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Economics Notes
Q. No. 7: Answer: INTRODUCTION: Generally demand means desire. But in economics. Demand = Desire + Purchasing Power. It is common observation that when price of a commodity falls consumer buy more of it and with a rise in price consumer buy less of it. DEMAND: The quantity which a consumer is willing to purchase at a given price over a particular time period is known as demand. DEMAND FUNCTION: Qd = f(P) General Form Qd = Quantity Demanded f = function P = Price Qd = a b(P) standard form. Demand function expresses that quantity demanded depends upon price. There exist negative relation between price and Qd. LAW OF DEMAND: Demand expands with a fall in price and contracts with a rise in price. According to the ALFRED MARSHALL: Other things being equal, with a fall in price, the demand of the commodity is extended and with a rise in price demand is contracted. SCHEDULE: Price (Rs.) 50 40 30 20 10 Quantity Demanded 10 20 30 40 50 Define demand. Explain the law of demand with the help of schedule and diagram.

EXPLANATION: The above schedule shows that when price of a commodity is Rs. 50, consumer purchase 10 units. When price falls to Rs. 40 demand extends to 20 units. Similarly when price further falls, demand goes on to expand. This schedule also shows negative relation between price and quantity demanded.

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Economics Notes
y-axis D 50 P R 30 I C 20 E 10 0 10 20 30 40 50 40 a b c d e D/

EXPLANATION: In the above diagram, Qd is measured along x-axis while price on y-axis. Point a shows that when price is Rs. 50/- to Rs. 40/- demand expands from 10 units to 20 units. Similarly all points shows negative relation between price and quantity demanded. By joining points a, b, c, d & e, we get demand curve which is shown by DD /. The slope of demand curve is negative due to negative relation between price and Qd. ASSUMPTIONS: Law of demand is based on the following assumption. 1: Homogenous Units: It is assumed that units of a commodity are homogenous. If the lateral units are better in terms of quality, then with increase in price Qd may not contract. 2: Distinctive Use: The law does not hold if consumer purchases a commodity for distinctive purpose. 3: Weather Conditions: The law does not hold when weather changes. In summer season demand for AC increase even the prices are high. 4: No Change in Quantity of Money: If quantity of money increases demand for goods and services also increased. In this situation demand does not decrease with the rise in price. 5: No Change in Population: It is also assumed that the population does not increase. Because with an increase in population demand will increase instead of increase in price. LIMITATION: Following are the limitations. 1) Danger of Being Scarce. 2) Necessities of Life 3) Inferior/ Superior 4) Distinctive use 5) Weather condition

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