Embed Size (px)
DESCRIPTION
The presentation introduces the concept of Demand.
Citation preview
Theory of Demand
What is Demand and Quantity Demanded?
Quantity demanded is a particular amount the buyers are willing and able to buy at a given price during a given time, other things being equal.Demand is the quantities that buyers are willing and able to buy at alternative prices during a given period of time, other things being equal.
What are the elements of Demand?
Desire for a commodity
Money to fulfill that desire
Readiness to spend money
What is a demand Schedule? Individual demand schedule
Quantity of a given commodity which a consumer will buy at all possible prices, at a given moment.]
Market Demand Schedule
Total demand of all consumers in the market at difference prices of the commodity
What is a Demand Curve? Individual Demand Curve : represents different quantities of the commodity demanded by a consumer at different prices
Market Demand Curve : The horizontal summation of the individual demand curves.
0 2 4 60
5
10
15
Quantity
Pri
ce
What is the LAW OF DEMAND? Law of demand states that other things remaining constant; quantity demanded of a commodity increases with a fall in price and diminishes when price increases.
Assumptions
1. Tastes and preferences of the consumer remain constant.
2. No change in the income of the consumer.
3. Prices of related goods do not change.
4. Consumers do not except any change in the price of the commodity in the near future.
0 2 4 60
5
10
15
Quantity
Pri
ce
What are the Reasons for Downward Sloping Demand
Curve? 1. Law of Diminishing Marginal Utility
2. Income Effect: Positive/ Negative
3. Substitution effect
4. Size of the consumer group
5. Different Uses
What are the Exceptions to the Law of Demand?
Analysed by Sir Robert Giffen
Causes are:
1. Articles of Distinction
2. Ignorance
3. Giffen goods :
All giffen goods are inferiors goods, but all inferior goods are not giffen goods.
Negative income effect is always stronger than positive substitution effect. 0 2 4 6
0
5
10
15
Quantity
Pric
e
What do we mean by Change in Quantity Demanded?
Extension of Demand
0 2 4 60
5
10
15
Quantity
Pric
e
Contraction of Demand
0 2 4 60
5
10
15
Quantity
Pric
e
What do we mean by Change in Demand?
Increase in Demand
0 2 4 60
5
10
15
Quantity
Pric
e
Decrease in Demand
0 2 4 60
5
10
15
Quantity
Pric
e
What are the Causes of Change in Demand?
1. Prices of Related Goods: Substitutes/ Complements
2. Change in Income: Normal Goods/ Inferior Goods
3. Impact of Tastes and Preferences for a commodity
Thank you!
