Demand: It is the quantity of a good or service that customers are willing and able to purchase during a specified period under a given set of economic conditions. Direct DemandDerived Demand

Demand Function: Q x = f (P x, I, P y, T ) Demand Function: Q x = f (P x, I, P y, T ) Demand Curve: It shows the relationship between the quantity demanded of a commodity with variations in its own price while everything else is considered constant.

The Law of Demand: The inverse relationship between the price of a commodity and the quantity demanded per time period is referred to as the law of demand. Q 0 P1P1 Q1Q1 P2P2 Q2Q2

Utility Theory Utility is a measure of the satisfaction a consumer derives from consuming goods and services. Marginal Utility: Whereas total utility measures the consumer’s overall level of satisfaction derived from consumption activities, marginal utility measures the added satisfaction derived from a one unit increase in consumption of a particular good or service, holding consumption of all other goods and services constant.

Indifference Curve: It represents different combinations of two commodities which gives the consumer the same level of satisfaction. The Law of Diminishing Marginal Utility: This simply says that as a consumer increases the consumption of a particular commodity, the marginal utility gained from consumption eventually declines.

X Y Indifference Curves

X Y 0 Budget Line : I = P x Q x + P y Q y Y*Y* X*X*

x1x1 x2x2 x3x3 P1P1 P2P2 P3P3 x1x1 x2x2 x3x3 X X Y Y

A X1X1 B X2X2 C X3X3 X Y Subs.Income Income & Substitution Effect of a Price Change

P1P1 Q1Q1 0 Q x = f (P x, I, P y, T ) Q2Q2 Normal Good Q3Q3 Inferior Good

Market Demand Curve: It is the horizontal summation of all the individual demand curves for a commodity. Individual 1 P1P1 Q1Q1 Individual 2 P1P1 Q2Q2 Market Demand P1P1 Q 1 +Q 2 P2P2