1. Prepared by Kokab Manzoor
Chapter # 2 DEMAND
Prepared by
Kokab Manzoor

2. Chapter`s Outlines Definition of Demand Law of demand
Assumptions of Law
Its tabular and graphical presentation
Market Demand
Types of Demand
Rise and Fall in demand
Extension and Contractions in demand

3. Definition of Demand
The quantities of a good that a consumers are willing and able to purchase at various prices during a given period of time.
Ability to purchase
Willingness to Purchase
In a period of time
At various prices.

4. LAW OF DEMAND Statement of the law
Other things remaining the same, the quantity of a good demanded will rise with every fall in its price and the quantity of a good demanded will fall with every rise in its price
The law of demand explains the inverse relationship between quantity demanded and price.

5. Mathematically it can be stated as follows,
qd = f (P) [ Y, Ps, N, T ]constant
This explains that qd, the quantity of a good demanded functionally depends on its price P. However, the quantity demanded is also causally related to other factors such as income of an individual (Y), prices of substitutes (Ps), number of members in the family (N) and the tastes of the consumer (T). In order to satisfy price-demand relation, the effect of these other variables are assumed to be constant.

6. DEMAND SCHEDULE Prices of Juice(In $) Q. D (Per Month) 4 40 3 70 2 901
100

7. Graphical Presentation of the LOD

8. Explanation
Now the demand schedule is explained with the help of graph. On y-axis price of juice is given and on x-axis the quantity demanded is shown. At price $4 the Q.d is 40, at $3 , 2 & 1 the Q.d is 70, 90 & 100 respectively.
By joining all these points we get a line i.e. DD line and this DD line is known as Demand curve.

9. MARKET DEMAND
Market demand is the quantity demanded of a product by all the consumers at different prices.

10. MARKET DEMAND SCHEDULE
CONSUMERS
PRICES (In Afs)
Ali
Ahmed
Amir
Adil
TOTAL Q.D 8 2 1 5 7 3 4 11 6 17 23 9 10 29

11. Assumptions of the Law 1 No change in income
If income of a consumer increased or decreased, the law of demand does not hold. So income must remains constant.
2 No change in Taste or Fashion
It is also assumed that the taste of the consumer remains unchanged.
3 No change in Price of related goods
Like change in the price of substitute or complementary goods etc makes law of demand inapplicable

12. CONT`D 4 No change in future expectation.
The consumer`s products expectations regarding the future behavior of the market should not be changed
5 Weather & Population should remain same.
Like in winter the demand of woolen clothes increased etc.
6 Political instability
7 Wars, dearth, Emergencies etc

13. Exceptions/Limitation of Law
1 Very high priced goods
For exp diamonds, luxury cars etc. Even their prices are high the consumer do not decrease its demands
2 Very low priced goods
For exp salt, pepper etc. if the price falls the demand for it does not increase.
3 Ignorance of the consumers
Some times consumers are not aware of low prices.

14. TYPES OF DEMAND
1 INCOME DEMAND It is the quantity of goods purchased by consumer at various level of incomes In other words, it is the change in demand due to change in income. 2 PRICE DEMAND It is the quantity of goods purchased by consumer at various prices. In other words, it is the change in demand due to change in price.

15. 3 CROSS DEMAND It is the quantity of goods purchased by consumer due to change in the price of other goods. For exp Substitute goods i.e. Pepsi and coca cola or tea & Coffee, etc Complementary goods like, fuel & cars etc

16. Changes in Demand. Shifting of Demand.
Changes in Demand takes place in two ways:
Shifting of Demand.
Extension and contraction of Demand.

17. Prices of related goods Tastes Expectations Number of buyers
1. SHIFT IN DEMAND
A shift in the demand curve, either towards the left or right caused by various factors other than price.
e.g.
Consumer income
Prices of related goods
Tastes
Expectations
Number of buyers

18. Rise in Demand
When there is an increase in demand due to various factor(s), other than price, it is known as rise in demand.
A B
Price
Q.d 12
100 6
250 4
300
Price
Q.d 12
200 6
350 4
400

19. Graphical Presentation of Rise in DemandY
D D` 10 8 6
D D` 2 X
Quantity demanded
Price `

20. Fall in Demand
When there is a decrease in demand due to certain factor(s), other than price, it is known as fall in demand.
A B
Price
Q.d 12
100 6
250 4
500
Price
Q.d 12 50 6
200 4
300

21. Graphical Presentation of Fall in DemandY
D D 10 8 6
D D 2 X
Quantity demanded
Price `

22. 2. Extension and contraction.
When the quantity demanded is increased with the a decrease in price, such kind of change in demand is known as extension of demand, and decrease of quantity demanded with an increase in price shows contraction of demand.
A change in price, causes a movement along the demand curve, changes the quantity demanded

23. Graphical Presentation of Extension and Contraction of demand.
When the price of a good rise and the quantity demanded is decreased, this is known as Contraction of demand and vice versa.
Quantity
Price x y D
Extension
contraction

24. THANKS