1. What is DEMAND??? Need/ Want /Desire Willingness to Pay Ability to Pay
Definition:
“Demand” is the relationship between the prices of a commodity & the amounts of the commodity which consumers want to purchase at those prices.
According to Prof. Hibdon,“ Demand means the various quantities of goods that would be purchased per time period at different prices in a given market.”

2. Demand for a commodity has always a reference to a “Price” a “Period of Time” and a “Place”.
TYPES OF DEMAND:
Individual Demand
Market Demand
Demand of A
Demand of B
Demand of C
Market Demand 5 7 3 15

3. Determinants of Demand
Price of good x (Px)
Prices of substitutes of x (Ps)
Prices of compliments of x (Pc)
Consumer’s tastes & preferences (T)
Consumers’ expectations about future prices (Ep).
Consumers’ expected future incomes (Ey)

4. Number of consumers (N)
Distribution of consumers (D)
Other determinants (u)
DEMAND FUNCTION :
Dx= f (Y,Px,Ps,Pc,T,Ey,Ep,N,D,u)

5. Demand schedule :
A demand schedule is a table showing how much of a given product a household would be willing to and able to buy at different prices.
Demand curves are usually derived from demand schedules.

6. Demand curve
The demand curve is a graph illustrating how much of a given product a household would be willing to buy at different prices.

7. Factors affecting Demand (Determinants of Demand)
A household’s decision about the quantity of a particular product demanded depends on:
1. The price of the product in question.
2. The income available to the household.
3 The prices of other products (substitutes and complements) available to the household.
4. The household’s tastes and preferences.
5. The household’s expectations about future income, wealth, and prices.

8. Assumption of Law of Demand
We use “all else equal” device, to examine the relationship between the quantity demanded of a good per period of time and the price of that good, while holding income, wealth, other prices, tastes, and expectations constant. (In Latin, it is called “Ceteris paribus”)

9. The Law of Demand Price and Quantity Demanded:
The law of demand states that there is a negative, or inverse, relationship between price and the quantity of a good demanded and its price.
This means that demand curves slope downward.

10. LAW OF DEMAND
According to Bilas, “The Law of Demand states that other things being equal, the quantity demanded per unit of time will be greater, the lower the price and smaller, higher the price.”

11. Reasons for the Law of Demand
Substitution Effect
Income Effect
New consumers
Different uses of the commodity

12. Exceptions to the Law of Demand
1. Inferior goods or Giffen goods : Sir Giffen pointed out that in the case of English workers the Law of Demand does not apply to bread. With a fall in the price of bread its amount demanded was reduced rather than being more than before.
Their 2 main items of consumption are: 1. Bread 2. Meat. As the price of bread fell in the market, they could purchase the same amount of bread with less money. The money saved thereby was not spent on purchasing more bread. Rather it was spent on purchasing more of meat, a superior commodity for the English workers. This reduced the demand for bread as its price went down.

13. 2. Articles of Distinction (Veblen Goods):
This exception was first explained by the American economist, Veblen.
E.g. Diamond and expensive Jewellery. Their demand is more when their price is high
3. Expectation of rise and fall in price in future: If people expect a rise in price in future, they will rush to purchase more of the commodity at the present price and vice - versa. E.g. Onion, Real Estate etc.

14. 4. Ignorance on the part of consumers about quality
It happens many times that consumers judge the quality of a commodity from its price. In such cases, a lower priced commodity may be considered inferior and purchasers buy lesser amount of it. But when its price is more they consider it to be superior & may purchase more of the commodity than before.

15. Shift of Demand VS. Movement Along a Demand Curve
A higher price causes lower quantity demanded and a move along the demand curve DA.
Changes in determinants of demand, other than price, cause a change in demand, or a shift of the entire demand curve, from DA to DB.

16. Movement along demand curve VS. shift of the demand curve
To summarize:
Change in price of a good or service
leads to
Change in quantity demanded (Movement along the curve).
Change in income, preferences, or prices of other goods or services
leads to
Change in demand (Shift of curve).

17. The Impact of a Change in Income
Higher income decreases the demand for an inferior good
Higher income increases the demand for a normal good

18. The Impact of a Change in the Price of Related Goods
Demand for complement good (ketchup) shifts left
Demand for substitute good (Poha / chicken) shifts right
Price of hamburger rises
Quantity of hamburger demanded per month falls

19. Elasticity

20. Elasticity – the concept
The responsiveness of one variable to changes in another
When price rises, what happens to demand?
Demand falls
BUT!
How much does demand fall?

21. Elasticity – the concept
If price rises by 10% - what happens to demand?
We know demand will fall
By more than 10%?
By less than 10%?
Elasticity measures the extent to which demand will change

22. Elasticity 3 basic types used: Price elasticity of demand
Income elasticity of demand
Cross elasticity of demand

23. Elasticity Price Elasticity of Demand
The responsiveness of demand to changes in price
Where % change in demand is greater than % change in price – elastic
Where % change in demand is less than % change in price - inelastic

24. Elasticity The Formula: % Change in Quantity Demanded
___________________________
Ped =
% Change in Price
If answer is between 0 and -1: the relationship is inelastic
If the answer is between -1 and infinity: the relationship is elastic
Note: PED has – sign in front of it; because as price rises
demand falls and vice-versa (inverse relationship between
price and demand)

25. Elasticity Price (£) Quantity Demanded
The demand curve can be a range of shapes each of which is associated with a different relationship between price and the quantity demanded.
Quantity Demanded