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3.1 Meaning of Demand, 3.2 The Law of Demand, , 3.3 Determinants of Demand, , 3.4 Demand Function, 3.5 Price, Income and Substitution Effects, 3.6 Nature of Demand Curve under Different Markets, , REPRE I SEC DTI TEE SERS PLDI EOE TDI SO SI OTE ST TTS, , , , , , , , , , , , , , The term demand for a product denotes the quantity of it, a consumer or, , a group of consumers, are willing to purchase at a given price, ata given, time. ‘, , From the above definition of demand, it is clear that the demand for a, product has the following aspects:, , 1. It represents a desire for a commodity backed by the ability and, willingness to purchase it., , 2. It isa measurable concept always with reference to a price and time, period., , 3. Demand can be expressed as an individual’s demand fora product, or market demand for a product.

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a,, , 36, , For ee 22,889.units of Maruti Suziki Alto were sold in ¢, In I Lakhs -% 3.82 Lakhs. (The price range indicates th,, setiafiot of Altos are priced slightly differently.), , va, , Business Economics - I (BMS, BAF, BFM, BB}. SE, ~), , ec Pricg, at iffecten, , , , The demand for a commodity depends upon many, important factor determining demand is the price, as, , - However, there are many other factors that will have an influence op, demand., , factors. The Most, of the commodity, , For example, the demand for Yuvraj 215, a type small tractor sold by, Mahindra and Mahindra,, , at a given period of time, will depend upon, several factors like,, , (a) Price of Yuvraj 215, (b) Price of other similar tractors, (c) Cost of fuel to run the tractor, , (d) The interest rate farmers have to pay on loans taken to purchase the, tractor, , (e) The income level of the farmers, , ), , (g) The geographical conditions in the which the tractor will be used, , If we assume that all the factors, except the price of the tractor, remain the, , same, we can then derive a functional relationship between the demand, for the tractor and its, , price alone. This relationship is explained with the, help of the Law of Demand which was first propounded by Alfred, Marshall!, , The advertising and promotion of the tractor, , The Law of Demand states that other factors being constant (ceteris, paribus), price and quantity demanded of any commodity are inversely, related to each other. When the price of a commodity rises, the demand fot, the commodity will fall., , Alfred Marshall (1842-1924) was one of the most influential Neo-Classical, economists. His book, Principles o, , »f Economics (1890) was an important work, in which Marshall brought out the ana, , lysis of demand, marginal utility, consumer's surplus and costs of production,

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37, Demand Function, , The law of demand explains how t :, changes when there is a change in the price of a commodity. Ina —, situation, if other factors affecting demand for a commodity does no, change, but only the price changes, then a consumer is likely to buy more, ofa commodity when its price falls and less of acommodity when its price, rises. This behaviour of a consumer is a commonly observed behaviour, and the law of demand is based on such observed behaviour., , he consumer’s choice-behaviour, , , , The Law of Demand and Marketing Strategy, , When sellers announce “discount sales” or popularise offers like “Buy, 1 get 1 Free”, they are applying the law of demand to their marketing, strategy. However, in real life situations, price is not the only dynamic, factor. There may be changes in other factors too. Like, a rival firm, may also announce a similar “discount sales” or products may go out, of fashion and people may not buy more even at the discounted price., These are the real world challenges that firms have to face to overcome, the limitations of the law of demand. Such challenges are met through, effective advertising and promotion and carrying out product, innovation along with price variations., , , , , , , , The law of demand, i.e., the inverse relationship between the price and the, quantity demanded of a good, is explained through demand curve in Fig., 3.1., , Y, , Price, , D, , ” Quantity Demanded, Fig. 3.1, , InFig. 3.1 the price is measured on the vertical axis and quantity demanded, on the horizontal axis. The line DD is the demand curve. It slopes, downwards from left to right. It shows the inverse relationship between, the price and quantity demanded.

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38, , Business Economics - I, , (BMS, BA P, The Law of Deman, , d is based On the follo, 1,, , oSp, Ptions. Mey, No change in consumer's ;, 5 lay, € consumer ma Price or buy a Come gig, even if price rises., , The law of demand, while, quantity demand, , rice an4, explaining the relationship between p i, constant., , in, . to rema, €d, expects all factors other than the pEce, , . peité, . ” n e, All the constant factors are put under the assumption — 6, equal" (ceteris Paribus), while explaining the law of demand.

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Demand Function, , 39, xceptions to the Law of Demand:, , e law of demand is not applicable in the following cases :, , Giffen Goods : These are s, , ecial inferi i, wlan a htefer types of inferior goods which are, , Price and less at a lower price., , Snob value : Rich consumers, who attacha snob value to owning and, , displaying expensive goods such as diamonds, jewellery, etc. purchase, more such goods as their Prices rise. On the other hand, as their prices, , fall, the Sante consumers may buy less due to the loss of snob appeal, because "everyone can afford them"., , Price Expectations : When the prices are rising, consumers may, purchase more of the commodity if they expect prices will rise further., , Similarly when the price falls, the consumers may not purchase more, if they expect the price to fall further., , Emergencies : In times of war, famine, major illness, etc. households, purchase more of the goods even when their prices are rising., , Fashion : When the consumers give importance to fashion, a rise in, Prices of these goods will not lower demand. Similarly, when a product, , goes out of fashion, a reduction in price of this product may not, increase the demand for it. :, , , , The demand for a commodity depends ona number of factors. Together, hese factors determine the quantity of the commodity that will be, demanded by an individual or a household or a group of individuals. The, , portant determinants of demand fora commodity x (Q) are explained, as follows:, , 1. Price (P,): The price of the commodity in question is the most, important determinant of its demand. Quantity demanded and price, have an inverse relationship in case of normal goods, assuming all, other demand determinants remain constant. A change in price brings, about changes in consumers’ demand for a product. Sellers may adjust, the price according to the demand for the product., , Income (Y): Consumers’ income is an important determinant of, demand for a commodity. Generally, for normal goods, income and, demand are directly related. Higher the income, higher will be the, demand for such goods. However, in case of goods that are perceived