An assignment on Demand

Key points :
The law of demand states that a higher price leads to a lower quantity demanded and

that a lower price leads to a higher quantity demanded.

Demand curves and demand schedules are tools used to summarize the relationship

between quantity demanded and price.

DEMAND: Economists use the term demand to refer to the amount of some good
or service consumers are willing and able to purchase at each price. Demand is based

on needs and wants of a consumer may be able to differentiate between a need and a

want, but from an economist’s perspective they are the same thing. Demand is also

based on ability to pay. If you cannot pay, you have no effective demand. What a buyer

pays for a unit of the specific good or service is called price. The total number of units

purchased at that price is called the quantity demanded. A rise in price of a good or

service almost always decreases the quantity demanded of that good or service.

Conversely, a fall in price will increase the quantity demanded. When the price of a

gallon of gasoline goes up, for example, people look for ways to reduce their

consumption by combining several errands, commutating by carpool or mass transit,

or taking weekend or vacation trips closer to home. Economists call this inverse

relationship between price and quantity demanded the law of demand. The law of

demand assumes that all other variables that affect demand are held constant.
Example:
 If a student wants to buy a car is not a demand because he has no ability to
buy a car, but he
 has desire or willingness to buy a car.

We all know that to be a perfect demand there are 3 points as ,

1. Desire

2. Willingness

3. Ability

In the above example 2 points fulfilled but a student has no ability to buy a car ,so
the example is not a demand.

 But if a doctor wishes to buy some shirt it would be a demand as because a

doctor has the ability, willingness and most importantly desire.

Demand schedule: A demand schedule is a table that shows the quantity

demanded at each price.

Example : The following table is the example of demand schedule.

Price Quantity demanded

1 29
2 28
3 27
4 26
5 25
6 24
7 23

Table no: 001

Demand function:
From the explanation of the demand we can say that there is a relation between

demand and price. So the mathematical relation between price and demand can be

express as demand where other variables are constant.

In another words we can say that the mathematical function explaining the quantity

demanded in terms of its various determinants, including income and price; thus the

algebraic representation of the demand curve.

Example :
D = 30 -2p is an example of a demand function.

Here,
D = Demand or quantity demanded

P= price

30 and 2 is an autonomous demand

Now we have solve this equation,

If p = 1 , then D= 30- 3.1 =30-3 =27

If p = 2, then D= 30- 3.2 =30- 6 = 24

If p = 3, then D= 30- 3.3=30- 9 = 21

If p = 4, then D= 30- 3.4 =30-12 =18

If p = 5, then D= 30- 3.5=30-15= 15

Now we have input these data into a Table.

 Price Quantity
demanded
1 27

2 24

3 21

4 18

5 15

Demand Curve :
A demand curve is a graph that shows the quantity demanded at each price.

In another words we can say, The Demand Curve is a line that shows how many units of

a good or service will be purchased at each possible price. The price is plotted on the

vertical (Y) axis while the quantity is plotted on the horizontal (X) axis.

Now we solve a equation of demand function and put into a graph so that we can get a

demand curve.

The equation is, D = 18 - 3p

If p = 1 , then D= 18- 3.1 =18-3 =15

If p = 2, then D= 18- 3.2=18- 6= 12

If p = 3, then D= 18- 3.3=18- 9 = 9

If p = 4, then D= 18- 3.4 =18-12 =6

If p = 5, then D= 18- 3.5=18-15= 3

Now time to input these data into a demand schedule.

 Price Quantity
demanded
1 15

2 12

3 9

4 6

5 3

Table no: 002

Graph no : 001

In the curve we saw that demand curve DD` is downward sloping. Now we discuss

about the reasons why demand curve is downward slopping.

1. Every commodity has certain consumers but when its price falls, new consumers

start consuming it, as a result demand increases. On the contrary, with the
 increase in the price of the product, many consumers will either reduce or stop

its consumption and the demand will be reduced.

Thus, due to the price effect when consumers consume more or less of the

commodity, the demand curve slopes downward.

2. When the price of a commodity falls, the real income of the consumer increases

because he has to spend less in order to buy the same quantity. On the contrary,

with the rise in the price of the commodity, the real income of the consumer falls.

This is called the income effect. Under the influence of this effect, with the fall in

the price of the commodity the consumer buys more of it and also spends a

portion of the increased income in buying other commodities. For instance, with

the fall in the price of milk, he will buy more of it but at the same time, he will

increase the demand for other commodities. On the other hand, with the increase

in the price of milk he will reduce its demand. The income effect of a change in

the price of an ordinary commodity being positive, the demand curve slopes

downward.

3 . There are persons in different income groups in every society but the majority is

in low income group. The downward sloping demand curve depends upon this

group. Ordinary people buy more when price falls and less when price rises.

The rich do not have any effect on the demand curve because they are

capable of buying the same quantity even at a higher price.

4 There are different uses of certain commodities and services that are

responsible for the negative slope of the demand curve. With the increase in
 the price of such products, they will be used only for more important uses and

their demand will fall. On the contrary, with the fall in price, they will be put to

various uses and their demand will rise. For instance, with the increase in the

electricity charges, power will be used primarily for domestic lighting, but if the

charges are reduced, people will use power for cooking, fans, heaters, etc.

5 There is a tendency to satisfy unsatisfied wants. Each person has some

unsatisfied wants. When the price of a good such as apple falls, he wants to

satisfy his unsatisfied wants which leads him to increase its demand.

Because of this tendency of human beings, the demand curve slopes

downwards to the right.

Demand law :

In microeconomics, the law of demand states that, "conditional on all else being equal,

as the price of a good increases, quantity demanded decreases; conversely, as the

price of a good decreases, quantity demanded ". In other words, the law of demand

describes an inverse relationship between price and quantity demanded of a good.

Thus, according to the law of demand, there is an inverse relationship between price

and quantity demanded, other things remaining the same.

Law of demand expresses the functional relationship

D= f(P)
where,
P is price and
D is quantity demanded of a commodity
Assumption under which demand law is work:
This law will be work only if the below mentioned points are fulfilled.

1. No change in price of related goods.

2. No change in income of the buyer.
3. No change in taste and preferences, customs, habit and fashion of the consumer.
4. No change in size of population.
5. No expectation regarding future change in price.

Movement along demand curve:

When quantity demanded of a commodity changes due to a change in its price, keeping

other factors constant, it is known as change in quantity demanded. It is graphically

expressed as a movement along the same demand curve.

There can be either a downward movement (Expansion in demand) or an upward

movement (Contraction in demand) along the same demand curve. Let us understand

the movement along the demand curve with the help of graph -002 and table -003

price Quantity demanded

3 20

6 10

9 5 Table No: 003

 Graph No : 002

i. Expansion in Demand is shown by downward movement from a to b Quantity

Demanded rises from O-10 to O-20 due to fall in price from O-6 to O-3,

ii. Contraction in Demand is shown by an upward movement from a to c

Quantity demanded falls from O-10 to O-5 due to rise in price from O-6 to O-

9,

In graph -002 O-10quantity is demanded at a price of O-6. Change in price

leads to an upward or downward movement along the same demand curve.

Upward movement:
When price rises to O-9 quantity demanded falls to O-20 (known as contraction in

demand) leading to an upward movement from a to c along the same demand curve DD.
 Downward movement:

On the other hand, fall in price from O-6 to O-3 leads to an increase in quantity

demanded from O-10 to O-5 (known as expansion in demand), resulting in a downward

movement from a to b along the same demand curve DD.

Shift along the demand curve:

A shift in the demand curve is when a determinant of demand other than

price changes. Here are these other four determinants:

1. Income of the buyers.

2. Consumer trends and tastes.
3. Expectations of future price, supply, needs, etc.
4. The price of related goods. These can be substitutes, such as beef versus chicken .
They can also be complementary, such as beef and Worcestershire sauce.

There is a fifth determinant that applies to aggregate demand only. That is the number

of potential buyers.

The demand curve plots the relationship between the quantity demanded of a good or

service and its price. The curve depicts in a graphical way the demand schedule, which

details exactly how many units will be bought at each price. The law of demand guides

that amount. That says less is bought at a higher price ceteris paribus. That means

all determinants of demand other than price must stay the same.
Graph 003

In this graph D1D2 , D3D4 , D5D6 are parallel line and they indicates shifting along the
demand line