Notes On Demand And Supply Pdf
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A change in demand refers to a shift in the entire demand curve, which is caused by a variety of factors preferences, income, prices of substitutes and complements, expectations, population, etc. In this case, the entire demand curve moves left or right:. Figure 1.
Notes on the Theory of Demand:- 1. Meaning and Definitions of Demand 2. Notes on Demand Function 3.
Notes on the Theory of Demand | Economics
Notes on the Theory of Demand:- 1. Meaning and Definitions of Demand 2. Notes on Demand Function 3. Factors Determining Individual Demand 4. Factors Determining Market Demand 5. Demand Schedule 6. Demand Curves 7. Law of Demand 8. Kinds of Demand Inter-Related Demands. It must be remembered that demand in Economics is always stated with reference to a particular price. Any change in price will normally bring about a change in the quantity demanded. In addition to price, demand is also used in reference to a particular period of time.
For Example- demand for umbrellas will not be as high in winter as during rains. The demand for any commodity or service, therefore, must be stated with reference to the price and the relevant point of time.
We know that people have numerous wants which vary in intensity and quality. Just desiring or wanting things is not enough to create a demand. Suppose, a mill worker desires or wants to have a car but does not have the necessary means to buy it.
This desire is ineffective and will not become a demand. Similarly, a miser may desire to have the car, has means to purchase it, but will not spend the money. His desire would also not constitute a demand. Thus, we define demand for a commodity or service as an effective desire, i. Only when all these three things are present then the consumer presents his demand in the market.
Definitions :. Demand function shows the relationship between quantity demanded for a particular commodity and the factors influencing it. It can be either with respect to one consumer or to all the consumers in the market. Usually the higher the price, the lower will be the quantity demanded. In most cases, the larger the income, the greater will be the quantity demanded.
They may be complementary or substitutes. In technical language, it is said that the demand for a commodity is a function of the four variables like:. Where q stands for quantity demanded, P stands for the price of the commodity in question, Y stands for the income of the consumer, P r indicates prices of the related commodities and T denotes the Tastes of the consumer and f stands for function.
But in practice the three of these four variables remain constant. And hence the demand function takes the form of-. Demand is not dependent on price alone. There are many other factors which affect the demand of a product. Demand for a commodity depends on its price. As price rises, for a normal good, demand falls and vice-versa. However, there are exceptions, i. A key determinant of demand is the level of income i. It means that when income of the consumer rises he wants to have more units of that commodity and when his income falls he reduces the demand.
In consumer theory, an inferior good is a good that decreases in demand when consumer income rises i. Thus reducing its demand. Cheaper cars are examples of the inferior goods. Consumers will generally prefer cheaper cars when their income is constricted. Consumption choices are also influenced by the alternative options available to users in the relevant market place. Market information regarding alternative products, quality, convenience and dependability all influence choices.
The two products may be related in two ways- Firstly, as complementary goods and secondly as substitute goods. Complementary goods are those goods which are used jointly and consumed together like tennis ball and a racket, petrol and car. The relationship between the price of a product and the quantity demanded of another is inverse. For example if the price of cars were to rise, less people would choose to buy and use cars, switching perhaps to public transport-trains.
It follows that under these circumstances the demand for the complementary good petrol would also decrease. Goods which are perceived by the consumer to be alternatives to a product are termed as substitute goods. There is direct relationship between the demand for a product and the price of its substitute.
Example- scooter and a motorcycle, tea and coffee. The increase in price of tea would decrease its quantity demanded and people would switch over to its substitute commodity coffee. Demand for a product is also affected by the tastes and preferences of the consumers. As tastes and preferences shift from one commodity to the other, demand for the first commodity reduces and that of the other rises.
The current demand of a product also depends on its expected price in future. If future price is expected to rise, its present demand immediately increases because the consumer has a tendency to store it at low prices for his future consumption.
If, however the price of a product is expected to fall then he has a tendency to postpone its consumption and as a result the present demand would also fall. This is often the case on Budget Day, when consumers rush to fill their petrol tanks prior to an expected increase in taxation.
The reverse is also true, in that an expectation that prices are about to fall, will decrease current demand, as consumers will await for the expected price reduction. The demand for commodities also depends upon prevailing business conditions in the country. For, example- during the inflationary period, more money is in circulation and people have more purchasing power. This causes an increase in demand of various goods even at higher prices. Similarly, during deflation depression , the demand for various goods reduces in spite of lower prices because people do not have enough money to buy.
Market demand for a commodity means the sum total of the demand of all individuals. Market demand depends, not only on the prices of the commodity and prices of related commodities but also on the number of factors. If National income is equitably distributed, there will be more demand and vice-versa.
On the other hand, if the major part of National income is concentrated in the hands of only some rich people, the demand for luxury goods will increase. Market demand is influenced by change in size and composition of population. Increase in population leads to more demand for all types of goods and decrease in population means less demand for them. Composition of population also affects its demand.
Composition refers to the number of children, adults, males, females etc. When the composition changes, for example, when the number of females exceeds to that of the males, then there will be more demand for goods required by women folk. Government policy of a country can also affect the demand for a particular commodity or commodities through taxation. Reduction in the taxes and duties will allow more persons to enter a particular market and thus raising the demand for a particular product.
Demands for commodities also depend upon the climate of an area and weather. In cold hilly areas woolens are demanded. During summer and rainy season demand for umbrellas may rise. In winter ice is not so much demanded. The levels of demand in a market for different goods depend upon the business condition of the country. If the country is passing through boom, the trade is active and brisk.
The demand for all commodities tends to rise. But in the days of depression, when trade is dull and slow, demand tends to fall.
The demand schedule in economics is a table of quantity demanded of a good at different price levels. Given the price level, it is easy to determine the expected quantity demanded.
This demand schedule can be graphed as a continuous demand curve on a chart where the Y-axis represents price and the X-axis represents the quantity. According to PROF. In other words, a tabular statement of price-quantity relationship between two variables is known as the demand schedule.
The demand schedule in the table represents different quantities of commodities that are purchased at different prices during a certain specified period it can be a day or a week or a month. The adjoining table 7. Market Demand Schedule is defined as the quantities of a given commodity which all consumers will buy at all possible prices at given moment of time.
In a market, there are several consumers, and each has a different liking, taste, preference and income. Every consumer has a different demand. The market demand actually represents the demand of all the consumers combined together. When a particular commodity has several brands or types of commodities, the market demand schedule becomes very complicated because of various factors.
However, for a single item, the market demand schedule is rather simple. Study the market demand schedule for milk in table 7.
Supply and demand
Demand drives economic growth. Businesses want to increase demand so they can improve profits. Governments and central banks boost demand to end recessions. They slow it during the expansion phase of the business cycle to combat inflation. If you offer any paid services, then you are trying to raise demand for them.
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Understand the law of supply and demand. Factors Determining Individual Demand 4. Meaning and Definitions of Demand 2. It is important to under- n Supply A. The law of supply states that, all else equal, an increase in price results in an increase in the quantity supplied.
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