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LECTURE NO: 2 (DEMAND & SUPPLY
DEMAND:
What is difference between need and demand?
Need: want, desire, anything necessary but lacking.
Demand: when our desires are backed by purchasing power.
LAW OF DEMAND:
A microeconomic law that states that, all other factors being equal, as the price of a good or service increases, consumer demand for the good or service will decrease and vice versa.
In economics, 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 (ceteris paribus).
Mathematical expression
The negative relation (i.e., higher price attracts lower demand & lower prices encourages high quantity to be bought by the consumers) is based on logic and experience. Mathematically, the inverse relation may be stated with causal relation as:
Q = f(P)
Where, Q is the quantity demanded of x goods f is the function of independent variables contained within the parenthesis, and P is the price of goods.
Graphical Representation:
Assumptions
Every law will have limitation or exceptions. While expressing the law of demand, the assumptions that other conditions of demand were unchanged. If remain constant, the inverse relation may not hold well. In other words, it is assumed that the income and tastes of consumers and the prices of other commodities are constant. This law operates when the commodity’s price changes and all other prices and conditions do not change. The main assumptions are
Habits, tastes and fashions remain constant
Money, income of the consumer does not change.
Prices of other goods remain constant
The commodity in question has no substitute
The commodity is a normal good and has no prestige or status value.
People do not expect changes in the prices.
Exceptions to the law of demand
Generally, the amount demanded of good increases with a decrease in price of the good and vice versa. In some cases, however, this may not be true. Such
DEMAND:
What is difference between need and demand?
Need: want, desire, anything necessary but lacking.
Demand: when our desires are backed by purchasing power.
LAW OF DEMAND:
A microeconomic law that states that, all other factors being equal, as the price of a good or service increases, consumer demand for the good or service will decrease and vice versa.
In economics, 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 (ceteris paribus).
Mathematical expression
The negative relation (i.e., higher price attracts lower demand & lower prices encourages high quantity to be bought by the consumers) is based on logic and experience. Mathematically, the inverse relation may be stated with causal relation as:
Q = f(P)
Where, Q is the quantity demanded of x goods f is the function of independent variables contained within the parenthesis, and P is the price of goods.
Graphical Representation:
Assumptions
Every law will have limitation or exceptions. While expressing the law of demand, the assumptions that other conditions of demand were unchanged. If remain constant, the inverse relation may not hold well. In other words, it is assumed that the income and tastes of consumers and the prices of other commodities are constant. This law operates when the commodity’s price changes and all other prices and conditions do not change. The main assumptions are
Habits, tastes and fashions remain constant
Money, income of the consumer does not change.
Prices of other goods remain constant
The commodity in question has no substitute
The commodity is a normal good and has no prestige or status value.
People do not expect changes in the prices.
Exceptions to the law of demand
Generally, the amount demanded of good increases with a decrease in price of the good and vice versa. In some cases, however, this may not be true. Such