higher prices and less quantities will be offered for sale at lower prices.• There is a direct or positive relationship between market price and supply.• Producers or firms supply goods for profit.• A producer supply more quantity of good at a higher price because of its profitability.• When price falls- profit comes down.• Less amount of supply.• If price falls below cost of production- change to other product or out of business.• The supply curve slopes upward from left to right.