LAW OF DEMAND

Law of Demand explain the inverse relationship

between the change in quantity demanded of the
commodity as well as the change in the price of
the commodity respectively.

According to Marshall-:
The amount demanded increases with a fall in
price, and diminishes with a rise in price .

Thus it express an inverse relation between price

and demand.

The law refers to the direction in which quantity

demanded change with a change in price.

ASSUMPTIONS TO LAW
OF DEMAND
Income Level should Remain Constant
Tastes of the Buyer should not Change
Prices of Other Goods should Remain Constant
No New Substitutes for the Commodity
Price Rise In Future should Not be Expected

FACTORS AFFECTING
PricesDEMAND
of the Goods
Income of the Consumers
Prices of the Related Goods
Population
Tastes , Habits
Expectations about Future Price
Climate Factors
Demonstration Effect
Distribution of National Income

Demand
schedule

define
Demand schedule is a tabular statement showing
various quantities of a commodity being
demanded at various levels of price, during a
given period of time. It shows the relationship
between price of the commodity and its quantity
demanded
A demand schedule can be determined both for
individual buyers and for the entire market. So,
demand schedule is of two types:

 1.Individual Demand Schedule:

Individual demand schedule refers to a tabular
statement showing various quantities of a
commodity that a consumer is willing to buy at
various levels of price, during a given period of
time.
2.Market Demand Schedule:
Market demand schedule refers to a tabular
statement showing various quantities of a
commodity that all the consumers are willing to
buy at various levels of price, during a given
period of time. It is the sum of all individual
demand schedules at each and every price.

Demand curve

Define
Demand curve is drawn to show the relationship
between price and quantity demanded of a
commodity, assuming all other factors being constant.
However, other factors are bound to change sooner or
later. A change in one of other factors shifts the
demand curve.

Example-

Variations in demand

1.Movement along the demand.

1.Extension of Demand
2.Contraction of Demand
Change in Quantity
Demanded

Extension

Contractio
n

Change In Demand

Increase

Decrease

demand
Definition:
1. When with a fall in price more of a commodity is
bought, there is an extension of demand.
2. Demand extends here when the price of
commodity falls down.
PRICE

QUANTITY

10

a.

EXTENSION TABLE

Contraction of
demand
Definition:
1.When less quantity is demanded with a rise in
price
then there is contraction of demand.
2. Demand contracts here when the price of
commodity
PRICE
QUANTITY
rises.
2
5

b.

2
Contraction TABLE

 Example:1. A downward movement from one point

to another on the demand curve implies
Extension of demand.

Contraction curve

2. Look movement from a to b.

Extension curve

3. This figure suggests that when the price

Reduces from 0P to 0P1 and demand
extend From 0Q to 0Q1.
4. A upward movement from one point
to another on the demand curve implies
Contraction of demand.
5. Look movement from a to c.
6. This figure suggests that when the price
Rises from 0P to 0P2 and demand
Contracts From 0Q to 0Q2.

Fig. 1 Extension
Curve and
Contraction Curve

2.Shift in
demand curve

the concept of shift in

demand curve
i. Increase in Demand is shown by
rightward shift in demand curve
from DD to D1D1.
ii. Decrease in Demand is shown
by leftward shift in demand curve
from DD to D2D2.
In Fig. 3.7, demand for the
commodity is OQ at a price of
OP. Change in other factors leads
to a rightward or leftward shift in
the demand curve:

Various Reasons for Shift

in Demand Curve:

(i) Change in price of substitute goods;

(ii) Change in price of complementary goods;
(iii) Change in income of consumers;
(iv) Change in tastes and preferences;
(v) Expectation of change in price in future;
(vi) Change in population;
(vii) Change in distribution of income;
(viii) Change in season and weather.

Two types of shift

i. Rightward Shift:
When demand rises from OQ to OQ1 (known as
increase in demand) at the same price of OP, it leads to
a rightward shift in demand curve from DD to D1D1.

ii. Leftward Shift:

On the other hand, fall in demand from OQ to OQ2
(known as decrease in demand) at the same price of
OP, leads to a leftward shift in demand curve from DD
to D2D2.

Exceptions to the Law Of

Demand
1.Conspicuous Goods

: Consumers who measure the utility of any

commodity only by its price. Ex. Gold

2.Giffen Goods

: An economist ,named Sir Robert Giffen ,was surprised

to find out that the British workers purchased more bread while the price of bread
increased . The reason was given for this incident is that when the price of bread
increases , the purchasing power of poor people decline and they were forced to cut
down the consumption of meat and other more expensive foods. Since the bread
was a cheaper food at higher price in comparison to the other expensive food
articles such as meat , ice-cream etc. Hence the consumption increases in the
condition when price went up.

3.Neccessities of Life

: Food , Cloth etc. are not ruled by the law

of demand. The demand of such items is not reduced when the prices are increased.

4.Conspicuous Necessities

: Due to the regular use , some

goods become necessity of life. EX. TV , coolers , refrigerators etc.

5.Future Expectations about Prices :It

has been observed that when the household expect any rise
in the price of commodity in future then they tend to buy
larger quantities of the commodities.

6.Impulsive Purchases :The law of demand

fails in the condition when consumers tend to make
impulsive purchases without any proper calculation about
price and usefulness of the product.

7.Ignorance Effect :A consumers ignorance is

factor which encourages him to purchase larger quantity of
a commodity even at a higher price.

8.Outdated Goods :Seasonal goods which are not

use during the off-season shows the demand pattern.

Thank
you