Theory of Demand. Contents:- Meaning of Demand and Determinants of Demand – Demand Functions. Law...
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Theory of Demand. Contents:- Meaning of Demand and Determinants of Demand – Demand Functions. Law of Demand, Expansion and Contraction of Demand, Increase
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, Consumers Surplus
Slide 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
Slide 4
Characteristics of Demand Price Time Market Amount
Slide 5
Demand Function 1. Price of the products 2. Income of the
consumer 3. Taste and preferences 4. Availability of substitute and
complements and their relative prices
Slide 6
Demand Schedule and Demand Curve Demand schedule is a list of
prices and corresponding quantities.
Slide 7
Market Demand Curve The market demand curve is the sum of the
demand curve of all the consumers.
Slide 8
Types of Demand Price Demand Income Demand Cross Demand
Slide 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
Slide 10
Why Demand Curve Slopes Downward Law of Diminishing Marginal
Utility Substitution Effect Income Effect Entry of Buyers Less
Urgent Needs
Slide 11
Exception to the Law of Demand Geffen Paradox Veblen Goods or
Goods with Snob Appeal Future expectations about the prices
Consumers psychological bias or illusion Demonstration effect Brand
Loyalty Panic Buying Insignificant proportion of income spent Goods
with no substitutes Outdated Goods
Slide 12
Movement along and Shift in Demand Curve
Slide 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
Slide 14
Usefulness of Law of Demand Determination of prices Importance
to finance minister Importance to farmers
Slide 15
Cardinal Utility Theory Neo Classical Utility Theory or
Marshallian Utility Theory Utility is a consumers 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
Slide 16
Assumptions of Cardinal Utility Theory Rationality Cardinal
Utility Constancy of Marginal Utility of Money Utilities are
Independent Diminishing Marginal Utility
Slide 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
Slide 18
Slide 19
Assumptions of the Law Reasonability Homogeneous Continuity
Constancy Rationality
Slide 20
Exceptions to the Law of Diminishing Marginal Utility Rare
Collections Conspicuous consumption Stock of other goods telephone
or mobile
Slide 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
Slide 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 consumers surplus Prof.
Samuelson The gap between the total utility of a good and its total
market value is called consumers surplus Prof Hick It (consumer
surplus) is the difference between the marginal valuation of a unit
and the price which actually paid for it
