S Kumaraperumal

Demand
Quantities of a good
or service that people
are willing and able to

Demand for a commodity

implies
Desire to acquire it
Willingness to pay for it
Ability to pay for it

Demand for a commodity

faced by the firm
period of time at a
depends upon
particular price, other
Size of the total market
buy during a given

factors besides the

price held constant

Sales and/or profit depends

partially on the demand of
the goods

factors
influencing
Demand
for a
Demand

commodity stated
with reference to
time
its price
related goods
consumers
income
consumer taste
quality
and so on
A change in any of the
above will affect the
demand

Types of
Demand
Consumer goods & Producer
goods
used for final consumption
used by human, animals, birds etc
used for production of other goods

Perishable goods & Durable

goods
unusable after sometime
can store for longer time

Types of
Demand

Autonomous goods &Derived demand

whose demand not tied with some other
goods
tied with some other goods demand
(demand for a good/input arises from the
demand for the final good.

Individuals demand & Market

demand
market demand is sum of all individual
buyers demand

Firm and industry demand

Demand by market segments and by
total market

Influencing factors
Demand
Function

Describe the
relationship
between the
quantity
demanded of the
commodity and
the factors that
influence it

own price, income , prices of

related goods(both substitutes
and complements), consumer
preferences & taste ,
advertisement and other factors
Dx= f ( Px, Py, Pz, I, C, A , U)
Where
Dx- Demand for item X
Px- Price of the item X
Py- Price of substitutes
Pz- Price of complements
I- Consumer income
C-Consumer taste &preference
A-advertisement
U-other factors

Impact of
determinants
Dx= f ( Px, Py, Pz, I, C,
A , U)

Price effect on demand

Demand for X is inversely related
with its own price

Substitution effect on demand

If Y is a substitute of X, then as
price of Y increases, demand for X
also increase

Complementary effect on
demand
If Z is a complement of X, then as
price of Z falls, demand for Z
increases and X also increase

Impact of
determinants
Dx= f ( Px, Py, Pz, I, C, A ,
U)

Normal good
An increase in income
causes consumers to
demand more of the
good
Inferior good
An increase in income
causes consumers to
demand less of the
good

Price expectation on demand

expectation of rise in price in
future will cause increase in Dx

Income effect on demand

If consumer income increases,
consumers more normal goods
and less inferior goods

Promotional effect on
demand
advertisement increases the
demand up to certain point

Law of Demand

Express
functional
relationship
between price
and quantity
demanded

When other influencing

factors remain constant,
the price of commodity
falls, the quantity
demanded of it will rise
&
if the price of the
commodity rises, its
quantity demanded will
decrease

Demand Curve

Consider only
the price and
demand
relation, other
factors
Price of
Quantity
remaining
the
X (Px)
of X
same
demande
d
2

1.5

0.5

4.5

Demand Curve
Demand curve
slopes down to
right(negatively
sloped)
indicating that
individual
purchases more
of the
commodity per
time at lower
prices

Reason for sloping down

Income effect
When price falls; consumer
can buy more quantity of
the commodity than before
with given (same) income
(purchasing power
increases)
Substitution effect

When price falls; it becomes

cheaper than other
commodities and become
more preferred

shifts &
extension in
Shifts
in curveCurve
occur
Demand

when changes in factors

Increase in demand
Demand curve shifts upward
or to the right when
price of substitute rise
price of complimentary falls
favorable change in
preferences
Expectation of rise in price
Increase in consumer income
Increase in Promotion activity

Px

dx1
dx
dx2

Extension
or movement
0
along curve occurs as aDx
result of changes in
price

Decrease in demand
With opposite changes in factors

Exception to Law
of Demand

Veblen effect
Giffen goods

Veblen (prestige goods)

some consumers measure the
utility of a commodity entirely by
its price
for them greater the price, greater
its utility
eg: diamond
Giffen
low paid brits in 19th century
purchased more bread and not
less of it when price of bread
increased.
Reason ? Some essential goods demand
increase when price increase by
compensating other goods consumption