ECONOMOICS FOR ENGINEERS! LAW OF DEMAND

1. EEENGINEER ECONOMICS
ECONOMICS FOR
ENGINEERS
ASSESSMENT 11
GUIDED BY :-
VANDANA MA’AM
PRESENTED BY :-
ANUPRTA BHOYAR
2019-B-19072001A

2. EEENGINEER ECONOMICS
LAW OF DEMAND
 EXCEPTIONS OF LAW OF DEMAND
 FACTORS AFFECTING DEMAND

3. LAW OF
DEMAND
• The law of demand states that other factors
being constant, price and quantity demand of
any good and service are inversely related to
each other.
• When the price of a product increases, the
demand for the same product will fall.
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4. FR
DEMAND RELATIONSHIP
4

5. FR
EXCEPTIONS OF
LAW OF DEMAND
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6. VEBLAN GOODS
• For example, economists often view diamonds as a Veblen good
because of the higher prestige value of a diamond; the higher is
the desirability. Some people will also buy fewer diamonds
when the price falls.
• They are goods that people buy more of when or if the price
increases. These goods tend to be status symbols and displays of
wealth.
• For example, Rolls Royce cars and Patek Phillipe watches can
be considered to be Veblen goods.
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7. FRPossibility of
Future Rise in
Prices
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 If a consumer anticipates that the price of a commodity
will rise in future he will purchase more of that
commodity now. The consumer will purchase more even
if current price is high.
 How is future price related to current demand? If the price is
expected to rise, current demand will drop. If the price is
expected to fall, current demand will rise. If the price is
expected to rise, current demand will rise.

8. FR
8
Change in fashion and taste
 The change in fashion trend and tastes and preferences of the consumers
negates the effect of law of demand. The consumer tends to buy those
commodities which are very much ‘in’ in the market even at higher
prices.
 For example, Consumers do not buy old fashioned clothes even
if they are available at low prices or discounted price.

9. FR
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EMERGENCIES
 During emergencies such as war, natural calamity- flood,
drought, earthquake, etc., the law of demand becomes
ineffective. In such situations, people often fear the
shortage of the essentials and hence demand more goods
and services even at higher prices.

10. BANDWAGON
EFFECT
10
• This is the most common type of exception to the law
of demand wherein the consumer tries to purchase
those commodities which are bought by his friends,
relatives or neighbors.
• Here, the person tries to emulate the buying behavior
and patterns of the group to which he belongs
irrespective of the price of the commodity.
• For example, if the majority of group members have
smart phones then the consumer will also demand for
the smart phone even if the prices are high.

11. FR
GIFFEN GOOD
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 For Example : The demand for rice rose from 40 kg to 43
kg despite its increase in price. Therefore, rice is an
example of a Giffen good.
 Giffen goods are some special varieties of inferior goods. Cheaper
varieties of goods like bajra, potatoes, salt etc. ... So, rise in price of these
goods does not change the demand for these goods. When income
increases, demand increases.
 A Giffen good is considered to be a strongly inferior good. There are
very few examples of Giffen goods mostly because it is difficult to
prove that they exist. It’s when consumers consume more of an inferior
good when the price of the good rises, which is in direct violation of
the Law of Demand.

12. FR
GIFFEN GOOD
12
 A Giffen good has an upward-sloping demand curve which is
contrary to the fundamental laws of demand which are based on a
downward sloping demand curve.

13. FR
FACTORS
AFFECTING
DEMAND
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 The demand for a good depends on several factors, such as price of
the good, perceived quality, advertising, income, confidence of
consumers and changes in taste and fashion.

14. 14
TASTE AND
PREFERENCES OF THE
CONSUMER
 For example, if a celebrity endorses a new product, this may increase
the demand for a product. On the other hand, if a new health study
comes out saying something is bad for your health, this may decrease
the demand for the product.
 An important factor which determines the demand for a good is the
tastes and preferences of the consumers for it. A good for which
consumers’ tastes and preferences are greater, its demand would be
large and its demand curve will therefore lie at a higher level.
 People’s tastes and preferences for various goods often change and as
a result there is change in demand for them.

15. 15
INCOME OF
THE PEOPLE
 The demand for goods also depends upon the incomes of the people.
The greater the incomes of the people, the greater will be their demand
for goods.
 The greater income means the greater purchasing power. Therefore,
when incomes of the people increase, they can afford to buy more.
 It is because of this reason that increase in income has a positive effect
on the demand for a good.
 When the incomes of the people fall, they would demand less of a
good and as a result the demand curve will shift downward.

16. CHANGES IN PRICE
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 The demand for a good is also affected by the prices of other goods,
especially those which are related to it as substitutes or complements.
 When we draw the demand schedule or the demand curve for a good we take
the prices of the related goods as remaining constant.
 Therefore, when the prices of the related goods, substitutes or complements,
changes it effects the demand.
 When the price of a substitute for a good falls, the demand for that good will
decline and when the price of the substitute rises, the demand for that good
will increase.

17. FR
ADVERTISEMENT
EXPENDITURE
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 Advertisement expenditure made by a firm to promote the sales of its
product is an important factor determining demand for a product,
especially of the product of the firm which gives advertisements.
 The purpose of advertisement is to influence the consumers in favour of a
product.
 Advertisements are given in various media such as newspapers, radio,
and television. Advertisements for goods are repeated several times so
that consumers are convinced about their superior quality.
 When advertisements prove successful they cause an increase in the
demand for the product.

18. NUMBER OF CUSTOMERS IN
THE MARKET
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 The market demand for a good is obtained by adding up the
individual demands of the present as well as prospective
consumers of a good at various possible prices. The greater the
number of consumers of a good, the greater the market demand
for it.
 Now, the question arises on what factors the number of
consumers for a good depends ?

19. THANK YOU