Demand: Assumptions and Reasons for Downward Sloping Curve Management YouTube Lecture Handouts

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Compensation Management: Meaning, Objectives and Components Management

Meaning of Demand and Quantity Demanded

  • Demand: It is the quantity the customer is willing to purchase at a given price.
  • Quantity Demanded: It the quantity that customer՚s actually buy at a given price.

The Law of Demand

  • Law of Demand: This theory says that there is an inverse relation between the price and the quantity demanded
  • Meaning if the price goes up the demand goes down and vice versa.

Various Assumptions

  • The income of the consumer remains the same.
  • Price of related goods like substitute and complementary goods does not change.
  • Tastes and preferences of the consumer remains the same.
  • Climatic conditions remain the same.
  • No change in the gender, age, status of the customer.
  • There is no expectation of change in price in the future.
  • The range of goods available to the customer remains same

Why a Demand Curve Slopes Downward

Why a Demand Curve Slopes Downward
  • Income Effect: It is basically the change in the real income of the customer by change in the price of the good.
  • Different Uses: Certain commodities have various uses. If the price for these commodities rises, then the alternative uses are reduced and vice versa.
  • Law of Diminishing Marginal Utility: The law says that if a consumer keeps on consumer another unit of a commodity, the additional utility derived from it goes on diminishing.
  • Size of consumers: The reduction in price of a commodity also attracts new customers. This leads to more quantity demanded than before.

MCQs

According to which reason the consumer buying capacity increases even though the income and other factors remain same?

1. Law of DMU

2. Size of customers

3. Substitute goods

4. Income effect

Which law talks about the Utility attached to a product?

1. Ordinal

2. DMU

3. Law of demand

4. Indifference curve

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