MANAGERIAL ECONOMICS

DEMAND FUNCTION & LAW O F DEMAND

JOSHNER JOHNY

LAW OF DEMAND
Prof. Samuelson: Law of demand states that

people will buy more at lower price and buy less at higher prices, others thing remaining the same.

Prof. Marshall : The law of demand states

that quantity Demanded Increases with a Fall in Price and Diminishes when Price Increases , other things being equal .

LAW OF DEMAND
The law of demand is an economic law that states that consumers buy

more of a good when its price decreases and less when its price increases with other things the same. It states that other things constant, when the price of a commodity rises, the demand for that commodity falls and when the price of a commodity falls,the demand for that commodity rises In other words

Demand for a product is inversely proportional to its price.

LAW OF DEMAND
Chief Characteristics:

1. Inverse relationship.
2. Price independent and demand dependent variable. 3. Income effect & substitution effect.

Assumptions:
No change in tastes and preference of the consumers. Consumers income must remain the same. The price of the related commodities should not

change. The commodity should be a normal commodity

The Law of Demand

P
P1 A

P
B
D1 D2

P2
Q1

Q CHANGE IN PRICE= change in quantity demanded

Q2

Q CHANGE IN OTHER= change in demand

The Law of Demand

EXPLAINERS:
Why demand curve slopes downwards? 1. Income effect

2. Substitution effect
3. Diminishing Marginal Utility

Law of Demand
Exceptions: Inferior goods Articles of snob appeal. (exception: Veblen goods, eg., diamonds) Expectation regarding future prices (shares, industrial materials) Emergencies Quality-price relationship Conspicuous necessities. Ignorance

Change in fashion, habits, attitudes, etc..

Importance: Price determination.

To Finance Minister
To farmers In the field of Planning.

DEMAND FUNCTION

THANK

YOU