Demand : Law of Demand and Demand Function

Demand Function 

   A demand function [Dn], states the relationship between the demand for a product and its various determinants. 

Dn = f (Pn, Pr, I, T, E H,G)

Where 

Dn = demand for a particular commodity ‘n’

f = functional relation between the demand for commodity        ‘n’ and the the factors affecting this demand

Pn  = Price of the commodity

Pr = Price of all related commodity

I = Income

T = The Taste of consumer

E = Future expectations

H = size of the Population

G = Government’s policy




Define

  • Price Demand: 
    Price demand refers to different quantities of a commodity, demanded at different prices.

  • Income Demand :
    The functional relationship between the demand for a commodity and the level of income of the consumer, is known as income demand.
      The income demand shows how much quantity of a commodity a consumer will buy at different levels of his income.

  • Cross Demand : 
     The functional relationship between the price of a commodity and the demand for some other related commodity is known as cross demand or cross price effect.

 Law of Demand 
Question : State the law of demand with two assumptions. Briefly discuss two  exception to the law of demand.

 Question : Explain the law of demand with the help of a diagram and schedule. Give two reasons why the slopes downwards to the right.

Question : State the law of demand and illustrate it with the help of a demand curve. What are the exceptions to the law of demand ?
 
 Law of Demand 
  •  Statement of the law 
 The law of demand states that, other things remaining  equal, the quantity demanded of a commodity  increases when its price falls and decreases when its price rises.

   Thus, the law of demand indicates an inverse relationship between the price and the quantity demanded of a commodity.
 
  • Assumptions :
 The law of demand is based on the following main assumptions : 
  •  There should be no change in the income of the consumer.
  • Prices of the related commodity should remain unchanged.
  •  The commodity should be a normal commodity.
  •  The distribution of income should not change.
  • There should be no change in the taste and preferences of the consumers.
  • The size of the population should not change.
 Illustration of the law 
     Two ways:
 1. Numerically  (in the form of table)  = Demand  Schedule
 2. Graphically   = Demand Curve 
  
1.  Demand Schedule  
     The numerical ways of showing the relationship between the price of a commodity and its quantity demanded is known as demand Schedule. 
 
Definition
      The demand schedule is a tabular statement that shows different quantities of a commodity, demanded at different prices during a particular period of time.
 
      Types of Demand Schedule
1. Individual Demand Schedule
2.Market  Demand Schedule

  1. Individual Demand Schedule: 
       Individual demand schedule is the table which shows different quantities of a commodity, that  would be  demanded at different prices, by a single household (consumer)  during a given period of time. 
      Example : The quantity of  apples that a single household (A) , would demand at five different prices are – 

   Individual Demand Schedule for Apples – 

Price ( Rs./Kg )

Quantity  Demanded (Kg /Week)

100

1

90

2

80

4

70

6

 

2. Market Demand Schedule :

    Market demand
schedule is a table which shows different quantities of a commodity that all the consumers are willing to purchase at different prices during a particular
period of time.

          It is
composed of the demand schedules of all individuals purchasing that commodity.

It can be obtained by adding up the quantities
purchased  at different prices by all the
households in the market.

 

Market Demand Schedule

Prices (Rs /Kg)

Quantity Demanded by ‘A’(Kg /week)

Quantity Demanded by ‘B’(Kg /week)

Total Market Demand (A+B) (Kg/week)

100

1

2

3

90

2

3

5

80

4

5

9

70

6

7

13

 

     Demand schedule is a convenient way to illustrate the law of
demand .

     Both the individual demand schedule and market demand
schedule indicate that the quantity demanded of a commodity increases when its
price falls and decreases when its price rises.

Demand Curve

 The Demand Curve is a graphical presentation of the Law of
Demand.

A demand Schedule is converted into a demand curve, when we
plot various Price – Quantity 
combination  graphically.

Thus the graphical presentation of demand schedule is a
demand curve.

Definition :  

  The curve showing
different quantities of a commodity demanded at different  alternative prices during a particular period
of time.

 Types of Demand Curve

There are 2 types of demand curves –

    1. Individual Demand Curve

     2.  Market Demand Curve

A demand curve is a convenient way of showing the
relationship between the price and the quantity demanded of a commodity.

A single point on the demand curve shows a single Price –
Quantity relation.

The whole demand curve shows the complete relationship
between the price and quantity demanded.

The demand curve is drawn on the assumption that all the
other things remain constant or unchanged , means on the assumption of ceteris
paribus order.
(Ceteris Paribus order means all the other things
remains constant).

    1.Individual Demand Curve :

       The demand curve that shows different quantities of the
commodity which a single consumer is willing to buy at different price during a
particular period of time.

Individual Demand Schedule of Apples:

Prices (Rs /Kg)

Quantity demanded (Kg/week)

100

1

90

2

80

4

70

6

 

Individual Demand Curve of Apples :

Demand : Law of Demand and Demand Function

Individual Demand Curve



      When prices of apples are plotted on vertical axis (Y) and quantities on horizontal axis (X), a curve DD’ is obtained.
      Points a, b, c and d shows four different price – quantity combinations. 
   The curve  DD’  slopes downward which indicate an inverse relationship between price and quantity.


Market Demand Curve 
     Market Demand curve is a curve that represent different quantities of goods which all the consumers in the market are willing to purchase at different prices during a particular period of time.
   It is the horizontal curve summation of the demand  curves of all the households. 
    
   Market demand schedule for Apples : 
 Market Demand Schedule for Apples

Prices

Quantity Demanded by ‘A’ (Kg/week)

Quantity Demanded by ‘B’ (Kg/week)

Market Demand(Total)

(A+B)Kg/week

100

1

2

3

90

2

3

5

80

4

5

9

70

6

7

13




    Market demand Curve for Apples :


Demand : Law of Demand and Demand Function

Market Demand Curve for Apples


   When prices are plotted on y – axis  and quantities purchased are on x – axis, a demand curve DDm  is obtained.
  DDm – curve is known as Market Demand Curve.
  Market demand Curve DDm, like individual demand curves, slopes downward which indicates an inverse relationship between the price and quantity demanded.

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