Demand Theory0

Demand Theory0

  • Submitted By: booboov82
  • Date Submitted: 12/21/2008 2:02 PM
  • Category: Business
  • Words: 644
  • Page: 3
  • Views: 306

Demand Theory

A. Meaning of demand: Demand for a community is the amount of it that a consumer will purchase or ready to take off from the market at various given prices at a given point of time. Desire for a commodity does not constitute demand for it, if it is not backed by the ability to pay or purchasing power.

B. Low of Demand: Law of demand shows the functional relationship between price and quantity demanded. According to the law, if the price of a commodity fall, the quantity demanded ,it will sue and if the price goes up, then the demand will decline other things remaining the same.

The law of demand can be explained in terms at substation effect and income effect. The substitution effect selects changing opportunity costs. When the price of a commodity falls, it becomes relatively cheaper than at the commodities. This influences consumer to substitute the c9mmodity whose price has fallen for other commodity which has become relatively cheaper. For example, the demand of tea will increase when the price of coffee will to up. Lets consider the income effect. When the price of commodity falls, consumers real income or purchasing power increases which means this is increase in income in consumer to buy more of that commodity and vice-versa. This is called income effect of the changes in price of the commodity.

Market Demand: The market demand for a good and survives is some of all individual demands. For example: consumer one demands 5 unit of ball and consumer two demands 8 unit of ball, at a given price of 10 taka, then the market demand will be 13 unit at price 10 taka.

Thus the market demand at any given price is the sum of the individual quantities demanded at that price.

Determinants of Market Demands:
1. Consumer preferences:-Consumer’s preferences can change due to advertising and customs. If preferences become favorable for a good, the demand will increases for that good at a given price. For example: consumer’s prefer to...

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