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BYAMIT KUMAR MBA(BUSINESS FINANCE) ROLL NO. 2
etc…. Thus demand determinants… function is a function of all its Dx = f( Px. Ps. T. income of the consumer. I.DEMAND FUNCTION A Demand function states the dependence relationship between the demand and factors affecting it such as its own price. The quantity demanded is the dependent variable and the determinant factors are independent variables. government policy. G) . price of substitutes and complementary goods. taste. Pc. preference and fashion.
‘a period of time’. Demand for a product must always be in relation to ‘a price’. and ‘a place’.DEMAND DEMAND refers to a desire for a commodity supported by the ability (adequate PPP ) and willingness to pay (readiness to spend). .
DEMAND CURVE .
It refers to satisfaction a consumer gets from the consumption of goods and services. .UTILITY It is a basis of consumer demand.MUn). It is divided into two parts.Total utility(MU1+MU2…….Marginal utility( TUn -TUn-1). 1. 2.
.SUPERIOR GOODS. 2.DETERMINANTS OF DEMAND PRICE OF THE COMMODITY.INFERIOR GOODS. INCOME OF THE CONSUMER. 1.
DETERMINANTS(CONTD.) SUPERIOR GOODS .
INFERIOR GOODS .
.) PRICE OF RELATED COMMODITIES.DETERMINANTS(CONTD. 2.COMPLEMENTARY GOODS.SUBSTITUTE GOODS. 1.
) SUPERIOR GOODS SUBSTITUTE GOODS TEA & COFFEE .DETERMINANTS(CONTD.
) SUPERIOR GOODS COMPLEMENTARY GOODS CAR & PETROL .DETERMINANTS(CONTD.
DETERMINANTS(CONTD. PREFERENCE AND FASHION. GOVERNMENT POLICY.) TASTE. . SIZE OF POPULATION.
It is a qualitative statement which tells us only the opposite relationship between the price and quantity demanded and does tell about the degree of change. at high prices lower units are demanded and vice versa ‘other things being remaining the same’. .e.LAW OF DEMAND Tells about inverse relationship between price and quantity demanded i.
1.LAW OF DEMAND (contd.Their is no change in the govt. 4. 2. .Their is no change in the income of the consumer.) Assumptions- The term ‘other things being remaining the same’ indicate some assumptions of the law…. policy. 3.Their is no change in taste. preference & fashion.The price of related goods & complementary goods remains constant.
A consumer pays for a commodity acc. the marginal utility declines because the earlier units of consumption have partly satisfied our wants. .Factors responsible for downward sloping of demand curve Law of diminishing marginal utility When every additional unit of any commodity is consumed. This causes inverse relationship between price and demand. to amount of utility he expects to derive from its consumption. When every additional unit brings decreasing utility. one would naturally prefer to buy this additional unit only at a lower price.
Factors responsible for downward sloping of demand curve Income effect Income effect here implies effect of change in consumer’s real income on his demand. As price decreases. real income increases as it would increase the purchasing power of the consumer and now he’ll be able to buy more quantity of a commodity by spending the same amount of money and vice versa. .
.. For example. when the price of a commodity increases while price of other substitute goods remain unchanged.Factors responsible for downward sloping of demand curve Substitution effect It means substitution of cheaper goods for costlier ones in case of rise in prices and vice versa. consumer would like to prefer any one of the substitute goods.
In this way change in the no. Conversely in case of increase in its prices. of consumers in the market determines the law of demand. . This may go beyond their purchasing power and thus they are forced to reduce its consumption. old consumers may find it difficult to purchase. new consumers who were unable to purchase the commodity earlier will start buying it as they find it in their reach now.Factors responsible for downward sloping of demand curve Entry and exit of consumers When the price of a commodity falls.