Page 107 - DECO401_MICROECONOMIC_THEORY_ENGLISH

Microeconomic Theory

Notes (Here Q = Quantity Demanded of Object-X; P = Price of
x
x
X; P = Price of Related object; Y = Customer Income; W = To Remember
r
Costumer’s Property; T = Choices and hobbies of customer; Some determinants of Demand as (1) Size
E = consideration and possibilities of customer.) and shape of population and (2) Distribution
Its inverse, Market Demand Function can be expressed as of Income confirm the market Demand. If
here raise a question about Determinants of
Q = f (P , P , Y*, T, Z, W, E) Demand of a customer, and then it should
x x r not be defined to students. Reason is that
(Here Q = Quantity Demanded of Object-X; P = Price of when a customer decides to buy how much
x
x
X; P = Price of Related object; Y* = Customer Income and quantity he does not care about the size of
r
its distribution; T = Choices and hobbies of customer; Z = population and income distribution.
size and shape of population; W = Customer’s Property;
E = consideration and possibilities of customer.)
Note: Determinant Y* and Z are just different in Market Demand Function. Demand of any specific
person (further Individual Demand Function) has no relation or concern with the income distribution
in Economic and size and shape of population. But in further Market Demand they are determinants.

Demand is defined as the quantity of a matter to which a consumer is not only willing
and able to buy on a given price in a given time period but also ready for this.

6.4 How do Different Determinants Work?

1. Price of Commodity
Generally, demand of any commodity is confirmed by its price. If other determinants remain constant
or Ceteris Paribus, then by the change in price of commodity, its demand is also changed inversely.
Normally, on rising, price of commodity demand decreases and inversely on decreasing price Demand
increases. This relation of demand is known as Law of Demand. The following figure shows it.

Fig. 6.3

Y
D
Inverse relationship
P between price (P ) and
1 x
quantity demanded (Q )
x
Price of x P law of demand.
is often referred to as
P
2
D
O X
Q Q Q
2 1
Quantity

In Fig. 6.3, on decreasing price of commodity from OP to OP its demand is increased from OQ to
2
OQ and on increasing price from OP to OP demand is decreased from OQ to OQ , this fact refers to a
2
1
1
reality that there is a inverse relationship between price and its quantity demanded.
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