MICRO ECONOMICS ASSIGNMENT PRESENTED BY MOHSAN TANVEER ROLL NO.

5 MBA(IRM) PRESENTED TO MADAM TEHREEM SADIQ

LAW OF DEMAND
Other things equal,as price falls the quantity demanded rises,and as price rises,the quantity demanded falls

In short there is a negative or inverse relationship between price and quantity demanded,economists call this inverse relationship the LAW OF DEMAND.

THE DEMAND CURVE

SCHEDULE
PRICE 5 4 3 2 1 Qd 10 20 30 40 50

6 5 PRICE 4 3 2 1 0 0 10 20 30 40 50 60 QUANTITY DEMANDED

D D

CHANGE IN DEMAND
A change in one or more of the determinants of demand will change the demand data; the change in demand data will shift the demand curve that is called change in demand.

CHANGE IN BUYERS TASTE:A favourable change in consumer tastes for a product is a change that makes a product more desirable means that more of it will be demanded, the demand curve will shift rightward, whereas an unfavourable change in consumer taste will decrease the demand shifting the demand curve to left. New products may affect consumer tastes, for example introduction of laptops decrease the demand for desktop computers.

SCHEDULE
PRICE 50 40 30 20 10 Qd 1 2 3 4 5 Increase 2 3 4 5 6 Decrease 0 1 2 3 4

60 50 40 PRICE 30 20 10 0 0 1 2 3 4 5 6 7 QUANTITY DEMANDED

D2 D D1 D2 D D1

 CHANGE IN NUMBER OF BUYERS:An increase in number of buyers is likely to increase product demand; a decrease in number of buyers will decrease the demand. For example: if the population of a particular area increase demand for the vegetables will increase in that area, and if population decrease the demand will also decrease.
PRICE 5 4 3 2 1

SCHEDULE
Qd 50 100 150 200 250 Increase 100 150 200 250 300

Decrease 0 50 100 150 200

6 5 4 PRICE 3 2 1
D2 D D1 D2 D D1

0 0 100 200 300 400 QUANTITY DEMANDED

EXPLANATION:-

In the diagram D is showing the original demand curve and D1 is showing the increase in demand and D2 is showing the decrease in demand and this change in demand is due to change in number of buyers.

 CHANGE IN INCOME:Income affects demand,for most products a rise in income causes an increase in demand,products whose demand varies directly with income are called superior goods or normal goods although most products are normal goods but there are some exceptions rising income may also decrease the demand,goods whose demand varies inversely with income are called inferior goods. SCHEDULE
PRICE 10 8 6 4 2 Qd 10 20 30 40 50 Increase 20 30 40 50 60 Decrease 0 10 20 30 40

12 10 8 PRICE 6 4 2 0 0 20 40 60 80 QUANTITY DEMANDED

D2 D D1 D2 D D1

EXPLANATION:In the above diagram D is showing original demand and D1 is showing increase in demand and D2 is showing decrease in demand, this diagram shows that income affects the demand for a product.

 CHANGE IN PRICES OF RELATED GOODS:A change in price of related good may either increase or decrease the demand for a product, depending on whether the related goods are a substitute or a complement. The related goods can be: Substitute Complement Unrelated goods

PRICE 12 10 8 6 4

Qd 2 3 4 5 6

SCHEDULE
Increase 4 5 6 7 8

Decrease 1 2 3 4 5

14
D2

12 10 PRICE 8 6 4 2 0 0

D1

D2

D1

10

QUANTITY DEMANDED

EXPLANATION:The diagram is showing that due to change in price of related goods the price for a particular commodity may increase or decrease.

CONSUMER EXPECTATIONS:Changes in consumer expectations may shift demand,a newly formed expectation of higher future prices may cause consumers to buy now in order to beat the anticipated price rises thus increasing current demand. For example:expectation of consumers are that prices of warm clothes will increase in coming winter season,so they increase the demand of warm clothes and vice versa.

PRICES 600 500 400 300 200 100

Qd 2 4 6 8 10 12

SCHEDULE
Increase 3 5 7 9 11 13

Decrease 0.87 3 5 7 9 11

700 600 500 PRICE 400 300 200 100

D2 D D1 D D1

0 0 5 10 15 QUANTITY DEMANDED

EXPLANATION:Due to favourable change in expectation the consumer increase the demand and curve shifts upward and if demand decreases curve shifts downward.