dr. s s deshpande (phd economics, epbm: iim-c) associate … · 2018. 3. 21. · micro economics...
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Micro Economics
DEMAND: Basics
Dr. S S Deshpande
(PhD Economics, EPBM: IIM-C)
Associate Professor
New L.J. Commerce College
Ahmedabad
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Demand=
Desire for the Product
Ability to Pay
Willingness to Spend
(at a given price, place and time)
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Demand
• Demand means Quantity Demanded at a given price, place and time.
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DEMAND FUNCTION
• Dx= f (Px, Y, Pr, E, T, A, P)
- Price
- Income
- Price of Related Goods
- Expectations about future price
- Tastes, preferences and fashion
- Advertisements
- Population
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LAW OF DEMAND
1. STATEMENT OF THE LAW
2. ASSUMPTIONS OF THE LAW
3. DEMAND SCHEDULE
4. DEMAND CURVE
5. EXPLANATION OF THE LAW
6. EXCEPTIONS OF THE LAW
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• Ceteris paribus, there’s an inverse relation between price and quantity demanded and vice-versa. (Alfred Marshal)
• It is assumed that all factors but price remain unchanged
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Demand schedule
PX (Rs.) DX (Units)
1 50
2 40
3 30
4 20
5 10
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Demand curve
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Px
Dx
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Types of demand
• Individual demand (Household demand)
• Market demand
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Reasons for Inverse Relation between Price and Demand
Law of Diminishing Marginal Utility
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Exceptions of the law
• 1. Giffen Goods (bread and meat)
• 2. Veblen Goods (Conspicuous goods, Snob goods and Prestigious goods, Status-Symbol goods, Articles of distinction)
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Expansion and Increase in demand
Expansion in Demand (Increase in Quantity
Demanded)
Increase in Demand
Px Dx (Y, Pr, E, T,A, P) (Y, Pr, E, T,A, P) Dx Px
The consumer moves on the same demand curve from left to right
The entire demand curve shifts from left to right
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Contraction and Decrease in demand
Contraction in Demand (Decrease in the Quantity
Demanded)
Decrease in Demand
Px , Dx , (Y, Pr, E, T, A, P) (Y, Pr, E, T, A, P), Dx , Px
The consumer moves on the same demand curve from right to left
The entire demand curve shifts from right to left
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