DEMAND:Demand for a commodity refers to the quantity of the commodity which an individual consumer or a household is willing to purchase per

unit of time at a particular price It implies: 1. desire of consumer to buy the product. 2. willingness to buy the product. 3. sufficient purchasing power in his possession to buy the product.

Determinants of Demand

General factors
1. Prices of the product itself : Substitution effect Income effect

2.

income of the consumer : In case of normal goods In case of inferior goods

Prices of related goods

Substitute goods case

Demand of coffee per week

P2

P1

Q1 Q2 Demand of tea per week

Complementary goods case

D

Demand of bread per day

p2

P1 D

Q2 Demand of butter per day

Q1

Expectations
The consumer make two kind of expectations: Related to their future income. Related to future prices of the goods and its related goods

Other factors
Taste and preferences of consumers

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THE LAW OF DEMAND

HOW CHANGES IN THE PRICE AFFECTS THE DEMAND

1. SUBSTITUTION EFFCT OF PRICE CHANGE

2. INCOME EFFECT OF PRICE CHANGE

 When substitution and real income effects are taken together ,we find the law of demand holds the normal goods. The law of demand is violated in the case of inferior goods.

Why demand curve slopes downwards???? Law of Diminishing Marginal Utility No. of consumers Income effect Substitution effect

EXCEPTIONS TO

LAW OF DEMAND

(1)GIFFEN GOODS

The income effect is stronger than substitution effect. Increase in the consumption of superior goods. Example: potatoes cereals, fruits

(2) Commodities which are used as status symbols

The more the value, the more will be their demand. Examples

Expectation of change in price

Future expectation and demand have positive relationship. Both move in same direction.

Individual Demand
Demand function

Individual demand function Market demand function

Individual and Market demand schedules

Market Demand

Determinants of market demand

Consumer Preferences
Income Prices of other goods

Example
Individual demand equations :

Q1 = 30.00 1.00P
Q2 = 22.50 0.75P Q3 = 37.50 1.25P

Market Demand versus Firm Demand

Change in demand & quantity demanded

Demand curve Demand schedules

CHANGE
Change in quantity demanded
Change in demand

Change due to change in price

Change due to change in factors other than price

Movement in the Same demand curve

increasing demand

Shift in the Demand curve

decreasing demand

extension

contraction

Extension & Contraction

Increasing & Decreasing

Total revenue, Marginal revenue & Demand curve

Total & Marginal Revenue

Price (Rs.)
10 9 8

Quantity
1 2 3

Total Revenue
10 18 24

Marginal Revenue (Rs.)

8 6

7
6 5 4 3 2 1

4
5 6 7 8 9 10

28
30 30 28 24 18 10

4
2 0 -2 -4 -6 -8

Marginal revenue derived from demand equation :

Demand equation : Q=B +apP, where ap <= 0
TR = PQ = -B Q + Q2 ap ap

MR = d (PQ) = - B + 2Q dQ ap ap

Nature of Demand

1)Derived Demand & Autonomous Demand

Piece of Wood

2)Demand for Producers goods & Consumers goods

 Durable goods Non-durable goods

3)Demand for Durable goods and Non-durable goods

Durable Goods
Replacement Demand e.g. Mobile

New Demand e.g. Household

Non-durable goods
Perishable goods e.g. Fruits, vegetable

Non-perishable goods e.g. sugar, pulses

4) Industry Demand & Firm Demand

Market Categories
Monopoly Oligopoly Pure/perfect competition Monopolistic competition