The document discusses the law of demand and its exceptions. It defines demand and explains the three necessary conditions for demand - desire, ability to pay, and willingness to pay. The law of demand states that, assuming all other factors are held constant, quantity demanded and price are inversely related - as price increases, quantity demanded decreases, and vice versa. The law is presented through sample demand schedules and graphs. Exceptions to the law include Giffen goods, prestige goods, price illusion, demonstration effect, ignorance effect, speculation, and habitual goods.

1. By Tushari Vinayak

2. In the ordinary sense, by demand we mean
desire .But demand is different from desire.
The willingness to have something can be called
as desire . But only those desires become
demand which are backed by purchasing power
i.e ability to pay and willingness to spend.
It means to create demand the following 3
conditions are necessary.

3. I. Desire
II. Ability to pay or purchasing power
III. Willingness to pay
Thus,
Demand= Desire to buy + Ability to pay +
Willingness to pay

4. “ The term demand is defined as the desire for a
commodity backed by the ability to pay and the
willingness to buy that commodity”.

5. For Example :- the demand for sugar by a
family is 10kg per month, when price of sugar
is Rs 30 /- kg.
So as u can see the reference of price and time
is essential. This is because demand is different
at different prices and times. Thus demand is A
RELATIVE concept/term

6.  Individual Demand:- It refers to demand for
a commodity by a SINGLE BUYER, at a given
price , during a point of time .
For example:- Rahul demands for a shirt. This
is individual demand.

7.  Market Demand:- It refers to the TOTAL
DEMAND for the commodity from ALL THE
BUYERS taken together.
For example:- All SYJC commerce students
demand 12th std economics textbook. This is
market demand.

8.  Competitive Demand:- When the want can be
satisfied by more than one commodity, then
the demand is called competitive demand.
For example :- for thirst coke as well as pepsi,
tea and coffee, lux and cinthol, maggi and
yippee noodles.

9.  Composite Demand:- When a single
commodity is demanded to satisfy various
wants, its demand is said to be composite in
nature. Thus single commodity having
multiple uses is said to be composite
demand.
For example:- Electricity ,Water, Milk etc

10.  Direct Demand:- When the demand for the
commodity is for direct consumption, it is
called direct demand. All consumer goods
have direct demand because they are
demanded for consumption.
For example:-
Soap, Shampoo, food , clothes etc.

11.  Indirect Demand/ Derived Demand:- When
the commodity is demanded not for it own
sake but to help to produce some other
commodity is said to have derived demaand
or indirect demand.
For example:- Demand for factors of
production like land , Labour, capital etc.
Money also has indirect demand or derived
demand.

12.  Joint demand or Complementary Demand:-
When two or more goods are demanded
simultaneously to satisfy a single want, their
demand is joint in nature.
For example:- Car and Petrol, printer and
Cartridges, pen and paper,DVDs and DVD
players,Computer and high speed internet.

13. Price :- Price is one of the most important
factors that affect demand,when prices
rises,demand goes down and when price falls
demand rises.
P D & P D
 Income:-Income is one more important factor
that affect demand. Demand depends upon
income of an individual and the society.So
when increase in income means one can buy
more.
=
=
=
-
-
-
-
-
-
-
-
-
-
-
-
-

14. Fashion:-Some goods are demanded on account of
fashion , goods out of fashion will not have demand.
Utility:- Demand for any commodity arises because
of its utility to the consumer. The higher the utility
the greater is the demand for it and vice versa.
Advertisement:- The goods which are advertised
powerfully on radio , television and newspapers etc,
tend to have more demand.

15. Tastes & Habits:- Demand for many goods depends on
the person’s tastes and habits and preferences. Demand for
several products like chocolates, bhel- puri, ice creams etc
depends on an individual’s tastes. Demand for tea, coffee,
betel nuts(supaari),Tobacco is a matter of habit.
 Taxation Policy
 Population
 Expectation about future prices
 Price of Complementary goods
 Price of Substitute goods

16. Factors affecting
Demand
Price
Income
Utility
Adverti
sement
Tastes
&
HabitsTaxatio
n Policy
Populati
on
Expecta
tion
about
future
price
Price of
comple
mentary
Price of
Substitu
te goods

17. Definition :- An individual demand schedule
refers to demand for a commodity by a single
buyer, at a given price, during a period of
time.It is a micro economic concept. For Eg:-
Demand for a shirt by a person is individual
demand.
Demand Schedule:- Tabular representation of
quantity at various prices is called as demand
schedule.

18. Mr .Ajay Demand Schedule
Price Quantity Demanded
5 1
4 2
3 3
2 4
1 5

19. Explanation :- In the above schedule, At price Rs 5, Qty
Demanded is 10 units.
As th price reduces to Rs 1 , Qty demanded increases to 50
units. The individual demand schedule shows an inverse
relationship between price and demanded.
Demand Curve:- Graphical representation of Qty
demanded at various prices is called as demand curve.
Individual Demand curve:- When individual demand
schedule is plotted on the graph, we get Individual
Demand Curve

20. On x-axis Qty
demanded is measured
and price is measured
on y-axis. At Rs 1 qty
demanded was was 5
units. As we can see as
price increases qty
demanded
decreases,this shows
inverse relationship
between price and
demand. And demand
curve moves from left to
right and downward
slope.

21.  Demand curve slopes downward from left to
right.
 Negative Slopes.
 Inverse relationship.

22.  Definition
 Market Demand schedule
 Demand curve
 Explanation

23. The law of demand states the relationship
between the price of the commodity and the
quantity of that commodity demanded,
assuming other things remain constant.
Dr Alfred Marshall in his book “Principles of
Economics” has explained the law of demand
as follows :
“ Other things being equal, the quantity
demanded increases with a fall in price &
diminishes with a rise in price”.

24. It can be presented as,
D=F(P)
i.E Demand is function of price.
The relation between demand and price is inverse or negative.
P D
P D
The law of demand can be explained with the help of
Following schedule and diagram.
-
-
-
-
-
-
-

25. Price of commodity X per
Kg(Rs)
Demand (kg)
10 10
8 20
6 30
4 40
2 50

27.  It is conditional.
 Based on assumptions.
 It is always stated with “ other things being
equal”.
 It relates to change in price variable only, that
means other determinants of demand to be
constant.

28.  No change in taste,habits, preferences etc.
 No change in income of the consumer.
 No chande in size of population.
 No change in fashion
 No expectation of change in future price.
 No change in the taxation policy
 No change in price of complementary or
substitute goods.
 No change in technology.

29.  The law of demand does not hold true in all cases . In
certain cases, the demand curve slopes upwards. The
exceptions to the law of demand are:-
1. Giffen goods or inferior goods:- Inferior goods are
those whose demand does not rise even if their
price falls. At times, the demand decreases, when
the price of such goods falls.
Sir Robert Giffen, a british economist observed this
behaviour in England in relation to inferior goods such
as bread.
When the price of bread falls the demand for bread also
falls & when the price of bread rises the demand for
bread expands. This is known as Giffen’s paradox.

30.  The demand curve of
inferior goods slopes
upward which shows
direct relation between
Price and demand.
 Price rises demand
rises and price falls
demand falls.
 Inferior goods may be
vanaspati ghee,rice,
cheap bread etc.

31. 2. Prestige goods:- Diamonds, High priced cars, luxurious Banglows
are presige goods.Such goods have a ‘ Snob appeal’. Some rich people
consume such good as status symbol. Therefore ,when the price of such
goods rises their demand also rises.
3. Price Illusion or consumer’s psychological bias:-
When consumer believe that high priced goods are of a better
quality. Therefore the demand for such goods tends to increase with
the rise in their price. And if the price falls they feels that it is of a
lower quality and demand for it would fall.

32. 4.Demonstration effect:-The tendency of low income groups to
imitate the consumption pattern of high income groups is called
demonstration effect.
For eg:- Latest Mobiles, Television, branded cosmetics etc.
5.Ignorance effect :- Sometimes price of a commodity may decrease,
But if the consumer is ignorant of price fall, he does not demand more
Than before and vice versa. This is due to lack of knowledge the
existing market price.
6.Speculation :- The law of demand will not hold good when people
expect change in price. Such type of behaviour can be observed on
the stock exchange.
7. Habitual goods:- Certain goods like tobacco, alcohol, cigarettes etc
purchased even at the higher prices.

33. Exception
to the law
of demand
Giffen
goods or
inferior
goods
Prestige
goods
Price
Illusion
Demonstration
effect
Ignorance
effect
Speculation
Habitual
Goods