Law of Demand, B,E, (cs/IT) Dr.K.Baranidharan, SRI SAIRAM INSTITUTE OF TECHNOLOGY, CHENNAI

8/12/2019 Law of Demand, B,E, (cs/IT) Dr.K.Baranidharan, SRI SAIRAM INSTITUTE OF TECHNOLOGY, CHENNAI

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Prepared by :

Dr. K. BARANIDHARAN

PROF.MBASRI SAIRAM INSTITUTE OF TECHNOLOGY

CHENNAI

ENGINEERING ECONOMICS

AND

FINANCIAL ACCOUNTING

Sri Sairam Institute of Technology 2


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EngineeringEconomics& Financial

Accounting

Eefa

33 August 2014


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law of demand


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Assumptions of the Law of DEMAND

Other things being equal : include

income level of the consumer, tastes

and preferences of the consumer,prices of related goods, expectation

about the prices or incomes in the

future, size of population, advertisingefforts and any other factor capable ofaffecting the demand

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The Law of Demand

When a goods price is lower,

consumers will buy more of it When a goods price is higher,

consumers will buy less of it


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88

DEMANDCurve

The graph has two axis - vertical

line is labeled as price and the

horizontal line is for the quantitynumber.

Remember to state the unitsusedfor price and quantity and name the

graph.


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99

DEMANDCurve

Demand reflects an inverse

relationship between price and

quantity demanded.

The Demand Curve is a graphreflecting the price consumers

are willing to pay and the

quantity consumers are willing

buy.


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Demand Curve

Copyright 2004 South-Western

Price of

Ice-Cream Cone

0

2.50

2.00

1.50

1.00

0.50

1 2 3 4 5 6 7 8 9 10 11 Quantity of

Ice-Cream Cones

3.00

12

1. A decrease

in price ...

2. ... increases quantity

of cones demanded.

10SUPPLY AND DEMAND


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Law of Demand and Income effect

When there is a fall in the price of acommodity. It leads to a rise in the

real income of the consumer.

Rise in real income means the

consumer will be able to buy more

commodities for a given amount ofmoney.

Example:the price of fall in bananas11


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Law of Demand and Substitution effect

The price of commodity falls, the prices of itssubstitutes remaining the same, the commodity

will now be cheaper when compared to

substitutes.

When consumers react to an increase on a

goods price by consuming less of that good

and more of other goods.

Ex.- McDonalds raise prices, more people buy

Burger King

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Changes in demand

The increase or decrease in demand

due to change in the factor other

than price is called change indemand.

Change in demand leads to a shiftin the demand curve to the right or

to the left.13


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Increase DEMAND

If the consumers are willing andable to buy more of a particular

brand of shirts (say.X) at the sameprice, the result will be an increase

in demand.

The demand curve will shift to the

right14


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Increase

Demand Curve

p

,Price

ofprodu

ct.

X

220176

Effect of a 60 increase in the price of X

D1

D2

232

Quantity demanded

0

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Decrease in DEMAND

A decrease in demand occurswhen buyers buy less of a

product at each possibleprice rise because of factors

like fall in income, rise inprice of complementarygoods etc.,

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Decrease in

demandAt each and

every price

Lessof the

good is

demanded

Shifts to the

Left

D2

5

D1

B

Price

Quantity90 100


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Extension and Contraction in DEMAND

Extension is a downward movementalong the demand curve, which indicates

that a higher quantity is demand for a

given fall in the price of a good.

Contraction is an upward movement

along the demand curve which indicates

that a lower quantity is demanded for a

given increase in the price of the good

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Movements Along the Demand Curve

Price

Quantity

D1

P2

P1

P3

Q2 Q1 Q3

Contraction of Demand

Expansion of Demand


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Law of Demand, B,E, (cs/IT) Dr.K.Baranidharan, SRI SAIRAM INSTITUTE OF TECHNOLOGY, CHENNAI

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Transcript of Law of Demand, B,E, (cs/IT) Dr.K.Baranidharan, SRI SAIRAM INSTITUTE OF TECHNOLOGY, CHENNAI