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CONCEPT OF DEMAND DEMAND FOR A COMMODITY REFERS TO THE NUMBER OF UNITS OF A PARTICULAR GOODS OR SERVICE THAT CONSUMERS ARE WILLING AND ABLE TO PURCHASE.

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Presentation on theme: "CONCEPT OF DEMAND DEMAND FOR A COMMODITY REFERS TO THE NUMBER OF UNITS OF A PARTICULAR GOODS OR SERVICE THAT CONSUMERS ARE WILLING AND ABLE TO PURCHASE."— Presentation transcript:

1 CONCEPT OF DEMAND DEMAND FOR A COMMODITY REFERS TO THE NUMBER OF UNITS OF A PARTICULAR GOODS OR SERVICE THAT CONSUMERS ARE WILLING AND ABLE TO PURCHASE DURING A SPECIFIED PERIOD AT A GIVEN PRICE. CONCEPT OF DD DEMONSTRATES THE FOLLOWING CHARACTERISTICS : DEMAND IS ALWAYS WITH REFERENCE TO A PRICE. DEMAND IS REFERRED TO IN A GIVEN PERIOD OF TIME. CONSUMER MUST HAVE THE NECESSARY PURCHASING POWER TO BACK HIS DESIRE FOR THE COMMODITY. CONSUMER MUST ALSO BE READY TO EXCHANGE HIS MONEY FOR THE COMMODITY IN QUESTION.

2 DEMAND DETERMINANTS PRICE OF THE COMMODITY : 1 Q PRICE OF THE RELATED COMMODITIES SUBSTITUTE GOODS. DN PR. COMPLIMENTARY GOODS. DN 1 PR INCOME OF THE CONSUMER DN Y NORMAL GOODS. NECESSITES. INFERIOR GOODS. TASTES & PREFERENCES OF CONSUMER. EXPECTATIONS ABOUT FUTURE PRICE. P LAW OF DEMAND

3 OTHER FACTORS: SIZE AND REGIONAL DISTRIBUTION OF POPULATION. COMPOSITION OF POPULATION. DISTRIBUTION OF INCOME.

4 LAW OF DEMAND THE LAW OF DEMAND EXPRESS THE INVERSE RELATIONSHIP BETWEEN THE PRICE AND QUANTITY DEMANDED OF A COMMODITY, OTHER THINGS REMAINING THE SAME. IN OTHER WORDS, WHEN THE PRICE OF GOODS S, DD S AND WHEN P, DD, PROVIDED FACTORS OTHER THAN THE PRICE CHANGED.

5 THE LAW IS BASED ON THE ASSUMPTION THAT THE DETERMINANTS OF DD i.e. – INCOME OF CONSUMER. – TASTES & PREFERENCES OF THE CONSUMER. – PRICE OF THE RELATED GOODS. – FUTURE EXPECTATIONS, DO NOT CHANGE DURING THE OPERATION OF LAW. Y D P 1 PRICE P 2 D X Q 1 Q2 QUANTITY

6 WHY DEMAND CURVE SLOPES DOWNWARDS ? 1.LAW OF DIMINISHING MARGINAL UTILITY. 2.INCOME EFFECT. 3.SUBSTITUTION EFFECT. 4.CHANGES IN THE NUMBER OF CONSUMERS. 5.DIVERSE USES OF COMMODITY. EXCEPTIONS OF LAW OF DEMAND : 1.VEBLEN EFFECT CONSPICIOUS CONSUMPTION (SNOB APPEAL) PRESTIGE IS DIRECTLY ASSOCIATED WITH PRICE OF GOODS. 2.GIFFEN PARADOX : 3.EMERGENCY. 4.EXPECTATIONS ABOUT FUTURE PRICE.

7 DEMAND FUNCTION THE DD FUNCTION IS AN ALGEBRIC EXPRESSIN OF THE RELATION BETWEEN THE DEMAND FOR A COMMODITY AND ITS VARIOUS DETERMINANTS LIKE THE PRICE OF THE COMMODITY, THE PRICE OF THE RELATED GOODS, THE LEVEL OF DISPOSABLE INCOME, TASTES AND PREFERENCES. D N = f (P N, P R, Y, T, E, O) WHERE D N = QUANTITY DEMANDED OF COMMODITY N. P N = PRICE OF THE COMMODITY N. P R = PRICE OF A RELATED COMMODITY. Y = INCOME OF THE HOUSEHOLD. T = TASTES & PREFERENCES OF THE HOUSEHOLD. E = EXPECTATION

8 CAUSES OF CHANGE IN DEMAND INCREASE IN DEMAND: IN INCOME & WEALTH OF THE PEOPLE. IN THE POPULATION. IN THE PRICES OF SUBSITITUTE GOODS. IN THE PRICES OF COMPLEMENTARY GOODS. EXPECTATIONS OF RISE IN PRICES IN FUTURE. CHANGES IN TASTES, PREFERENCES, HABIT, CUSTOMS IN FAVOUR OF A COMMODITY.

9 DECREASE IN DEMAND: IN INCOME & WEALTH OF THE PEOPLE. IN THE POPULATION. IN THE PRICES OF SUBSITITUTE GOODS. IN THE PRICES OF RELATED GOODS. EXPECTATIONS OF FALL IN PRICES IN FUTURE. S IN TASTES, PREFERENCES, HABIT, CUSTOMS, AGAINST A COMMODITY.

10 SHIFT IN DEMAND CHANGE IN QUANTITY DEMANDED : WHEN PRICE S, OTHER VARIABLES (Y, P R, T) ARE HELD CONSTANT – IT IS CALLED CHANGE IN QUANTITY DEMANDED. UPWARD MOVEMENT IS KNOWN AS CONTRACTION OF DEMAND. DOWNWARD MOVEMENT IS KNOWN AS EXPANSION OF DEMAND.

11 CHANGE IN DEMAND : IF THE PRICE HELD CONSTANT, OTHER VARIABLES (i.e. Y, PR, T) CHANGES, THEN IT IS CALLED CHANGE IN DEMAND. PRICE D D 1 D D 2 P 2 E 2 E 1 E E 2 P E D 2 P 1 E 1 D D D 1 Q 2 Q Q 1 Q 1 Q Q 2 QUANTITY CHANGE IN QUANTITY DEMANDED DEMAND

12 Increase in Demand (Upward or Rightward Shift in Demand ) Decrease in Demand (Downward of Leftward Shift in Demand) (i)Increase in income and wealth of the people. (i)Decrease in income or wealth of the people. (ii)Increase in the population.(ii)Decrease in the population. (iii)Increase in the prices of substitute goods. (iii)Decrease in the prices of substitute goods. (iv)Decrease in the prices of complementary goods. (iv)Increase in the prices of complementary goods. (v)Expectations of rise in prices in future. (v)Expectation of fall in prices in future. (vi)Changes in tastes, preferences, fashions, customs, habits, etc. in favour of a commodity. (vi)Changes in tastes, preferences, fashions customs, habits, etc. against a commodity.

13 DEMAND CLASSIFICATIONS * AUTONOMOUS DEMAND & DERIVED DEMAND. * NON DURABLE GOODS DEMAND & DURABLE GOODS DEMAND. * COMPANY DEMAND & INDUSTRY DEMAND. * SHORT RUN & LONG RUN DEMAND. * MARKET SEGEMENT DEMAND AND TOTAL MARKET DEMAND.


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