BIJU P M PGT ECONOMICS KV 2,KOCHI

ACCORDING TO LAW OF DEMAND THERE

IS INVERSE RELATIONSHIP BETWEEN
THE PRICE OF THE GOOD AND QUANTITY
DEMANDED BY THE PEOPLE.
Applies only
normal goods Price Demand
Not to Giffen
goods. 10 1
8 2
PRICE

q=d(p) 6 3
4 4

O
QUANTITY
ASSUMPTIONS OF AND EXCEPTIONS
TO THE LAW OF DEMAND
 The law operates only on these assumptions
 Assumptions: (1)No Change in consumers income :
 (2) No change in the price of related goods : “Other things
remain the same”
 (3) No change in consumers taste, nature & fashion :
 (4) No expected change in the price of the commodity :
 ( 5) No substitute of the commodity :
 (6) Complementary Goods.
 Exceptions:
 (1) Inferior goods or Geffen goods :
 (2) Status symbol goods :Taste and prefrence
 (3) Goods expected to become scarce or costly in future :
 (4) Ignorance of the buyers :
 (5) Extraordinary situations : war Famine, riots etc.
 (6) Change in fashion & preferences :
IT REPRESENTS DIFFERENT QUANTITIES OF THE
COMMODITY DEMANDED BY THE CONSUMER AT
DIFFERENT PRICES. Schedule

Price (Rs.) Quantity

(Kgs.)
1 4
2 3
3 2
4 1
It is situation wherein change in the price of one commodity results in the change of
the demand of the other commodity.

Let us understand cross demand in the case of these two types of goods :
bb
1.Demand for substitute goods :
2.Demand for complementary goods :
Price of Demand
Price of Demand
Tea of coffee
ink of Pen
100 1000 200
Price of Tea

* 10 5
200 1500 100 15 3

0
1500
1000

Demand of coffee

Price of Ink
15
10

1 2 3 45
Demand of pen
 Joint Demand : Pen & Ink
demand for these goods is
Price Negative
Increase in price the demand
fall , the decrease in price the
demand will rise.

Composite Demand : The

commodities are required
to satisfy various wants. Direct Demand : where the
Directare
goods Demand : where
demanded the
for direct
Coal ,electricity can be put goods are demanded for direct
to various alternative uses. consumption such
consumption
as- such
ice-cream,coffe,cold
as- ice-cream,coffe,cold
drinksetc.
drinksetc.

Demand for unrelated goods :

Derived Demand : ( Indirect
Demand ) : T.V. Set - in which
the demand for
Mechanic (labour) is derived
demand.
such as change in the price of
apples is not
going to affect the demand of
pen.
• Demand function is the functional relationship
between demand for the commodity and
factors affecting it and is expressed as follows..

• Dx=f[Px,Pr,Y,T,U,D,E]Demand function is of
two types, namely, individual demand function
and market demand function.
factors affecting demand : or Determinants of demand
1. Price of the commodity,
2. Income of the consumer
3. Price of related goods and
4. Tastes and preferences of
the individual/ consumer
1. Price of the commodity (Px)
Schedule
Y
D
Price Quantity
Demand
Price 200
100 10
200 5 100

O X
5 10

Quantity/demand
 2. Price of related goods
Substitute goods & complementary goods

In case of Substitute goods : In case of complementary goods

Example : Tea & coffee Example: Pen -Paper

Price of Demand
Price of ink Demand of
coffee of Tea
pen
200 50
20 30
250 75
28 20
Y D Y

250 ----------------------- D
Price of coffee

---------------------

200 28 --------------------

---------------
20

O O 20 30 X
50 75 X
Demand of Tea
 Y
D

Income of Demand 20000

Income
the consumer
10000 100 10000
20,000 200

0 100 200 x
Demand

5.Size & composition of the population

6.Expected change in the price

Why more of a good is purchased when its price falls.
Why does demand curve slope downwards ?
OR
The causes behind law of demand
 Two types
1 2

Movement along the demand curve Shift in Demand curve

Extension Contraction Increase Decrease

in Demand in Demand in Demand in Demand

Downward Upward Rightward shift Leftward shift

Movement Movement

Caused by Caused by
change in Price change in Factors other
than price of the commodity
WHEN DUE TO FACTORS OTER THEN THE PRICE MORE
QUANTITY AT THE SAME PRICE IS DEMANDED THEN IT IS
KNOWN AS INCREASE IN DEMAND.
Price

10 Px Demand
10 20
10 25

20 25
Quantity
IT IS A SITUATION IN WHICH WHERE IN FACTORS
OTHER THEN PRICE IS RESPONSIBLE FOR FALL IN
DEMAND.

Px Demand
G H
Price

10 10 20
10 15

15 D
Q 20
Quantity
BIJU PM PGT ECONOMICS KV 2 KOCHI