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Monday, 2 May 2011

What is the law of demand explain it with the help of demand schedule and demand curve also discuss its assumptions and exceptions




MEANING OF DEMAND :-
In ordinary language the word demand means desire . But in economics demand means desire backed up by the enough money to pay for the good. Only desire can not be called demand.
There is also functional relationship between price and demand. Second point is that demand is always per unit of time.

LAW OF DEMAND :- " Other things remaining the same when the price of any commodity increases its demand falls and when price falls its demand increases."

According to the law of demand there is inverse relationship between demand and price.
In simple language was can say that when the price of any commodity falls, people are tempted to purchase more commodities. On the other hand when price of any commodity rises people demand less quantity.

NOTE : No doubt with the fall in price demand increases but it is not necessary that demand may also increases according the same ratio.

The functional relationship between demand and price can also be expressed as under :

qd = F(P)
qd = Quality demanded
F = Function
P = Price of commodity

We can also explain this law by the following schedule and diagram :

DEMAND SCHEDULE :-
The demand schedule of sugar which is purchased in the market at different prices per unit of time is given below :

Price per Kg Quantity demanded in rupees

               in rupees                in Kg.
                   10                   1000 Kg

                     8                    2000 Kg

                     6                    3000 Kg

                     4                    4000 Kg

                     2                    5000 Kg


EXPLANATION : The above schedule shows that a consumer buys 1000 Kg. sugar 10 rupees per Kg. when price falls to two rupees his demand increases up to 5000 Kg. We can say that if other things remaining the same, a consumer buys more goods at lower price and less goods at higher prices.

DEMAND CURVE : Demand curve is a graphic representation of the demand schedule.



EXPLANATION : In the demand curve, the price is shown on the vertical and quantity demand is plotted on the horizontal axies. The curve DD' demand curve slopes down which shows that price and quantity demanded work in opposite direction.

NEGATIVE SLOPE : Demand curve always moves from left to right and downward. Because with the fall in price demand increases.

ASSUMPTIONS :-
While explaining the law we have stated that other things remaining the same these non-price factors are following :

1. CHANGE IN INCOME :-
There should be no change in income otherwise, rise in price will not cause the reduction in the quantity demanded.

2. CHANGES IN FASHION :-
As the fashion of any commodity changes its demand and price both falls. So the law of demand can not operate in this case.

3. CHANGE IN TASTE :-
Demand for commodity may change due to changes in tastes. For example, people develop a taste for milk. The demand for tea will decrease.

4. CHANGE IN WEATHER :-
Some time due to a sudden change of weather, this law cannot operate.

5. CHANGE IN POPULATION :-
In the population of the country increases, the demand of various goods will rise, even prices are increasing.

6. PRECIOUS AND CHEAP GOODS :-
Cheapest and costly goods demand remains constant. For example salt an diamond demand cannot change due to change in price.

7. INVENTION OF SUBSTITUTES :-
If the cheap and better substitute of any commodity is invented then the demand of that commodity can not rise with the fall in price.

8. CHANGE IN THE DISTRIBUTION OF WEALTH :-
If an equal distribution of wealth brought about in a country, then demand for expensive goods will fall and demand for basic necessities will increase.

9. CHANGES IN THE STATE OF TRADE :-
The total quantity of goods demanded is also affected by the cyclical fluctuations. So in that case this law can not operate.

10. FUTURE EXPECTATIONS :-
Sometimes, people expect that the price of a particular commodity will rise in near future. So they increase their purchases with the rise in price.

11. DEVALUATION EXPECTATION :-
If the people are expecting that currency will be devalued in the near future, then this law will not operate.

Sometimes it can also happen that the demand curve may slope upward from left to right. In other words it may have positively inclined curve. For example if people expect the prices to go up in the near future, they they will purchase more commodities at a higher prices. Similarly some articles have great demand when their prices rises and less demand when price falls. Sometimes people may purchase more commodities at a higher prices due to ignorance.

1 comments:

uvetie,  23 November 2011 09:06  

nice work, its helpful

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