Demand, Law of Demand
Prof. Sunil Das
Asst. Prof. Management
CIPET, Bhubaneswar
DEMAND
The demand for any
commodity, at a
given price, is the
quantity of it which
will be bought per
unit, of time at the
price.
DEMAND
• Firstly, demand always refers to demand at a
price.
• For example: To say that the demand for
mangoes is 100 kgs. fails to convey any sense.
• It should be always related to price
DEMAND
• Secondly, demand always means demand per
unit of time.
• The time may be a day, a week or a month,
etc.
• Therefore, “the demand for any commodity or
service is the amount that will be bought at
any given price per unit of time.”
Desire, Need and Demand
According to Pension, “Demand implies, three
things
(a) desire to possess a thing,
(b) mean of purchasing it and
(c) willingness to use those means for
purchasing it.”
Demand Schedule
Demand schedule depicts the “various
quantities of a commodity which will be
demanded at different prices.
Quantity demanded will be different at
different prices because with an increase in
price, demand falls and with a fall in prices
demand extends.
Demand schedule
Demand schedule can be of the following two
types :—
(i)Individual Demand Schedule
(ii) Market Demand Schedule
Individual Demand Schedule
Price ( In Rupees) Demand of
Mangoes in kg
50 1
Individual Demand 40 2
30 3
Schedule shows the 20 4
various quantities 10 5
demanded by one
As is clear from the above schedule,
person at different the demand for mangoes of a
prices consumer is 1 kg. when the price is
50 rupees per kg.
When price falls to; Rs. 40 demand
for mangoes extends to 2 kg.
Again demand for mangoes extends
to 5 kg when price is 10 rupee per kg
Individual Demand Schedule
• On OX-axis we measure the
quantity demand while on
OY-axis we take the price of
mangoes per kg.
• When price is Rs. 5 per kg.
demand is 1 kg., likewise
when the price is 4 rupees,
per kg. demand is 2 kgs, etc.
• By combining the pts. A1, A2,
A3, A4, A5, we get the
demand curve DD.
• This is called the individual
demand curves.
Market Demand Schedule
If we add up the demand at various prices of
all consumers in the market we will get the
market demand schedule.
Let us suppose
there are 3
consumers, A, B & C
in the market. If now
we add the quantity
demanded by A,B
and C at different
prices, we will get
the market demand
schedule.
Market Demand Curve
• On OX-axis we take the total
quantity demanded of
mangoes in the market. On Y-
axis, we measure the prices.
When price is Rs.5/- per kg.
total quantity demanded 6kg.
• Again when price is Rs.4/-
per kg total quantity
demanded goes up to 9 kgs.,
etc
• By combining the points
A,B,C,D, and E we get DD.
Importance of the Demand Schedule
• With the help of demand schedule we can know the
approximate changes in demand because of a change
in price.
• We can discuss the Elasticity of the demand with the
help of demand/schedule.
• Law of demand can also be discussed with the help of
demand schedule.
• Price in the market is also determined with the help of
demand schedule and supply schedule.
• Demand schedule is very useful for the business
community. With its help, businessman can know as to
how much shall be the increase in demand because of
a fall in price.
Law of Demand
• The law of demand states that, other things
remaining the same, the quantity demanded
of a commodity is inversely related to its price.
• Other things remaining the same, when the
price of a commodity falls its demand will go
up likewise when the price of a commodity
rises its demand will fall.
• Price and demand move in opposite
directions.
Law of Demand
• In simple words law of demand states that, other thing
being equal, more will be demanded at lower, prices
than at higher prices.
• According to Samuelson, “When the price of a good is
raised, less of it will be demanded. People will buy
more at lower price and buy-less at higher prices.”
• According to Meyers, “People demand a larger quantity
of goods and services only it a lower price than at a
higher price.
Causes of Demand:
1.Law of Diminishing Marginal Utility
• It is quite natural that when a person continues buying
large number units of the same commodity, its marginal
utility will progressively fall.
• On the other hand when the stock of a commodity goes on
falling; then its-marginal utility will progressively rise.
• We also know that marginal utility is measured by price.
• When a person purchases less amount of a commodity
then the marginal utility of that commodity will be high for
him and he will be ready to pay more price and vice versa.
• So we come to the conclusion that people purchase more
at a low price and less at high price.
2.Income Effect
• When price falls, real income of the consumer
rises.
• He is therefore, in a position to purchase more
units of commodity.
• When the price rises, real income of the
consumer falls and he purchases less units of a
commodity.
3.Substitution effect
• When the price of one commodity falls people
will purchase more of that commodity.
• When the price of one commodity rises
people will purchase less of that commodity.
• The substitution effect of a price reduction is
always positive and hence larger quantities
will be bought at lower prices.
Assumption of Law of Demand
• No change in price of related commodities.
• No change in income of the consumer.
• No change in taste and preferences, customs, habit and
fashion of the consumer.
• No change in size of population
• No expectation regarding future change in price
• Only when these conditions are assumed constant, the
Law of Demand will operate.
• In other words, the tastes, incomes and the prices of
substitutes and complements are main determinants of
price relationship. Hence they are assumed constant.
Limitations of the Law/
Exception to Law of Demand
• Giffen Goods
• Veblen effect
• Basic necessities of life
• Fear of a Rise in Prices in Future
• Change in Habit, Customs and Income
• Fear of shortage
• War and other emergencies
THANK YOU
