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Theory of demand


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Theory of demand

  1. 1. -Suvarna Kamble.
  2. 2.  It refers to the quantity of a good or service that consumer are willing and able to purchase at various prices dealing a period of time. In Economics, demands refer to effective demand ,which implies three things: Desire Ability to Pay Willingness to Pay.
  3. 3.  Price of the commodity Income of the consumer Tastes and preferences Prices of related goods Advertisement and sales propaganda Consumer’s Expectation Growth of Population Weather conditions Tax rate Availability of credit Pattern of saving Circulation of money
  4. 4. Is any good or service produced for sale in the market.
  5. 5.  Individual and market Demand: The quantity of a commodity which an individual is willing to buy at a particular price of the commodity during a specific time period is known as “Individual Demand”. The total quantity which all the consumers of a commodity are willing to buy at a given price per time unit is known as “Market Demand”.
  6. 6.  Demand For Firm’s Product and Industry’s Products: The quantity of a firm’s produce that can be disposed of at a given price over a time period denotes the demand for the ‘Firms Product’. The aggregate of demand for the product of all the firms of an industry is known as the market demand for industry’s product.
  7. 7.  Autonomous and Derived Demand: Autonomous Demand for the commodity is one that arises independent of the demand for any other commodity. eg: Food ,clothes , shelter etc. Derived Demand is one that is tied to the demand for some Parent Product eg: Demand for land ,Fertilizers etc.
  8. 8.  Demand for Durables and Non Durables goods: Durable goods are those, whose total utility (or use) is not exhausted by a single use. Such goods can be used repeatedly or continuously over a period. Non Durable goods are those which can be used or consumed only once (eg: food items) and their total quantity is exhausted in a single use.
  9. 9.  Short term and long term demand: Short term demand refers to the demand for such goods as are demanded for short period. Eg: seasonal goods and fashion consumer goods. Long term demand is which exist for longer period eg: Durables . Joint Demand and Composite Demand : When two or more goods are jointly demanded at the same time to satisfy a single want it is called joint or complementary demand. Eg: Pen and ink, Tea and sugar, cars and petrol
  10. 10.  Direct and Indirect Demand : Demand for goods that are directly used for consumption by the ultimate consumer is knows as direct demand. Eg: bread ,Tea, Readymade Shirts , Scooters etc. Indirect Demand is the demand for goods that are not used by consumers directly. They are used by producers for producing other goods . Total Market and Market Segment Demand: The total market demand will be aggregate demand for the product from all the segments while market segment demand would refers to demand for the product in that specific market segment.
  11. 11.  The demand function is an algebraic expression of the relationship between demand for a commodity and its various determinants that affect this quantity.
  12. 12.  Individual Demand function D=f(P) Market Demand Function Dx=F(Px,Pr,M,T,A,U) Where,Dx=Quantity demanded for commodity x, F=functional relation Px=Price of commodity x Pr=Prices of related commodities M=Money Income of the consumer T=The taste of the consumer A=Advertisement effect U=Unknown variables
  13. 13.  Law of demand explains the relationship between change in the quantity demanded and change in price. It states that higher the price , the lower would be the quantity demanded in the market. In other words , the law of demand says that the price and the quantity demanded in the market are inversely related ,all other things being equal.
  14. 14.  “The amount demanded increases with fall in price, and diminishes with a fall in price” Thus it Expresses an inverse relation between Price and Demand. The Law refers to the direction in which quantity demanded changes with a change in price.
  15. 15.  Income level should remain constant Tastes of the buyer should not change Prices of other goods should remain constant No new Substitutes for the commodity Price rise in future should not be expected
  16. 16.  Demand Schedule is a table or a chart which shows the relationship between price and demand of a commodity or service unit of time. Demand schedule establishes a functional relationship between independent variable price and dependent variable demand.
  17. 17.  The Graphical representation of the demand schedule is the demand curve Individual Demand curve indicates the quantity of the commodity that an individual will buy at different Prices.
  18. 18.  According to Law of Demand ,more of the commodity will be demanded at lower prices, than at higher prices, other things being equal. The Law of Demand is valid in most of the cases ,however there are certain cases where this law does not hold good. The following are the important exceptions to the law of Demand:
  19. 19.  Conspicuous goods Giffen goods Necessities of Life Conspicuous Necessities Future Expectations about Prices Impulsive Purchases Ignorance Effect Outdated Goods