DEMAND

WHAT IS DEMAND?

• Demand refers to the quantity of

a commodity or a service that
people are willing to buy at a
certain price during a particular
time.
 DEMAND FUNCTION
• It is an algebraic expression which
shows the functional relationship
between demand for a commodity
and its various determinants
affecting it.
• DX=F(PX,PR,Y,T,F,PO,S,D)
 DETERMINANTS OF DEMAND
• PX(Price of given good):if the price of the
commodity decreases its demand will increase
and vise-versa.the demand for a commodity is
inversely related to its price
• PR(Price of Related goods):Demand also
changes due to change in price of the related
goods i.e. substitute or complementary.
• Y(Income of a consumer): Increase in
income of a consumer leads to an increase
in purchasing power of quantity demanded.
• T(Taste And Preferences): Demand for a
commodity can also change due to change
in taste, preference and fashion.
EX: Trousers and dhotis
• P(Population):A change in size of the
population will affect the demand for
certain goods.
• Technological change: As new discoveries
enter into the market the old goods are
substituted by the new goods.EX: mobile
and landline.
 LAW OF DEMAND
• According to MARSHALL “the amount
demanded increases with the fall in price and
diminishes with the rise in price ,being other
things remaining constant”
• Law of demand explains the relationship
between the price and quantity demanded.
DEMAND SCHEDULE AND GRAPH
 ASSUMPTIONS
• No change in income of a consumer
• No change in taste and preference of a
consumer.
• No change in price of the related goods.
• No new substitute are discovered.
• No expectation of future price change.
 EXCEPTIONS
• Giffen’s Paradox
• Veblen Effect(prestigious goods)
• Speculation effect
• Illusion
 ELASTICITY OF DEMAND
• Elasticity of demand means percentage
change in quantity demand in response
percentage change in one variable on which
the demand depends.
• Ed=%change in quantity demanded/% change
in price.
 TYPES OF ELASTICITY
• Perfectly elastic demand:
small change in price causes
infinite change in quantity
demand. It is also called as
horizontal curve and Ed=∞
• Perfectly Inelastic Demand:
change in price does not have
any influence or change in
demand curve. It is also called
as vertical curve and Ed=0
• Relatively Elastic Demand(Ed>1):
Small percentage change in
the price of the commodity
leads to greater percentage
change in quantity demanded.
The demand curve is flatter
• Relatively Inelastic Demand(Ed<1):
percentage change in price
of commodity leads to
smaller percentage
change in quantity demanded.
The demand curve is steeper.
• Unitary Elastic Demand(Ed=1):
percentage change in the price of the
commodity leads to equal percentage change
in quantity demanded.
THANK YOU