1. Law of Demand Dr. V.S. Karpe By Dept. of Economics
Sarvajanik Arts & Commerce College, Visarwadi, Tal. Navapur, Dist. Nandurbar

2. Willing to purchase at various prices during a period of time
Demand
Willing to purchase at various prices during a period of time
Able to purchase at various prices during a period of time

3. Types of demand
Direct demand: When a commodity is demanded for its own sake by the final consumer like TV, to refrigerators, eatables etc.
Derived demand: The demand for a particular commodity might be strongly related to the demand for a related product for eg. Demand for steel is linked to the demand for new vehicles.
Recurring demand: Consumable goods have recurring demand eg., milk, rice etc
Replacement demand: Consumer durables are replaced after some wear and tear eg., furniture, bikes, cars

4. Types of demand
Complementary demand: Goods that are jointly demanded. Demand for one commodity is dependant on the demand for the other.
Competing demand: Goods that compete with each other to satisfy any particular want are called substitutes.

5. Definitions of demand
Demand refers to the quantities of a commodity that consumers are able to buy at each possible price during a given period of time, all other things being equal.
Demand is the ability and willingness to buy specific quantity of good at alternative prices in a given period of time, ceteris paribus

6. Determinants of demand
Price of the commodity
Price of the related commodities
Level of income of the household
Tastes and preferences of the consumers
Other factors

7. Determinants of demand
Price of the commodity
Ceteris paribus,
D α 1/P
This happens because of income and substitution effect

8. Determinants of demand
Price of related commodities
Complementary goods ( Pen and ink)
Price of one good - Decreases
Demand of other goods - Increases
Substituting goods ( tea and coffee)
Price of one good - Decreases
Demand of other goods - Decreases

9. Determinants of demand
Level of income of the households
Average Income Increases
Quantity demanded of a good Increases
Exception: Inferior goods
Average Income Increases
Quantity demanded of a good Decreases

10. Determinants of demand
Tastes and preferences of consumers
Other factors
- Size of the population
- Composition of the population

11. Law of Demand
Law of demand states that people will buy more at lower prices and buy less at higher prices, ceteris paribus. - Samuelson
The law of demand states that quantity demanded increases with a fall in price and diminishes when price increases, other things being equal. - Marshall

12. Assumption to law of demand
Law of demand holds good when “other things remain the same”, meaning thereby, the factors affecting demand, other than price are assumed to be constant.
Demand function:
Dx = f(Px ,Pr, Y, T,E)
Where, Dx = Demand for the commodity
Px = Price of the commodity
Pr= Price of related goods
Y= Income of the consumer
T= Tastes and preferences of the consumer
E= Expectation of the consumer

13. Explanation Quantity demanded α 1/Price
According to law of demand, ceteris paribus
Quantity demanded α 1/Price
However, this relation is not proportional, meaning that it is not necessary that when price falls by half, demand for the goods would be doubled.
This simply indicates the direction of change in demand as a result of a change in price.

14. Demand Schedule
Demand Schedule is a series of quantities which a consumer would like to buy per unit of time at different prices
Two aspects of demand schedule
- Individual demand schedule
- Market demand schedule

15. Individual demand schedule
It is defined as a table which shows the quantities of a given commodity which a consumer will buy at all possible prices at a given time
Price per unit ( in Rs.)
Quantity demanded (in units) 1 4 2 3

16. Market demand schedule
It is defined as the quantities of a given commodity which all consumers will buy at all possible prices at a given point of time.
By aggregating individual consumers demand, the market demand schedule is constructed

17. Price of a commodity 'X' (in Rs.) Demand of A Demand of B
Market demand ( in units) 1 4 5 9 2 3 7
It indicates that when price of ‘X’ is Rs. 1, Demand of A is 4 units and Demand of B is 5 units. The market demand is 9 units.

18. Demand Curve It slopes downward to the right
A demand curve is a locus of points showing various alternative price – quantity combinations.
It shows the inverse relationship between price and quantity demanded.
It slopes downward to the right

19. The demand curve slopes downwards from left to right meaning that when price is low demand is high and when price is high demand is low

20. Why does demand curve slope downward?
Income effect: It is the effect that a change in a person’s real income caused by the change in the price of a commodity has on the quantity of that commodity. The increase in demand on account of increase in real income is known as Income effect.
Substitution effect: It is the effect that a change in the relative prices of the substitute goods has on the quantity demanded.

21. Why does demand curve slope downward?
Different uses: Demand for commodities with alternative uses tends to extend consequent upon a fall in their prices.
Size of the consumer group: When the price of a commodity falls, then many consumers who are unable to buy that commodity at its previous price come forward to buy it.

22. Exceptions to the law of demand
Veblen goods: goods like jewelry, diamonds and gems are considered as articles of distinction. These goods command more when prices are high.
Giffen Goods: Inferior goods which display a direct price demand relationship are called as Giffen goods.
Expectation of rise or fall in price in future: If prices are likely to rise more in the future then even at the existing higher price people may demand more units of the commodity

23. Exceptions to the law of demand
Conspicuous necessities: Some goods due to their constant usage have become necessities of life. For eg, even though the prices of TV sets, refrigerators, cooking gas etc., have been continuously rising, their demand does not show any tendency to fall.
Demand for necessaries: The law of demand does not apply much in case of necessaries as irrespective of price changes, people have to consume minimum quantities of these commodities.
Speculative goods: In the speculative market, particularly in stocks and shares, more will be demanded when prices are rising and less will be demanded when prices are falling.

24. Expansion and Contraction in demand
Price decreases , QD increases
Downward movement along the demand curve
Contraction
Price increases, QD decreases
Upward movement along the demand curve

25. Increase and decrease in demand
Price same, QD increases due to change in other factors
RIGHTWARD SHIFT
Decrease
Price same, QD decreases
due to changes in other factors
LEFTWARD SHIFT

26. Distinction between extension and increase in demand
Extension in demand
Increase in demand
Rise in demand due to fall in price of the commodity, other things become equal
Expressed by a movement from a higher point to a lower point on the same demand curve
Increase in demand due to other factors other than price.
Expressed by the upward shift of the entire demand curve
Distinction between extension and increase in demand

27. Distinction between contraction and decrease in demand
Contraction in demand
Decrease in demand
Relates to a fall in demand in response to a rise in the price of a commodity, other things being equal
Expressed by the movement from a lower point to a higher point on the same demand curve
Refers to a fall in demand in response to changes in other factors other than price
Distinction between contraction and decrease in demand

29. Quiz 1. Demand for a commodity refers to: Desire for the commodity
Need for the commodity
Quantity demanded of the commodity
Quantity of the commodity demanded at a certain price during any particular point of time

30. Quiz 2. Contraction of demand is the result of:
Decrease in the number of consumers
Increase in the price of the good concerned.
Increase in the prices of other goods.
Decrease in the income of purchasers

31. Quiz
3. Which of the following pairs of goods is an example of substitute goods?
Tea and sugar
Tea and coffee
Pen and ink
Shirt and trousers

32. Quiz
4. The law of demand assumes other things to remain constant, establishes the relationship between:
Income of the consumer and the quantity of a good demanded by him.
Price of a good and the quantity demanded by him
Price of a good and the demand for its substitute
Quantity of a good and the price of its complementary goods

33. Quiz
5. If the price of Pepsi decreases relative to the price of Coke and Sprite, the demand for:
Coke will decrease
Sprite will decrease
Coke and Sprite will decrease
Coke and Sprite will increase