demand final
TRANSCRIPT
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Theory of Demand
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Demand vs. Quantity Demanded
Demand is the amount of a product that people are willing and able to purchase at each possible price during a given period of time, everything else (but price) held constant.
– It is a relationship between prices and quantities. The quantity demand is the amount of a product that
people are willing and able to purchase at one, specific price.
– It is a quantity.
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Types of Demand
Direct and Indirect Recurring and Replacement Complementary and Competing Individual and Market Demand
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Determinants of Demand
Price of the product Income of the consumer Price of related goods Tastes and preferences Advertising Consumer expectations Population Growth of economy etc.
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Law of Demand
Law of Demand: There is an inverse relationship between the price of a good and the quantity consumers are willing and able to purchase during a particular period of time.
– As price of a good rises, consumers buy less.– Depicts the quantity-price relationship with all else assumed to be constant.
The determinants of demand are factors other than price that influence demand: income, tastes, prices of related goods, expectations, and numbers of buyers.
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Representations of Demand
Demand Schedule: A table or list of the prices and corresponding quantities demanded of a particular good or service. It is the price-quantity relationship presented in tabular form.
Demand Curve: A graph of the demand schedule with price on the vertical axis and quantity demanded on the horizontal axis.
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Demand Schedule andDemand Curve for Videos
QuantityPrice
50$1
40$2
30$3
20$4
10$5
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Change in Demand vs. Change in the Quantity Demanded
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Aggregation of Demand (I)
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Aggregation of Demand (II)
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Why demand curve is negatively sloped Law of diminishing marginal utility. Fall in price leads to more purchase and
more buyers. Substitution effect. Income effect.
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Price and quantity are negatively related Some reasons include:income effect--as the price of a good declines, the consumer can purchase more of all goods since his or
her real income increased.substitution effect--as the price declines, the good becomes relatively cheaper. A rational consumer maximizes satisfaction by reorganizing consumption until the marginal utility in each good per dollar is equal:
Optimality Condition is MUA/PA = MUB/PB = MUC/PC = ...If MU per dollar in A and B differ, the consumer can improve
utility by purchasing more of the one with higher MU per dollar.
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Exception to Law of Demand
Giffen goods : Giffen goods are special type of inferior goods. Eg : Coarse grain, salt etc.
Conspicuous Necessities : Commodities like TV, fridge as through their constant use they have become necessities of life.
Conspicuous consumption : Goods like diamond etc. where with an increase in price of the good, Quantity demanded increases.
Future changes in price : Households act as speculators. Emergencies : Like war, flood negate the operation of law of
demand. Change in fashion Ignorance
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Activity A : Which of the following statements depicting demand are correct:
A toy shop selling different types of tous, each priced at Rs. 20 at a hill station makes a business of Rs. 3500 each day.
In CP, the total population is one lakh. A fruit vender sells 50 fruits (of different varieties) in a day.
Activity B: Following are some instances. In each, write how the demand will be affected:
Prices of washing machines go down drastically. Right next to a busy snack centre, a new one comes up. VAT(value-added tax) is announced on all saleable commodities(goods &
services).
Activity C: Some people only buy ‘Branded Products’. Comment.
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CASE STUDY : The Demand for Big Macs
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