Law of Demand

It is one of the important laws of economics which was first

propounded by neo-classical economist, Alfred Marshall.
According to him, “Other things remaining the same, the
amount demanded increases with a fall in price and
diminishes with a rise in price.”

The law of demand states that all other things being equal,
the quantity bought of a good or service is a function of price.
As long as nothing else changes, people will buy less of
something when its price rises. They'll buy more when its
price falls. This means, there is inverse or opposite
relationship between quantity demanded and price of a
commodity.

This law is based on The Law of Diminishing Marginal

utility. According to this law, when a person consumes more
and more of a commodity, the utility from the latter units
declines. Law of demand is based on the
following assumptions;
 No change in the price of related commodities.

 No change in income of the consumer.

 No change in taste and preferences, customs, habit and

fashion of the consumer.

 No change in the size of the population

 No expectation regarding the future change in price.

This law can be explained with the help of a demand

schedule and the demand curve is presented below:

Price (In Rs) Quantity Demanded (In KG)

10 10
8 20
6 30
4 40
2 50
The above demand schedule shows a negative relationship
between price and quantity demanded a commodity.

Initially, when the price of a good is Rs.10 per kg, the

quantity demanded by the consumer is 10 kg. As the price
decrease from Rs.10 per kg to Rs.8 per kg and then to Rs.6
per kg, the quantity demanded by the consumer increases
from 10 kg to 20 kg and then to 30 kg respectively and so on.
We can show, the above demand schedule through the
following demand curve:

In the above figure, price and quantity demanded are

measured along the y-axis and x-axis respectively. By plotting
various combinations of price and quantity demanded, we get
a demand curve DD1 derived from points A, B, C, D, and E.
This is a downward sloping demand curve showing an inverse
relationship between price and quantity demanded.

Law of supply
The law of supply is the microeconomic law that states that
all other factors being equal, as the price of a good or service
increases, the number of goods or services that suppliers
offer will increase, and vice versa. The law of supply says
that as the price of an item goes up, suppliers will attempt to
maximize their profits by increasing the quantity offered for
sale.

Assumptions of Law of Supply:

(i) Nature of Goods. If the goods are perishable in nature

and the seller cannot wait for the rise in price. Seller may
have to offer all of his goods at the current market price
because he may not take risk of getting his commodity
perished.

(ii) Government Policies. The government may enforce

the firms and producers to offer products at the prevailing
market price. In such a situation producer may not be able to
wait for the rise in price.

(iii) Alternative Products. If a number of alternative

products are available in the market and customers to tend
to buy those products to fulfill their needs, the producer will
have to shift to transform his resources to the production of
those products.

(iv) Squeeze in Profit. Production costs like raw materials,

labor costs, overhead costs, and selling and administration
may increase along with the increase in price. Such
situations may not allow the producer to offer his products at
a particular increased price.
The concept of law of supply can be explained with the help
of a supply schedule and a supply curve:

Price per kg Quantity supplied

Rs. 10 50 kg
Rs. 8 40 kg
Rs. 6 30 kg
Rs. 4 20 kg
Rs. 2 10 kg
In the above schedule, we can observe that when the price
was Rs 10 per kg, quantity supplied was 50 kg. When the
price declined to Rs 8 and Rs 6, the quantity supplied also
decreased to 40 kg and 30 kg respectively and so on. This
shows that, as price decreases, quantity supplied decreases
and vice versa. We can present the above schedule in a
graph as follows:

The above figure shows the combinations of price and

quantity demanded as presented in the schedule above.
When the combination points are joint together, we get an
upward sloping curve (SS) known as the supply curve. It
shows the positive relationship between price and quantity
supplied.
Giffen goods
A Giffen good is a low-income, non-luxury product for which
demand increases as the price increases and vice versa. A
Giffen good has an upward-sloping demand curve which is
contrary to the fundamental laws of demand which are based
on a downward sloping demand curve.

Veblin goods
A Veblen good is a type of luxury good for which the demand
increases as the price increases, in apparent (but not actual)
contradiction of the law of demand, resulting in an upward-sloping
demand curve. The higher prices of Veblen goods may make them
desirable as a status symbol in the practices of conspicuous
consumption and conspicuous leisure.

Determinants of demand
Demand for a commodity depends upon many factors. Factors determining
the demand for a commodity are known as determinants of demand.
The important determinants or factors affecting the demand are as follows:

1. Price of the commodity: The most important determinant of demand is

the price of the same commodity. When the price of a commodity falls, its
quantity demanded will increase and vice-versa. It means that there is an
inverse relationship between the price and quantity demand for the
commodity.

2. Income of the consumer: Demand for a commodity change when the

income of the consumer changes. In the case of normal goods, when the
income of the consumer rises, the demand also increases and vice versa. But,
in the case of inferior goods, the demand for the commodity decreases with
the rise in income and vice-versa. It means that there is a positive relationship
between income and demand for normal goods and an inverse relationship
between income and demand for inferior goods. For example, branded
clothes kept to sell in shopping complexes are normal goods whereas low-
quality clothes kept in streets to sell are inferior goods.
3. Prices of the related goods: The demand for a commodity is also
determined by the change in the prices of related goods. There are two types
of related goods, which are as follows:

a) Substitute goods: Those goods are substitute goods, in which one can be
used in absence of another. In the case of these goods, if the price of one
rises, the demand for another rises and vice-versa. For example, tea and
coffee are substitute goods. If the price of tea increases, assuming the price of
coffee is constant, the demand for coffee will increase and vice-versa.

b) Complementary goods: Those goods are complementary goods, which are

jointly used to satisfy a particular want. In the case of these goods, if there is
a rise in the price of one good, assuming the price of a related good constant,
the demand for other goods will fall and vice-versa. For example, pen and
ink. If the price of a pen rises, the demand for ink will fall and vice versa.

4. Taste and preference of the consumer: Demand also depends on the

taste and preference of the consumer. The change in consumer's tastes and
preferences causes a change in demand for goods. If the taste and preference
of a commodity are in favor of the consumer, the demand for that commodity
will increase and vice-versa.

5. Advertisement: There is a great impact of advertisement. Goods, which

are widely advertised, become popular and consumers are attracted to those
goods. People can also take more information about various goods from the
advertisement. As a result, the demand for those goods increases

6. Income distribution: The distribution of income in society also affects the

demand for goods. If the distribution of income is more equal, then the
propensity to consume of the society will be relatively high. As a result,
demand for goods increases. If the distribution of income is more unequal,
the propensity to consume will be relatively low. As a result, demand for
goods decreases. If income distribution is in favor of the rich, demand will be
low. If income distribution is in the favor of the poor, demand will be high.

7. Size and composition of population: The size of the population also

affects the demand for goods and services. When the size of the population
increases, the demand for necessaries of life also increases and vice versa.
The composition of population means the proportion of young, old and
children as well as the ratio of men to women. The composition of the
population also affects the composition of demand. For example, if the
population of elderly people increases, the demand for medicine will
increase.

8. Consumer's expectation: If a consumer expects a rise in the price of a

commodity in the near future, he will demand more quantities of that
commodity at the present time so that he should not have to pay a higher
price in the future. Similarly, if the consumer expects he will have a good
income in the future, he will spend the greater part of his income at present
time. As a result, his present demand for goods will increase.

9. The availability of credit: Nowadays, the demand for many durable

consumer goods like cars, furniture, television, and other types of household
equipment depends very much on the provision of credit facilities. Such
credit facilities are provided by the banking sector on a monthly installment
basis. If there is any change in terms of this type of finance, there will be a
marked effect on demand for such types of goods.

10. Climate and weather: The demand for goods is also affected by the
climate and weather. In the winter season, the demand for warm clothes will
rise and during the summer, the demand for cotton clothes will rise.
Similarly, there will be high demand for umbrellas and rain coats during the
rainy season.

Determinants of supply or Factors affecting Supply

The supply of a commodity depends upon many factors. Factors determining
the supply of a commodity are known as the determinants of supply. The
important determinants of supply are as follows:

1. Price of the commodity: The price of the commodity is the most

important determinant of supply. There is a direct relationship between the
price of the commodity and its quantity supplied, other things remaining the
same. It means that at the higher price, producers or sellers offer more
quantity of a commodity for sale, and at a lower price, producers or sellers
offer less quantity of the commodity for sale.

2. Price of the other goods: The supply of a particular commodity is

inversely related to the price of other commodities. For example, a rise in the
price of rice will fall the supply of wheat. This is due to the fact that a rise in
the price of rice will encourage producers to produce more rice.

3. Price of the factors of production: The supply of a commodity is also

affected by the price of factors of production. With the rise in the price of
factors of production, the cost of production also rises, which results in a
decrease in supply and vice versa.

4. Goal of the firm: If the goal of the firm is to maximize profit, less
quantity of the commodity will be offered for sale at a high price. On the
other hand, if the goal of the firm is to maximize sales or revenue or
maximize output or employment, more will be supplied even at the lower
price.

5. Improvement in technology: Improvement in technology has a positive

effect on the supply of the commodity. It reduces the per-unit cost of
production. Consequently, the profit of the business firm will increase. In
order to earn more profit, firms increase the supply of the commodity.

6. Government policy: Taxation and subsidy policies of the government

also affect the market supply of the commodity. An increase in taxation tends
to reduce the supply, while subsidies tend to induce a greater supply of the
commodity.

7. Expected future price: If the producers expect a rise in the price of the
commodity in the near future, the current supply of the commodity decreases.
On the other hand, if they expect a fall in the price, the current supply
increases.

8. The number of firms: The market supply of a commodity also depends

upon the number of firms in the market. An increase in the number of firms
implies an increase in the market supply of the commodity. On the other
hand, a decrease in the number of firms implies a decrease in the market
supply of the commodity.

9. Development of infrastructure: The supply of the commodity depends

on available facilities of infrastructure such as transport and communication,
electricity, etc. A producer can supply more quantity of the product with the
proper development of such infrastructures and vice-versa.

10. Natural factors: Favorable natural factors such as adequate rainfall help
to boost up agricultural production, which leads to an increase in supply. On
the other hand, unfavorable natural factors like drought, heavy rainfall,
storm, flood, etc hinder the production of agricultural production, which
leads to a decrease in supply.

Factors of production
According to Frederick Benham, “Anything which contributes towards
output is a factor of production." The quality of factors of production
determines the quantity of the output of a country. The factors of production
comprises of land, labor, capital and Organisation. Short explanations of
these factors of production are given below:

A. Land: The term land is used in Economics in wider sense. All the natural
resources are included in it. E.g.; Mineral resources, forest, mountains, rivers,
cultivated land etc. Land provides area for production. According to
Marshall, “By land is meant… materials and forces which nature gives
freely for man’s aid in land, water, air, light and heat.” Therefore, land is a
stock of free gifts of nature.
B. Labor: Labor are the human resource used in production. They are the
active factors of production. Labor include the mental and physical labor
offered for monetary reward. To do anything for entertainment without
expecting monetary reward are not called labor in economics. According to
R.G. Lipsey and C. Harbury, "The term labor refers to all human resources
that could be used in the production of goods and services."

C. Capital: capital are the man made factors for producing wealth. It
includes factory, machine, equipment, raw materials, etc. Capital is divided
into human capital and physical capital. The educated and skilled manpower
are called human capital and material goods are called physical
capital. According to Marshall, "Capital consists of those kinds of wealth,
other than free gifts of nature, which yields income."

D. Organization: Output is produced by bringing together the factors like

land, labor, and capital. The task of bringing them together by paying rent,
wages, and interest and using them properly is done by an organization. In an
organization, the functions like organizing, controlling, supervision,
management and innovation is done by an entrepreneur. The organization
may be defined as the attempt towards bringing the various factors of
production into the most effective cooperation.
 Concept of Micro and Macro Economics:

a)Micro Economics:- The word 'Micro' is derived from a Greek word

'Mikros' which means tiny or small. Hence, micro economics studies small
unit of economic analysis, such as particular consumer, individual firm,
market, industry etc.

According to K.E Boulding, "Micro economics is the study of particular

firms, particular households, individual prices, wages, income, individual
industries, particular commodities."

In the words of A.P Larner, " Micro economics consists of looking

economy through a microscope."
Importance of Micro economics:
Its importance are as follows:

1. To formulate economic policies and laws and various principles.

2. Act as an important part to make a picture production process and
distribution process.
3. Facilities the study of marketing and optimal allocation of resources
4. It helps government impose tax on Commodities and fix the wage rates.
5. To evaluate the balance of payment, exchange rates and economic policies
to the state.
6. To know about individual economic problem, taste and habits of
individual consumer towards a particular goods, etc.
7. To understand macroeconomics.

Scope of micro economics:

 Allocation of resources
 Theory of product pricing
 Theory pf factor pricing
 Theory of economic welfare

b) Macro Economics:- The word 'Macro' is derived from a Greek word

'Makros' which means broad or large. Macro economics is related with
aggregate economic activities and studies the entire economic activities
collectively. It collectively studies national income, employment, national
output, price level, total saving, total investment etc.

According to K.E Boulding, "macro economics deals not with individual

quantities as such but with aggregate of those quantities, not with individual
income but with the national income, not with individual output but with the
national output."

According to R.G.D Allen, " The term 'Macro economics' applies to the
study of relation between broad economic aggregates."

Importance of Macro economics:

Its importance is as follows:

1. To formulate policies, strategies for the economic development of a

country.
2. To solve aggregate economic problems like inflation, poverty,
unemployment, etc.
3. To solve monetary and trade cycle problems and explore scientific
methods.
4. To analyze the relationship between different economic problems.
5. To understand microeconomics.

Scope of macro economics:

 Theory of income and employment
 Theory of general price level and inflation
 Theory of economic growth
 Modern/ Macro theory of distribution

Interaction between Demand and Supply/

Equilibrium
At a higher price, there would be more quantity supplied than demanded so
the seller would have to lower his price to sell his goods. If the sellers raise
their price too high, where the demand is less than what they have to offer,
then they will have a surplus that will force them to lower their price until
they can sell their entire supply.
At a lower price, there would be more quantity demanded than supplied so
the buyer would have to spend more to buy goods. If the sellers set their price
too low, then they will sell their entire supply before they can satisfy the
demands of the market. This would result in a shortage in the market.
Therefore, in a perfectly competitive market, the interaction of the forces of
demand and supply determine the equilibrium price.
The process of equilibrium in the perfect competition can be explained by the
help of following schedule and diagram:

When we present the above schedule in the graph, we get:

In the above diagram, we can see that above point 'e', supply exceeds
demand as the price is higher and there will be a surplus of supply and below
point 'e', demand exceeds supply as the price is lower and there will be a
shortage of commodities. So, point 'e' is the equilibrium position where the
consumer and supplier, both agree to trade with equilibrium price and
quantity.

Scope Of Business Economics

#1 – Demand Analysis and Forecasting
This aids in directing the organization to arrange production
schedules and harness resources. Additionally, it assists the
leadership preserve and boosting the revenue base and market
position through discerning various factors affecting the product
demand.
#2 – Cost And Production Analysis
The business economics definition entails the production of cost
assessment of various outputs and recognizing elements behind the
deviations in estimated costs. That is to say, the manager selects
cost reduction output levels and also avoids the time and material
wastage to attain the desired profit percentage. This also
constitutes the implementation of Break-even analysis.
#3 – Costing Decisions and Strategies
Valuation is the root of the company’s earnings since its success is
mostly based on the accuracy of costing decisions. Moreover, the
key aspects incorporate pricing methods, price discovery in
numerous market forms, product line pricing, and differential
pricing.
#4 – Profit Management
The manager must be able to devise a more or less precise
evaluation of the company’s expected gains and pricing at distinct
output levels. To clarify, uncertainty reduction assists the firm in
achieving higher revenues. While comprehending the importance
of business economics, profit calculation and profit planning are
the most difficult concepts.

#5 – Wealth Management
It infers regulation and drafting of capital expenses due to the
involvement of a huge amount. Disposing of the capital assets is
quite complicated and hence, demands a substantial amount of
labor and time. Subsequently, this requires the business to
manage current assets and current liabilities properly

Economics
Economics is the study of how things are made, moved around, and used. It looks at how
people, businesses, governments, and countries choose to use their resources. Economics is
the study of how people act, based on the idea that people act rationally and try to get the
most value or benefit. Economics is the study of how work and business are run. Since there
are many ways to use human labour and many ways to get resources, it is the job of
economics to figure out which ways produce the best results.

In general, economics can be broken into two parts: macroeconomics, which looks at how the
economy works, and microeconomics, which looks at how people and businesses work.

Causes for Downward Sloping of Demand

Curves
The following are some of the causes explaining why demand curves
always slope downwards:

1) The law of diminishing the marginal utility

According to this principle, the marginal utility of a commodity

reduces when the quantity of goods is more. Consequently, when the
quantity is more, the prices will fall and demand will increase.
Hence, consumers will demand more goods when prices are less.
This is why the demand curve slopes downwards.

2) Substitution effect

Consumers often classify various commodities as substitutes. For

example, many Indian consumers may substitute coffee and tea with
each other for various reasons. When the price of coffee rises,
consumers may switch to buying tea more as it will become
relatively cheaper.

Economists refer to this as the substitution effect. Hence, if the price

of tea reduces, its demand will increase and the demand curve will be
downward sloping.

3) Income effect

According to this principle, the real income of people increases when

the prices of commodities reduce. This happens because they spend
less in case of falling prices and end up with more money. With more
money, they will, in turn, purchase more and more. Therefore, the
demand increases as prices fall.

4) New buyers

Whenever the price of a commodity decreases, new buyers enter the

market and start purchasing it. This is because they were unable to
purchase it when the prices were high but now they can afford it.
Thus, as the price falls, the demand rises and the demand curve
becomes downward sloping.

5) Old buyers

This rule is basically a corollary of the new buyers rule. When the
price of a commodity decreases, the old buyers can afford to buy
even more quantities of it. As a result, this results in demand
increasing and the demand curve slopes downwards.

Example on Causes of Downward Sloping

Question: Read the following statements and mention which cause
of downward sloping they refer to.

(a) Consumers often substitute one commodity for another.

(b) A commodity’s utility always reduces when the supply of goods

is more.

(c) Affordability of goods allows more people to buy them.

(d) Falling prices result in people retaining more money for other
uses.

(e) Existing customers purchase even more quantities at lower price

Exceptions or Limitations of the law of demand

1. Articles sold under two brand names:
The articles may be sold under two brand names such as Shikhar and
premium Shikhar cigarettes. The consumers buy more of the higher priced
brand although the products are identical.
2. Inferior goods/ Giffen goods:
This exception was pointed out by Robert Giffen who observed that when the
price of bread increased, the low paid British workers purchased a lesser
quantity of bread, which is against the law of demand. Thus, in the case of
Giffen goods, there is an indirect relationship between price and quantity
demanded.

3. Price expectation:
When the consumer expects that the price of the commodity is going to fall
in the near future, they do not buy more even if the price is lower. On the
other hand, when they expect a further rise in the price of the commodity,
they will buy more even if the price is higher. Both of these conditions are
against the law of demand.

4. If the shortage is feared:

When people feel that a commodity is going to be scarce in the near future,
they buy more of it even if there is a current rise in price. For example: If
people feel that there will be a shortage of cooking gas in the near future,
they will buy more of it, even if its price is high.

5. Change in income:
If the consumers’ income increases, they will demand more commodities
even at a higher price. On the other hand, they will demand less even at a
lower price if there is a decrease in their income. It is against the law of
demand.

6. Change in fashion:
If the commodity goes out of fashion, people do not buy more even if the
price falls. For example, People do not purchase old fashioned clothes even
though they've become cheap. Similarly, people buy fashionable goods
although price rises.

7. Necessary goods:
In case of basic necessities of life such as salt, rice, medicine, etc. the law of
demand is not applicable as the demand for such necessary goods does not
change with the rise or fall in price.

Demand function is what describes a relationship between one variable

and its determinants. It describes how much quantity of goods is
purchased at alternative prices of good and related goods, alternative
income levels, and alternative values of other variables affecting demand.

The principal variables that influence the quantity demanded of a good or

service are (1) the price of the good or service,

(2) the incomes of consumers,

(3) the prices of related goods and services,

(4) the tastes or preference patterns of consumers,

(5) the expected price of the product in future periods, and

(6) the number of consumers in the market.

The relation between quantity demanded and these above factors is

referred to as the general demand function and is expressed as follows:

Demand function may be presented as mathematical expression stating

relationship between quality demanded of the commodity and its
determinants is known as the demand function. Explained below.
 Qx = Quantity Demanded of product , per period
 Px = Price of Product
 Ax = Advertising for Product
 Dx = Design/style/quality-Cost of product
 Ox = Outlets, Distribution
 Ic = Incomes of consumers/customers/clientele
 Yc = Consumer Expenditures on related goods

Demand Analysis
 DEMAND ANALYSIS
 Law of Demand
 Classification of Demand
 Demand function

Elasticity of Demand
 Price Elasticity of Demand
 Perfectly Elastic Demand
 Perfectly Inelastic Demand
 Relatively Elastic Demand
 Relatively Inelastic Demand
 Unitary Elastic Demand
 Problem on PED
 DEMAND FORECASTING
 Tc = Tastes
 Ec = Expectations of consumers regarding future prices
 Py = Prices of related goods
 Ay = Advertising/Promotion of related goods
  Dy = Design/Styles of related goods
 Oy = Outlets of related goods
 G = Government Policy
 N = Number of People in the Economy
 W = Weather Conditions

REASONS FOR CHANGE (INCREASE OR DECREASE) IN

DEMAND

1. Changes in income
2. Changes in tastes, habits and preference.
3. Changes in fashions and customs.
4. Changes in the distribution of wealth.
5. Changes in population.
6. Advertisement and publicity.
7. Change in the value of money (if money value increases that
leads to raise in demand for goods).

DETERMINANTS OF DEMAND
The demand for a commodity by a buyer is generally not a fixed quantity.
It is affected by many factors. The factors that influence the demand are
called the determinants of demands. The determinants of demand are also
known as demand shifters. The following factors affect an individual's
demand for a commodity:

1. Prices of related commodities

When a change in price of the other commodity leaves the amount

demanded of the commodity under consideration unchanged, we say that
the two commodities are unrelated, otherwise these are related. The
related commodities are of two types’ substitutes and complements.
When the price of one commodity and the quantity demanded of the
other commodity move in the same direction (i.e., both increase together
and decrease together).

2. Income of the individual

The amount demanded of a commodity also depends upon the income of

an individual. With an increase in income, increased amount of most of
the commodities in his consumption bundle, though the extent of the
increase may differ between commodities.

3. Tastes and preferences

It is quite well that the change in tastes and preferences of consumers in

favor of a commodity results in smaller demand for the commodity.
Modern business firms, which sell product with different brand names,
rely a great deal on influencing tastes and preferences of households in
favor of their products (with the help of advertisements, etc.) in order to
bring about increase in demand of their products.

4. Tastes of the consumers

The amount demanded also depends on consumer’s taste. Tastes include

fashion, habit, customs, etc. A consumer’s taste is also affected by
advertisement. If the taste for a commodity goes up, its amount
demanded is more even at the same price and vice-versa.

5. Wealth

The amount demanded of a commodity is also affected by the amount of

wealth as well as its distribution. The wealthier are the people, higher is
the demand for normal commodities. If wealth is more equally
distributed, the demand for necessaries and comforts is more. On the
other hand, if some people are rich, while the majority is poor, the
demand for luxuries is generally less.

6. Expectations regarding the future

If consumers expect changes in price of a commodity in future, they will

change the demand at present even when the present price remains the
same. Similarly, if consumers expect their incomes to rise in the near
future, they may increase the demand for a commodity just now.

7. Climate and weather

The climate of an area and the weather prevailing there has a decisive
effect on consumer’s demand. In cold areas, woolen cloth is demanded.
During hot summer days, ice is very much in demand. On a rainy day, ice-
cream is not so much demanded.

8. State of business

The level of demand for different commodities also depends upon the
business conditions in the country. If the country is passing through boom
conditions, there will be a marked increase in demand. On the other hand,
the level of demand goes down during depression.
Example

Factors affecting demand of Coca Cola

Price of relative goods:

Demand for coca cola is also influenced by the change in price of relative
goods. In case of coca cola there are number of substitute goods available
in the market, we have Pepsi, Miranda, limca, spirit, etc. now if the price of
coca cola increases from Rs 12 to Rs 20 whereas the price of other aerated
drinks remain the same then the demand for coca cola will fall down.

INCOME OF THE CONSUMER

There is a direct relationship between income of consumer and demand.
Now coca cola being a normal good, if there’s an increase in income, the
demand will increase and vice versa.
TASTE AND PREFERENCES

Taste and preferences of the consumers also influence the demand to

greater extent. In case of coca cola, if there are hard core consumers who
prefer the taste of coca cola, even if the price of coca cola increases, the
demand will remain the same. But if the consumers have no taste or
preference of coca cola, then if the price increases the demand decreases.

GOVERNMENT POLICIES

As the study shows, there was a steep reduction in the demand of coca
cola when the pesticides were found in few samples of coca cola. As a
result consumer was shifting from coca cola to other natural drinks so
therefore the demand for coca cola decreased.

TIME

Time is an important factor that affects the demand of coca cola e.g. the
demand for coca cola goes up during festive seasons and during
summers.

AGE GROUP OF THE POPULATION

This product is meant for the children, adults and also for the old people
so the age groups are not much affected the demand of the product so
demand remain same and by the increase in the population, the demand
of the product also increases.

DIFFERENCES

BASIS FOR
DEMAND QUANTITY DEMANDED
COMPARISON

Meaning Demand is defined as the Quantity Demanded

 BASIS FOR
DEMAND QUANTITY DEMANDED
COMPARISON

willingness of buyer and represents exact quantity

his affordability to pay the (how much) of a good or
price for the economic service is demanded by
good or service. consumers at a particular
price.

What is it? It lists out quantities that It is the actual amount of

would be purchased at goods desired at a certain
various prices. price.

Change Increase or decrease in Expansion or contraction in

demand demand.

Reasons Factors other than price Price

Measurement of Shift in demand curve Movement along demand

change curve

Consequences of No change in demand. Change in quantity demanded.

change in actual
price

demand curve, in economics, a graphic representation of the relationship

between product price and the quantity of the product demanded. It is
drawn with price on the vertical axis of the graph and quantity demanded
on the horizontal axis. With few exceptions, the demand curve
is delineated as sloping downward from left to right because price and
quantity demanded are inversely related (i.e., the lower the price of a
product, the higher the demand or number of sales). This relationship
is contingent on certain ceteris paribus (other things equal) conditions
remaining constant. Such conditions include the number of consumers in
the market, consumer tastes or preferences, prices of substitute goods,
consumer price expectations, and personal income. A change in one or
more of these conditions causes a change in demand, which is reflected by a
shift in the location of the demand curve. A shift to the left indicates a
decrease in demand, while a movement to the right an increase.

What Is Market Demand?

Market demand is the aggregate of the individual demands for a commodity from purchasers in the
marketplace. If more purchasers enter the marketplace and they have the capability to pay for commodities
on sale, then the market demand at each cost price degree will increase.
In the previous section, we studied the preference of individual customers and derived the demand curve
for it. However, there are many customers for a commodity in the marketplace. It is important to find out
the market demand for the commodity.
The market demand for a commodity at a particular cost price is the total demand of all the customers
taken together. The market demand for a commodity can be derived from the individual demand curves. It
can also be derived from the individual demand curves graphical depiction by summing up the individual
demand curves.