Micro Economics is a branch of economics. Topics Covered will be enough for understanding the concepts

1. INTRODUCTORY
MICRO- ECONOMICS
UNIT II : DEMAND AND SUPPLY ANALYSIS
DR.SOWMYA. S

2. INTRODUCTION TO DEMAND
•What is Demand?
In general ‘Demand’ means desire, need, want or requirement of
commodity.
Demand refers to the quantity of a good or service that consumers are
willing and able to buy at various prices during a given period.
So, demand is an economic principle that describes a consumer’s desire
and willingness to pay a price for a specific goods and service.
It depends on price, income, tastes, prices of related goods, and
expectations.

3. DEMAND FUNCTION
What is Demand Function?
A demand function is a mathematical expression that shows the
relationship between the quantity demanded (Qd) and its
determinants (usually price, income, etc.).
Qd = f(P, Y, Pr, T, E)Where:
Qd​= Quantity demanded
P = Price of the good
Y = Consumer income
Pr​= Price of related goods
T = Tastes/preferences
E = Expectations
• Demand Function helps in forecasting, pricing and market analysis

4. LAW OF DEMAND
• Law of Demand states that there exist an inverse relationship between price and
quantity demanded, as the price decreases, the quantity demanded increases,
ceteris paribus (other things remaining constant).
• Inverse relationship means negative relationship showing downward sloping
demand curve

5. EXCEPTIONS TO THE LAW OF DEMAND

6. DETERMINANTS OF DEMAND
• PRICE OF THE COMMODITY: Inverse relationship between price of the commodity and
its quantity demanded.
• Price of Related Goods: two cases
 Substitute Goods: Tea And Coffee- Direct relationship between price of a commodity and
demand for its substitute
 Complimentary Goods: Ink and Pen- Inverse relationship between price of a commodity
and demand for its complimentary good.
• Income of the Consumer: Two cases
 Normal Goods: Direct relation- Demand of the commodity increases with increase in
income of the consumer.
 Inferior Goods: Inverse relation-Demand of the commodity decreases with increase in
income of the consumer

7. • Taste and Preference of the Consumer: Direct Relation- Favourable changes in
the taste and preference of the consumer increases the demand for the
commodity.
• Expectation of the consumer about future change in price of the commodity-
Direct relation.
• Size of population- Direct relation

8. CHANGE IN QUANTITY DEMAND
• Change in quantity demanded refers to a movement along the same demand
curve due to a change in the price of the good or service itself while all other
factors remain constant.
• Cause of change in quantity demand is due to change in the price of the good.
• Effect of change in quantity demanded is movement along the demand curve
there is no shift taking place.
• The effect of change in quantity demanded is often called as Expansion and
Contraction of quantity demanded.

9. EXPANSION OF DEMAND CURVE
• Expansion of the demand curve refers to an increase in the quantity demanded of a good
or service due to a decrease in its price, while all other factors remains constant.
• The changes takes place along the same demand curve – downward movement which is
caused due to decrease in price of the good and it increases the quantity demanded
• The Change is shown as:
Price: P to P1.
Quantity Demanded: Q to Q1.
Equilibrium Point: E to E1.

10. CONTRACTION OF THE DEMAND CURVE
• Contraction of the demand curve refers to a decrease in quantity demanded of a good due
to an increase in its price, while all other factors remains constant.
• The change takes place along the demand curve – Upward movement which is caused due
to increase in price of the good and it decreases the quantity demanded.
• The Change is shown as:
Price: P to P2.
Quantity Demanded: Q to Q2.
Equilibrium Point: E to E2.

11. SHIFT IN DEMAND CURVE
• Shift in demand curve refers to a change in the entire demand for a good due to factors
other than price . This means the quantity demanded changes at every price level , resulting
in a new demand curve .
• The shift in demand curve is called as Increase in Demand and Decrease in Demand.
• Increase in Demand is Rightward Shift
• Decrease in Demand is Leftward Shift

12. INCREASE IN DEMAND
• The rightward shift (Increase in Demand):
• More quantity is demanded at the same price – as Price does not change it remains
constant.
• The shift is caused due to:
Increase in income (Normal Goods)
Rise in Population
Change in taste & preference in favor
expectation of future price rise
Rise in price of substitute goods.

13. DECREASE IN DEMAND
• The Leftward shift (Decrease in Demand):
• Less quantity is demanded at the same price – as Price does not change it remains
constant.
• The shift is caused due to:
Decrease in income (Normal Goods)
Fall in Population
Unfavorable Changes in taste & preference in favor
expectation of future price fall
Fall in price of substitute goods.