DEMAND

DONE BY:
ROHINI PRADHAN

MEANING OF
DEMAND
Demand for any commodity

refers to the amount of that

commodity that will be
purchased at a particular
price during a particular
period of time.

INDIVIDUAL
DEMAND vs.
MARKET DEMAND
The demand for a commodity

by a single consumer is
known as individual demand.
An individual consumer is
known as household in
Economics.

 The sum total of demand by

all households or individuals

is known as market demand.
Thus, market demand refers
to the total quantity of a
commodity that all the
households are prepared to
buy at a given price during a
specified period of time.
DETERMINANTS OF
DEMAND/ FACTORS
DETERMINING DEMAND
Price of the commodity.
Income of the consumer Normal goods.

 Inferior goods.
Inexpensive necessities of life.
Consumers taste and

preference.
Price of related goods.
Substitute goods or

competitive goods.
Complementary goods.
Consumers expectations
Consumer- credit facility.
Size and composition of the

population.
Distribution of income.
Government policy.

LAW OF DEMAND
The law of demand shows the

functional relationship
between price and quantity
demanded. Law of demand is
one of the best known and
most important laws of
economic theory. The price
and quantity demanded
moves in opposite direction.

STATEMENT OF
THE LAW
The law of demand can be

stated as:

 Other things remaining

constant, the quantity

demanded of a commodity
increases when the price falls
and decreases when its price
rises.
Thus, the law of demand

indicates an inverse
relationship between the
price and the quantity
demanded of a commodity.

ASSUMPTIONS

The law of demand assumes that other things

remaining constant i.e., assumption of ceteris
paribus order. Demand for a commodity not only
depends upon the price, but also on many other
factors, e.g., consumers income, price of the
related goods, consumers taste and preferences,
etc. these other factors influencing the demand
are assumed to be constant.

Thus the law of demand are based on the

following assumptions:

There should be no change in the income of the

consumer.

There should be no change in the taste and

preference of the commodity.

Price of the related commodities should remain

unchanged.

Size of population should not change.

The distribution of income should not change.

The commodity should be a normal

commodity.

DEMAND
SCHEDULE
A demand schedule is one of the way of
showing the relationship between the
price of the commodity and the
quantity demanded. It is a table
showing different quantities of a
commodity that would be demanded at
different prices.

Demand schedule is of two types:

Individual demand schedule.
Market demand schedule.
Individual demand schedule is the table
which shows various quantities of a
commodity that would be purchased at
different prices by a household.

 Market demand schedule is a table

which shows various quantities of a
commodity that all buyers (consumers)
will purchase at different prices during
a given period.

WHY DOES THE DEMAND

CURVE SLOPE
DOWNWARDS TO THE
RIGHT?

Negatively sloping demand curve or inverse

relationship between price and quantity
demanded can be explained in terms of the
following factors:

Law of diminishing marginal utility- The law

of diminishing marginal utility states that with
increase in the units of a commodity consumed,
every additional unit of the commodity gives a
lesser satisfaction to the consumer.

Income effect- A change in demand on account

of change in real income resulting from change
in the price of a commodity is known as income
effect.

Substitution effect- The substitution effect is

the effect that a change in relative prices of
substitute goods has on the quantity
demanded.

Increase in the number of consumers- When

the price of the commodity falls, the number of
consumers increases and this tends to raise the
demand for the commodity.

Several uses of the commodity.

EXCEPTIOMS TO THE
LAW OF DEMAND

Law of demand is considered to be valid in

most of the situations. But in actual practice,
law of demand may not operate in many cases.
Many a times, we observe that more quantity
of a commodity is demanded at a higher price,
and less of it is purchased at a lower price. In
these situations, the inverse relationship
between price and the amount purchased does
not hold good. These are known as exceptions
to the law of demand. There may be several
reasons for an upward sloping demand curve:

Geffen goods

Articles of snob appeal

Exceptions regarding future prices

Emergencies

Quality- price relationship

CHANGE IN QUANTITY
DEMANDED-MOVEMENT
ALONG THE DEMAND CURVE

When the amount demanded changes (rises or

falls) as a result of change in its own price,
while other determinants of demand (like
income, tastes and prices of related goods)
remain constant, it is known as change in
quantity demanded. Change in quantity
demanded are of two types:

Extension in demand- When the quantity

demanded of the commodity rises due to fall in
its price, other things remaining constant, it is
called rise in quantity demanded or
extension in demand.

Contraction in demand- Contraction of

demand or fall in quantity demanded refers
to a fall in quantity demanded of a commodity
as a result in the rise in its price, other things
remaining constant.

CHANGE IN
DEMAND- SHIFT IN
DEMAND CURVE

 When the amount purchased of a

commodity rises or falls because
of change in factors other than
price of the commodity, is called
change in demand. Change in
demand are of two types:
Increase in demand- Increase in
demand refers to a situation
when the consumer buy a larger
amount of the commodity at the
same price.
Decrease in demand- Decrease in
demand refers to a situation
when the consumers buy a
smaller quantity of the
commodity at the same price

FACTORS WHICH CAUSE

CHANGE IN DEMAND

Increase in demand results from:

Increase in income.

Rise in the price of the substitutes goods.

Fall in the price of the complementary goods.

Favorable change in tastes and preference.

Exception in rise in price.

Increase in population.

Decrease in demand results from:

Decrease in income.

Fall in the price of the substitutes goods.

Rise in the price of the complementary goods.

Unfavorable change in tastes and preference.

Exception in fall in price.

DISTINCTION BETWEEN
EXTENSION OF DEMAND AND
INCREASE IN DEMAND
Extension of demand refers to a larger
quantity being purchased due to the
fall in the price of the commodity,
while increase in demand refers to
more being purchased at the same
price.

Extension of demand is due to fall in its

own price of the commodity, while
increase in demand is due to change in
other factors affecting demand.

Extension of demand simply involves a

downward movement along the same
demand curve, but increase in demand
results in rightward movement of the
entire demand curve.

DISTINCTION BETWEEN
CONTRACTION OF DEMAND AND
DECREASE IN DEMAND

Contraction of demand means

fall in amount purchased due to
rise in the price of the
commodity, while decrease in
demand means smaller amount
being purchased at the same
price.
Contraction of demand is due to
rise in own price of the
commodity; decrease in demand
is due to change in other factors
affecting demand.

 Contraction of demand simply

means upward movement along
the demand curve, but decrease
in demand results in the leftward
shift in the entire demand curve.

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YOU!!