BCom Notes Part I Economics Demand
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Demand
The Theory of Demand | The Meaning of Demand
Demand in economics means a desire to possess a good supported by willingness and ability to pay for it. like for example if we have a desire to certain commodity, but we do not have the adequate means to pay for it, it will simply be a wish, a desire or a want and not demand.
Demand is effective desire which is backed by willingness and ability to pay for a commodity in order to obtain it.
Characteristics of Demand in economics.
1. Willingness and ability to pay.
2. Demand is always at a price.
3. Demand is always per unit of time.
The Law of Demand
The law of demand states that people will buy more at lower prices and by less at higher price, other thing meaning the same.
When a price of a commodity increase quantity demanded is decreases and as the price decreases quantity demanded increases keeping other things constant.
Functionally Demand is defined as
Qd(x) = F(Px, M, Po, T, ….)
Px = Price of commodity
M = Money Income of the household
Po = Price of other commodities
T = Taste of household
Assumption of the Law
There are three main assumption of the law.
1. No change in the taste of Consumer (T)
2. Purchasing power must remain constant (M)
3. Price of all commodities remain constant (Po)
Exceptions to the Law of Demand
This law may be not valid for few cases like
1. Prestige Goods Some luxuries items are purchases as a mark of destination in Society. If the Price of these goods rises, the demand for them increases instead of falling.
2. Price Expectation If peoples expect rise in the price in future they may be violet this law.
3. Giffen Goods If the price of Giffen goods falls its demand also falls. There is the price effect in case of giffen goods.
The Individual’s Demand For A Commodity
The individuals demand for a commodity is the amount of commodity which the consumer is willing to purchase at any given price over a specified period of time.
Demand Schedule
The Demand Schedule of a individual for a commodity is list or table of the different amounts of the commodity that are purchased in the market at different price per unit time.
Individual Demand Schedule for Trouser
Price per Trouser (P) | 800 | 600 | 500 | 450 | 400
Quantity Demand (Q) | 006 | 010 | 016 | 020 | 030
‘Demand Curve
Demand Curve shows the relation between the price of a commodity and the amount of that commodity that consumer wishes to purchase.
The Market Demand For A Commodity
The Market demand for a Commodity is obtained by adding up the total quantity demanded at various prices by the entire individual over a specified period of time in the Market.
Market Demand Schedule
Price Per (KG) …..Demand of the Buyers
RS. ………………. A | B | C | D | Total
20 ………………… 3 | 4 | 5 | 6 | 18
18 ………………… 4 | 5 | 6 | 7 | 22
16 ………………… 5 | 6 | 7 | 8 | 26
14 ………………… 6 | 7 | 8 | 9 | 30
12 ………………… 7 | 8 | 9 | 10 | 34
10 ……………….. 6 | 7 | 10 | 11 | 38
Market Demand Curve
Market demand Curve is also = very sloped like individual demand curve.
By analyzing the demand curve we note that when price fall the demand for the goods increase therefore the demand curve slopes from left to right
1. Law of diminishing marginal utility.
2. New Buyers.
3. Increase in Real Income.
4. Substitution Set.
1. Law of Diminishing Marginal Utility
The Law of demand is bases on the law of diminishing marginal utility. According to which, when a consumer purchase more units of a commodity, its marginal utility decline. The consumer, therefore will purchase more units of that commodity only if its price falls.
2. New Buyers
When the prices of a commodity falls those peoples also become capable to purchase who were not able before. The Demand increase due to entry of new buyers in the market and so demand curve slopes from left to right.
3. Increase in Real Income
Due to fall in price people purchasing power increases for that good so due to which demand curve is slopes rightward.
4. Substitution Set
Suppose two substitutes commodity like tea and coffee and if the price of one commodity is decrease then people felt that other is expensive so they bye cheapest one.
If price of coffee decrease than tea seems to be expensive so people go for coffee.
Movement of Shifting Of Demand Curve
There are two ways to show demand curve
1. Movement along the demand curve.
2. Shifting of demand curve.
1. Movement along the Demand Curve
If only change in price of commodity and keeping other factors remain constant (Income etc) than we more along demand curve it is technically called extension and contraction in demand.
Extension ====> Increase in Demand
Contraction ====> Decrease in Demand
2. Shifting of Demand Curve
Demand Curve shift upward or downward due to change in demand, due to change in one or more factors other than price.
If there is increase in demand than curve moves upward.
If there is decrease in demand curve moves downward.
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