1. Theory of Demand

2. Demand vs. Quantity Demanded
 Demand is the amount of a product that people are
willing and able to purchase at each possible price
during a given period of time, everything else (but
price) held constant.
– It is a relationship between prices and quantities.
 The quantity demand is the amount of a product that
people are willing and able to purchase at one,
specific price.
– It is a quantity.

3. Types of Demand
 Direct and Indirect
 Recurring and Replacement
 Complementary and Competing
 Individual and Market Demand

4. Determinants of Demand
 Price of the product
 Income of the consumer
 Price of related goods
 Tastes and preferences
 Advertising
 Consumer expectations
 Population
 Growth of economy etc.

5. Law of Demand
 Law of Demand: There is an inverse relationship between the price of
a good and the quantity consumers are willing and able to purchase
during a particular period of time.
– As price of a good rises, consumers buy less.
– Depicts the quantity-price relationship with all else assumed to be constant.
 The determinants of demand are factors other than price that influence
demand: income, tastes, prices of related goods, expectations, and
numbers of buyers.

6. Representations of Demand
 Demand Schedule: A table or list of the prices and
corresponding quantities demanded of a particular
good or service. It is the price-quantity relationship
presented in tabular form.
 Demand Curve: A graph of the demand schedule
with price on the vertical axis and quantity demanded
on the horizontal axis.

7. Demand Schedule and
Demand Curve for Videos
Price Quantity
$5 10
$4 20
$3 30
$2 40
$1 50

8. Change in Demand vs.
Change in the Quantity Demanded

9. Aggregation of Demand (I)

10. Aggregation of Demand (II)

11.  Why demand curve is negatively sloped
 Law of diminishing marginal utility.
 Fall in price leads to more purchase and
more buyers.
 Substitution effect.
 Income effect.

12. Price and quantity are negatively related Some reasons include:
income effect--as the price of a good declines, the consumer can
purchase more of all goods since his or
her real income increased.
substitution effect--as the price declines, the good becomes
relatively cheaper. A rational consumer maximizes satisfaction by
reorganizing consumption until the marginal utility in each good per
dollar is equal:
Optimality Condition is MUA/PA = MUB/PB = MUC/PC = ...
If MU per dollar in A and B differ, the consumer can improve
utility by purchasing more of the one with higher MU per dollar.

13. Exception to Law of Demand
 Giffen goods : Giffen goods are special type of inferior goods. Eg :
Coarse grain, salt etc.
 Conspicuous Necessities : Commodities like TV, fridge as through
their constant use they have become necessities of life.
 Conspicuous consumption : Goods like diamond etc. where with
an increase in price of the good, Quantity demanded increases.
 Future changes in price : Households act as speculators.
 Emergencies : Like war, flood negate the operation of law of
demand.
 Change in fashion
 Ignorance

14.  Activity A : Which of the following statements depicting demand are correct:
 A toy shop selling different types of tous, each priced at Rs. 20 at a hill station
makes a business of Rs. 3500 each day.
 In CP, the total population is one lakh.
 A fruit vender sells 50 fruits (of different varieties) in a day.
 Activity B: Following are some instances. In each, write how the demand will
be affected:
 Prices of washing machines go down drastically.
 Right next to a busy snack centre, a new one comes up.
 VAT(value-added tax) is announced on all saleable commodities(goods &
services).
 Activity C: Some people only buy ‘Branded Products’. Comment.

15.  CASE STUDY : The Demand for Big Macs