Law of demand Exceptions to law of demand

Law of demand& Exceptions to law of demand Dr. A. A. ANNAPURNA LECTURER IN COMMERCER Govt. College (A), RJY

Topics covered � � Law of demand. The assumptions underlying the law of demand. Why consumer buy more of a commodity when prices fall and vice versa. The paradoxical/exceptional situations.

Demand meaning �A desire to have something and enjoy = Want � Want + Ability to purchase =Desire � Desire + Willingness to purchase = Demand

Determinants of demand

Statement of law � The inverse relationship between quantity demand of a commodity and its price is called law of demand. � Statement of law of demand, “other things being equal, more of a commodity would be demanded at lower price and less of the commodity would be demanded at higher prices”.

Explanation of law � Individual Demand schedule Price of sugar per Kg (Rs) Quantity demand by a consumer per month (in Kgs) 10 2 9 4 8 6 7 12

Market demand schedule Price of sugar (in Demand of A Rs) per month in Kg Demand of B per month in Kg Market demand per month in Kg 10 2 8 10 8 4 16 20 6 6 24 4 12 18 40 2 14 36 50 30

Graphical representation

ASSUMPTIONS a Consumer income ta st a pr nd es e nc fer es e price of relate d good s Government policy l u p o p n it o “Ceteris paribus” No change W co ea nd th iti er on s e ns r tu tio u F cta pe x e

Downward slope of demand curve, why? � Diminishing marginal utility � Real income effect � Substitute effect � Entry of new buyers � Multiple uses

Exceptions to the law of demand � Conspicuous goods; � Giffen’s goods � Conspicuous necessities � Future expectation about price � Speculation � Irrational purchases � Consumer Unaware of market conditions

Conspicuous goods Pet jewellary Fashion designer clothes Diamonds Rolls Royce sil. Sliver Spoon

Conspicuous neccessities

Giffen’s goods

Speculation, irrational behaviour of consumers and ignorance of market conditions

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