Demand Theory

Demand Theory Assignment Help

Demand Theory

The demand for a commodity or service refers to the quantity of that goods or service which consumers are willing to purchase at a given price during a given time period. Among the factors that influence demand are the price of that product, the prices of other related products, consumer’ income, tastes, fashions and other individual related and environmental factors.

The demand function is a shorthand expression of the relationship between the quantity of a goods demanded and the various variables that determine demanded of a good increases with a fall in its price and decreases with an increase in price. This shows that is an inverse relationship between price and the quantity demanded.

Demand curve is generally downwards sloping. The negative slope of demand curve conforms to the price – quantity relationship defined by the law of demand. The demand curve slopes downwards because of the operation of income effect and substitution effect. Some exceptional demand curve may slope upwards as is the case with the Giffen goods.

Extension and contraction of demand refers to changes in quantity demanded due to change in price. Such changes involve movements along the same demand curve. Increase and decrease in demand occurs when demand changes due to factors other than the price of that goods. Such changes mean shifts in the demand curve itself – moving rightwards when demand increases shifting leftwards when demand decreases.


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