THEORY OF “DEMAND”

How much to produce and what price to charge? INTRODUCTION How much to produce and what price to charge? Factors determining demand for a product. Explores the relationship between price and demand for a product. Examines likely impact of the potential factors that influence its demand. Rishabh

WHAT IS DEMAND? Types of Demand The quantity of a product consumers are willing and able to buy at different prices in a specified time period. Types of Demand -Direct and derived demands -Individual and market demand -Recurring and replacement -Complementary and competing -New and replacement demands Shabaz

DETERMINANTS OF DEMAND Price of Product Income of Consumer Price of Related Good Tastes and Preferences Advertising Consumer’s expectation of future Income and Price Growth of Economy Seasonal conditions Population anupam

DEMAND SCHEDULE It shows the price and output relationship. Tabular representation of price and demand. mintu

DEMAND CURVE The geometrical representation of demand schedule is called the demand curve. mintu

LAW OF DEMAND As the price of a good rises, quantity demanded of that good falls. As the price of a good falls, quantity demanded of that good rises. Ceteris paribus. Mintu

DEMAND FUNCTION When we express the relationship between demand and its determinant mathematically, the relationship is known as demand function. The demand for product X can be written in functional form as- Dx= f (Px, Y, Po, T, A, Ef, N ) Mintu

EXCEPTIONS TO THE LAW OF DEMAND Inferior Goods Snob Appeal Demonstration Effect Future Expectation of Prices Insignificant proportion of income spent Goods with no Substitutes BABA

CHANGE IN DEMAND VS. CHANGE IN QUANTITY DEMANDED A shift of the entire demand curve to a new position is called change in demand. Changes in non-price determinants of demand. Rishabh

QUANTITY DEMANDED Fluctuations in price, another determinant of demand, cause movement along the demand curve. Rishabh

Why the demand curve slope downwards? Law of diminishing marginal utility. Income effect. Substitution effect. New consumers. Multiple use of commodity. rishabh

ELASTICITY OF DEMAND Elasticity of demand is defined as the responsiveness of the quantity of a good to changes in one of the variables on which demand depends- Price of the commodity Income of the Consumer Various other factor DEFINATION-’’The elasticity of demand measures the response of the demand for the commodity to change in price”. shahbaz

PRICE ELASTICITY OF DEMAND The price elasticity of demand is the percentage change in quantity demanded divided by the percentage change in price. baba

PRICE ELASTICITY OF DEMAND Point Definition Arc Definition baba

Perfectly Inelastic Demand: Elasticity Equals 0 city of Demand Price Demand 100 $5 1. An increase in price . . . 4 Quantity 2. . . . leaves the quantity demanded unchanged. Copyright©2003 Southwestern/Thomson Learning

Inelastic Demand: Elasticity Is Less Than 1 Price Demand $5 90 1. A 22% increase in price . . . 4 100 Quantity 2. . . . leads to an 11% decrease in quantity demanded.

Unit Elastic Demand: Elasticity Equals 1 Price Demand $5 80 1. A 22% increase in price . . . 4 100 Quantity 2. . . . leads to a 22% decrease in quantity demanded. Copyright©2003 Southwestern/Thomson Learning

Elastic Demand: Elasticity Is Greater Than 1 Price Demand $5 50 1. A 22% increase in price . . . 4 100 Quantity 2. . . . leads to a 67% decrease in quantity demanded.

Perfectly Elastic Demand: Elasticity Equals Infinity Price 1. At any price above $4, quantity demanded is zero. $4 Demand 2. At exactly $4, consumers will buy any quantity. 3. At a price below $4, quantity demanded is infinite. Quantity