1. Theory of Demand

2. Contents:-
Meaning of Demand and Determinants of Demand – Demand Functions.
Law of Demand, Expansion and Contraction of Demand, Increase and Decrease in Demand, Usefulness of Law of Demand, Exceptions to the Law of Demand
Utility Analysis: Concept of Utility, Law of Diminishing Marginal Utility, Derivation of Demand Curve on the basis of the Utility analysis , Consumer’s Surplus

3. Meaning of Demand Difference between desire and demand
Desire backed by purchasing power and willingness to buy
Prof. J Harvey “Demand in economics is the desire to possess something and the willingness and the ability to pay a certain price in order to possess it”
Prof. Benham “The demand for a thing at a given price is the amount of it which will be bought per unit of time at that price”
Stonier and Hague “Demand in economics means demand backed up by enough money to pay for the good demanded”

4. Characteristics of Demand
Price
Time
Market
Amount

5. Demand Function Price of the products Income of the consumer
Taste and preferences
Availability of substitute and complements and their relative prices

6. Demand Schedule and Demand Curve
Demand schedule is a list of prices and corresponding quantities.

7. Market Demand Curve
The market demand curve is the sum of the demand curve of all the consumers.

8. Types of Demand
Price Demand
Income Demand
Cross Demand

9. Law of Demand
The inverse relationship between the price of a commodity and its quantity demanded per unit of time is referred to as the law of demand
Other thing remaining constant
No change in consumers income
No change in consumer test and preferences
No change is the prices of substitute and complements
No future expectations about the prices
No prestigious commodities

10. Why Demand Curve Slopes Downward
Law of Diminishing Marginal Utility
Substitution Effect
Income Effect
Entry of Buyers
Less Urgent Needs

11. Exception to the Law of Demand
Geffen Paradox
Veblen Goods or Goods with Snob Appeal
Future expectations about the prices
Consumer’s psychological bias or illusion
Demonstration effect
Brand Loyalty
Panic Buying
Insignificant proportion of income spent
Goods with no substitutes
Outdated Goods

12. Movement along and Shift in Demand Curve

13. Determinant of Demand Tastes and Fashions Price of the product Weather
Income and distribution of income
Expectations
Savings
Sate of trade activities
Real income
Consumer credit policy
Demonstration effect
Advertisement
Taxation and subsidies
Change in the value of money
Change in population
Price of related products

14. Usefulness of Law of Demand
Determination of prices
Importance to finance minister
Importance to farmers

15. Cardinal Utility Theory
Neo Classical Utility Theory or Marshallian Utility Theory
Utility is a consumer’s perception of his or her own happiness or satisfaction
Utility has no moral, legal or ethical connotation
Utility is subjective and not objective : varies from person to person, time to time, place to place
Cardinal and Ordinal Utility Concepts

16. Assumptions of Cardinal Utility Theory
Rationality
Cardinal Utility
Constancy of Marginal Utility of Money
Utilities are Independent
Diminishing Marginal Utility

17. The Law of Diminishing Marginal Utility
As we have more of a thing, the less is the utility we derive from the additional increment of it – Gossen
The additional benefit which a person derives from a given increase of his stock of a thing diminishes with every increase in the stock that he already has – Marshall
Law of satiable wants

19. Assumptions of the Law Reasonability Homogeneous Continuity Constancy
Rationality

20. Exceptions to the Law of Diminishing Marginal Utility
Rare Collections
Conspicuous consumption
Stock of other goods – telephone or mobile

21. Importance of Law of Diminishing Marginal Utility
Basic of Economic Laws
Taxation
Socialistic plea
Determination of value
Downward sloping demand curve
Diamond – Water Paradox
Determination of household expenditure

22. Consumer Surplus
Prof Marshall :- “The excess of the price which he consumer) would be willing to pay rather than go without the thing, over which he actually does pay, it the economic measure of the surplus satisfaction. I t may be called consumer’s surplus”
Prof. Samuelson “ The gap between the total utility of a good and its total market value is called consumer’s surplus”
Prof Hick “It (consumer surplus) is the difference between the marginal valuation of a unit and the price which actually paid for it”

24. Thanks