Demand in economics

• Definition
– Demand for anything means the
quantity of that commodity/good,
which is bought at a given price per
unit of time.
• Law of demand – Demand Price
relationship.
– This law explains the functional
relationship btn price of a good & the
qty demanded of the same good.
– The Law states that “Other things
being equal, the demand for a good
varies inversely as the price.
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 Does the law of demand
hold for all goods?
• For some goods the law does not
hold.
1 Continuous changes in the P lead
to the exceptional behaviour. If the
P shows rising trend, a buyer is
likely to buy more at a high P for
protecting himself against a further
rise.
2 Giffen’s Paradox describes a
perculier experience in case of
inferior good. When the P of an
inferior good falls, the consumer
buys less of such good & switches
to a more superior good
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Cont……….
3. Ignorance Effect implies a situation
in which a consumer buys more of
a commodity at a high P due to
ignorance.
4. Veblen good, is a commodity
whose demand increases with
price. These goods are mainly for
snob appeal.

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What demand schedules
and demand curves
illustrate:
• Demand schedules show in table
format
– the quantity of products consumers
are willing to buy at a series of
possible prices
– the quantity of products consumers
are able to buy at a series of possible
prices
• Demand curves show in graph
format
– the data listed in demand schedules
– the rate of change for demand at each
price

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Example of a demand
schedule

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Demand curve

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Determinants of demand

These are some of the factors

affecting demand for a particular
commodity.

• Income
• Prices of other goods
• Price of a good in question
• Tastes
• Advertisements
• Consumer expectations
• population

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 Change Qty demanded
& a Change in Demand
• Changes in qty demanded refer
those which occur due to
changes in the price of a
commodity.
These are two types.
1 Extension of demand, this refers to
rise in DD due to a fall in price and
it is shown by a downwards
movement on a given DD curve.
2 Contraction of DD, this means fall in
DD due to increases in price and
can be shown by an upward
movement on a given DD curve
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Change in quantity
demanded

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• Note that a change in Qty
demanded is shown by
the movement along the
DD curve.

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 Change in DD
• Change in DD, implies the rise &
fall due to factors other than the
price.
• It means they occur without any
change in price. They are of two
types:
1 Increase in DD: Refers to higher DD
at the same price & results from rise
in income, prices of other goods etc.,
& is shown on a new DD curve above
the original one.
2 Decrease in DD, means less qty
demanded at the same price as result
of factors like fall in income, etc.,

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Change in DD

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Difference btn substitute
& complementary goods

• substitute goods—used to
replace the purchase of similar
goods when prices change
– examples
• complementary goods—
commonly used with other goods
– examples

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 Outline

• Meaning of supply
• Law of Supply
• Increase and Decrease
in Supply
• Determinants of Supply
• Exceptions to the Law of
Supply

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 Supply

• Supply means the

amount offered for sale
at a given price

• Quantity supplied is the

amount of a good that sellers
are willing and able to sell.

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 Law of Supply

• Other things remaining

the same (ceteris
paribus), as price of a
commodity rises its
supply rises (extends),
and as the price falls its
supply falls (contracts).

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Individual & Market
Supply
• The quantity of a commodity
that a single producer is willing
to sell over a specific time
period is the individual supply.
By keeping all other factors
constant while varying the price
of the commodity, we get the
individual producer's supply
curve
• The market supply of a
commodity gives the alternative
amounts of the commodity
supplied per time period at
various alternative prices by all
the producers of this
commodity in the market

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 Determinants (factors)
of Supply
• Price changes
• Changes in cost of production
• Climatic conditions (agricultural
commodities)
• Improvement in Technology
• Improvement in means of communication
• Political disturbances
• Agreement among producers
• Number of sellers
• Sellers' Price Expectations
• Prices of Factor Inputs

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• Law of Supply
– The law of supply states that, other things
equal, the quantity supplied of a good rises
when the price of the good rises.

• The law of supply does not apply in

following cases:
– In case of agricultural products whose
supply is affected by natural factors.
– In case of perishable goods like food. In
case of these goods seller is willing to sell
more units at decaying prices.
– In case of goods having social distinction.
The supply of goods will remain limited
even if their prices are high

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Solving linear equations
for equilibrium
• Suppose you have the
following functions.

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