8/12/2019 Law of Demand, B,E, (cs/IT) Dr.K.Baranidharan, SRI SAIRAM INSTITUTE OF TECHNOLOGY, CHENNAI
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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
8/12/2019 Law of Demand, B,E, (cs/IT) Dr.K.Baranidharan, SRI SAIRAM INSTITUTE OF TECHNOLOGY, CHENNAI
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EngineeringEconomics& Financial
Accounting
Eefa
33 August 2014
8/12/2019 Law of Demand, B,E, (cs/IT) Dr.K.Baranidharan, SRI SAIRAM INSTITUTE OF TECHNOLOGY, CHENNAI
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law of demand
8/12/2019 Law of Demand, B,E, (cs/IT) Dr.K.Baranidharan, SRI SAIRAM INSTITUTE OF TECHNOLOGY, CHENNAI
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8/12/2019 Law of Demand, B,E, (cs/IT) Dr.K.Baranidharan, SRI SAIRAM INSTITUTE OF TECHNOLOGY, CHENNAI
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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
6
8/12/2019 Law of Demand, B,E, (cs/IT) Dr.K.Baranidharan, SRI SAIRAM INSTITUTE OF TECHNOLOGY, CHENNAI
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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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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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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.
8/12/2019 Law of Demand, B,E, (cs/IT) Dr.K.Baranidharan, SRI SAIRAM INSTITUTE OF TECHNOLOGY, CHENNAI
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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
12
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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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2-15
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
3.30
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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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