L A W O F D E M A N D

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L A W O F D E M A N D

  1. 1. LAW OF DEMAND
  2. 2. Derivation of demand curve from price consumption curve
  3. 3. Law of demand <ul><li>When price increases, demand decreases and when price decreases, demand increases </li></ul><ul><li>Ceterus Paribus </li></ul>
  4. 4. Shifts in demand due to change in price
  5. 5. MARKET DEMAND <ul><li>Market demand is the sum of in individual demands for a product at price per unit of time </li></ul>
  6. 6. Horizontal summation of individual demand schedule produces market demand Schedule <ul><li>Pg 146 </li></ul>
  7. 7. Types of Demand <ul><li>Individual & market </li></ul><ul><li>Demand for firm and industry </li></ul><ul><li>Autonomous & derived demand </li></ul><ul><li>Demand for Durable and Non-durable goods </li></ul><ul><li>Short term and long term demand </li></ul>
  8. 8. Individual Demand <ul><li>The quantity of a commodity which the individual is willing to buy at a particular price during a specific time period, given his money income, his taste and prices of other commodities (particularly substitutes and compliments) is called Individual demands of a commodity </li></ul>
  9. 9. Market Demand <ul><li>The total quantity which all consumers of a community are willing to buy for a given price per unit given their money income, their taste and prices of other commodities (particularly substitutes and compliments) is called Market demands of a commodity </li></ul>
  10. 10. Demand for firms product <ul><li>The quantity of a firms product that can be disposed of at a given price over a time period connotes the demand for then firms product </li></ul>
  11. 11. Demand for industry’s Product <ul><li>The aggregate of a demand for the product of all the firms of an industry is known as the market demand or demand for industry's product </li></ul>
  12. 12. Autonomous <ul><li>An autonomous or direct demand for a commodity is one that arises on its own out of a natural desire to consume or possesses a commodity </li></ul>
  13. 13. Derived Demand <ul><li>The demand for a commodity that arises because of the demand for some other commodity, called ‘parent product’, is called derived demand. For instance, demand for land , fertilizers, etc, is a derived demand because these goods are demanded because food is demanded. </li></ul>
  14. 14. Demand for durable goods <ul><li>Durable goods are those whose total utility or usefulness is not exhausted in a single or short-term use. Such goods can be used repeatedly or continuously over a period of time. Demand for durable goods is also influenced by their expected price, income and change in technology. The demand for durable goods changes over a relatively longer period. </li></ul>
  15. 15. Short term Demand <ul><li>Short term demand refers to the demand of goods demanded over a short period. In this category are found mostly the fashion consumer goods, goods of seasonal use, inferior substitutes during scarcity of superior goods, etc. Short term demand depends, by and large, on the long term income trends, availability of better substitutes, current disposal income of the consumer, their ability to adjust their consumption pattern, and their susceptibility to advertisement of new product. </li></ul>
  16. 16. Long term Demand <ul><li>Long term demand on the other hand refers to the demand which exists over a long period. The long term demand depends on the long term income trends, availability of better substitutes, sales promotion, etc. </li></ul>
  17. 17. Determinants <ul><li>Price of Product </li></ul><ul><li>Price of related goods – substitutes, complements and supplements </li></ul><ul><li>Level of consumers’ income </li></ul><ul><li>Consumers’ taste and preference </li></ul><ul><li>Advertisement of product </li></ul><ul><li>Consumer’s expectation of future price and supply position </li></ul><ul><li>Demonstration effect and ‘band wagon’ effect </li></ul><ul><li>Consumer-credit facility </li></ul><ul><li>Population of country (for goods of mass consumption) </li></ul><ul><li>Distribution pattern of national income </li></ul>
  18. 18. Long term Demand

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