Demand A consumer is said to constitute demand for a product or a commodity if he/she has the ‘willingness’ (i.e. desire) as well as the ‘ability’ (purchasing capacity) to buy it. The basis of consumer demand is ‘utility’ (the want satisfying power of a commodity). DEMAND FUNCTION D n = f (P n , P r, Y, T, E, O)

Factors affecting individual’s demand: Price of the product; Prices of related commodities (substitutes / complements); Income level of the consumer; Consumer’s tastes and preferences for the product; Future expectations; Other factors (advertising expenditure made by the producers of the commodity, climatic conditions etc.).

Law of Demand THE LAW OF DEMAND: Other factors (affecting demand) kept constant, there exists an inverse relationship between ‘price’ of a commodity and its ‘quantity’ demanded. That is, as the price of a good rises, its quantity demanded falls, and vice versa. EXCEPTIONS Giffen goods Expectation of future rise in prices Goods having social prestige value (Veblen goods) Change in fashion Goods with no substitutes

Demand Schedule and Demand Curve

Individual demand: The individual’s demand for goods and services in a given period of time is called individual demand. Market Demand: Market demand is the sum total of the demands of all individuals (in a society) over a given period of time.

WHY DOES THE DEMAND CURVE SLOPE DOWNWARDS Law of diminishing marginal utility Income effect Substitution effect

Change in Quantity Demanded versus a Change in Demand Change in Quantity Demanded (extension or contraction in demand): a movement from one point to another point on the same demand curve caused by a change in the price of the good. Change in Demand (increase or decrease in demand): a shift in the demand curve, due to factors other than the price of the good. Increase in demand: a shift to the right Decrease in demand: as shift to the left