Karnataka Class 12 Commerce Economics Law Of Demand Complete Notes

Karnataka Class 12 Commerce Economics Law Of Demand : Here we provide Karnataka Class 12 Commerce Economics Law Of Demand Complete Notes In PDF Format. Karnataka Class 12 Commerce Economics Law Of Demand Main topics are Normal and Inferior goods, 4 Substitutes and Complementary – Shifts in Demand curve. Download Karnataka Class 12 Commerce Economics Law Of Demand Complete Notes and read well.

Download here Karnataka Class 12 Commerce Economics Law Of Demand Complete Notes In PDF Format 

Karnataka Class 12 Commerce Economics Law Of Demand :

In this article we will discuss about:- 1. Introduction to the Law of Demand 2. Assumptions of the Law of Demand 3. Exceptions.

Introduction to the Law of Demand:

The law of demand expresses a relationship between the quantity demanded and its price. It may be defined in Marshall’s words as “the amount demanded increases with a fall in price, and diminishes with a rise in price”. Thus it expresses an inverse relation between price and demand. The law refers to the direction in which quantity demanded changes with a change in price.

On the figure, it is represented by the slope of the demand curve which is normally negative throughout its length. The inverse price- demand relationship is based on other things remaining equal. This phrase points towards certain im­portant assumptions on which this law is based.

Assumptions of the Law of Demand:

These assumptions are:

(i) There is no change in the tastes and preferences of the consumer;

(ii) The income of the consumer remains constant;

(iii) There is no change in customs;

(iv) The commodity to be used should not confer distinction on the consumer;

(v) There should not be any substitutes of the commodity;

(vi) There should not be any change in the prices of other products;

(vii) There should not be any possibility of change in the price of the product being used;

(viii) There should not be any change in the quality of the product; and

(ix) The habits of the consumers should remain unchanged. Given these conditions, the law of demand operates. If there is change even in one of these conditions, it will stop operating.

Given these assumptions, the law of demand is explained in terms of Table 3 and Figure 7.

http://cdn.economicsdiscussion.net/wp-content/uploads/2016/08/clip_image016_thumb2.jpg

http://cdn.economicsdiscussion.net/wp-content/uploads/2016/08/clip_image018_thumb2.jpg

The above table shows that when the price of say, orange, is Rs. 5 per unit, 100 units are de­manded. If the price falls to Rs.4, the demand increases to 200 units. Similarly, when the price declines to Re.1, the demand increases to 600 units. On the contrary, as the price increases from Re. 1, the demand continues to decline from 600 units.

In the figure, point P of the demand curve DD₁ shows demand for 100 units at the Rs. 5. As the price falls to Rs. 4, Rs. 3, Rs. 2 and Re. 1, the demand rises to 200, 300, 400 and 600 units respectively. This is clear from points Q, R, S, and T. Thus, the demand curve DD₁ shows increase in demand of orange when its price falls. This indicates the inverse relation between price and demand.

Exceptions to the Law of Demand:

In certain cases, the demand curve slopes up from left to right, i.e., it has a positive slope. Under certain circumstances, consumers buy more when the price of a commodity rises, and less when price falls, as shown by the D curve in Figure 8. Many causes are attributed to an upward sloping demand curve.

http://cdn.economicsdiscussion.net/wp-content/uploads/2016/08/clip_image020_thumb2.jpg

(i) War:

If shortage is feared in anticipation of war, people may start buying for building stocks or for hoarding even when the price rises.

(ii) Depression:

During a depression, the prices of commodities are very low and the demand for them is also less. This is because of the lack of purchasing power with consumers.

(iii) Giffen Paradox:

If a commodity happens to be a necessity of life like wheat and its price goes up, consumers are forced to curtail the consumption of more expensive foods like meat and fish, and wheat being still the cheapest food they will consume more of it. The Marshallian example is applicable to developed economies.

In the case of an underdeveloped economy, with the fall in the price of an inferior commodity like maize, consumers will start consuming more of the superior commodity like wheat. As a result, the demand for maize will fall. This is what Marshall called the Giffen Paradox which makes the demand curve to have a positive slope.

(iv) Demonstration Effect:

If consumers are affected by the principle of conspicuous consump­tion or demonstration effect, they will like to buy more of those commodities which confer distinction on the possessor, when their prices rise. On the other hand, with the fall in the prices of such articles, their demand falls, as is the case with diamonds.

(v) Ignorance Effect:

Consumers buy more at a higher price under the influence of the “igno­rance effect”, where a commodity may be mistaken for some other commodity, due to deceptive packing, label, etc.

(vi) Speculation:

Marshall mentions speculation as one of the important exceptions to the down­ward sloping demand curve. According to him, the law of demand does not apply to the demand in a campaign between groups of speculators. When a group unloads a great quantity of a thing on to the market, the price falls and the other group begins buying it. When it has raised the price of the thing, it arranges to sell a great deal quietly. Thus when price rises, demand also increases.

(vii) Necessities of Life:

Normally, the law of demand does not apply on necessities of life such as food, cloth etc. Even the price of these goods increases, the consumer does not reduce their demand. Rather, he purchases them even the prices of these goods increase often by reducing the demand for comfortable goods. This is also a reason that the demand curve slopes upwards to the right.

Karnataka Class 12 Commerce Economics Law Of Demand Complete Notes

Karnataka Class 12 Commerce Economics Law Of Demand : The law of demand is a microeconomics law that states, all other factors being equal, as the price of a good or service increases, consumer demand for the good or service will decrease, and vice versa.

In microeconomics, the law of demand states that, “conditional on all else being equal, as the price of a good increases (↑), quantity demanded decreases (↓); conversely, as the price of a good decreases (↓), quantity demanded increases (↑)“. In other words, the law of demand describes an inverse relationship between price and quantity demanded of a good. The factors held constant refer to other determinants of demand, such as the prices of other goods and the consumer’s income. There are, however, some possible exceptions to the law of demand, such as Giffen goods and Veblen goods

Karnataka Class 12 Commerce Economics Law Of Demand Complete Notes

Karnataka Class 12 Commerce Economics Law Of Demand : The law of demand summarizes the effect price changes have on consumer behavior. For example, a consumer will purchase more pizzas if the price of pizza falls. The opposite is true if the price of pizza increases. John might demand 10 pizzas if they cost $10 each, but only 7 pizzas if the price rises to $12, and only 4 pizzas if the price rises to $20.

The law of demand is one of the most fundamental concepts in economics. It works with the law of supply to explain how market economies allocate resources and determine the prices of goods and services.

 Karnataka Class 12 Commerce Economics Law Of Demand Complete Notes

Cakart.in provides India’s top Class 12 Commerce  faculty video classes – online & in Pen Drive/ DVD – at very cost effective rates. Get Class 12 Commerce  Video classes from www.cakart.in  to do a great preparation for primary Student.