I YEAR B.B.A LL.

B – SEMESTER-II (2022)

1ST -INTERNAL ASSESSMENT

MANAGERIAL ECONOMICS

CASE STUDY/ CRITICAL REVIEW

ON

APPLICABILITY AND LIMITATIONS OF LAW OF DEMAND WITH

EMPIRICAL EXAMPLES AND NUMERICAL

NAME: APURVA RANJAN

DIVISION: A
PRN: 21010126079
COURSE: BBA LL.B. (H)
BATCH: 2021-2026
"IF PEOPLE CAN CHANGE THEMSELVES, WHY CAN'T DEMAND
AND PRICE?"

RELEVANCE OF THE LAW OF DEMAND IN THE

CONTEMPORARY SCENARIO

Economics is the study of how individuals employ finite resources to meet boundless
goals. The rule of demand focuses on such unending desires. Naturally, individuals
prioritize more urgent demands and needs over less urgent ones in their economic
behavior, and this carries over into how people pick among the limited resources accessible
to them. For each economic good, the initial unit that a customer obtains tends to be used
to meet the consumer's most pressing demand that that good can satisfy.

The examples below demonstrate the relevance of the law of demand in the contemporary
scenario and how customers react to price changes when their utility or satisfaction varies.

1. Price falls, demand increases:

Apples are usually sold for one dollar a piece at a supermarket shop. They decide to
conduct an apple sale one day and reduce the price to fifty cents a piece. According to
the law of demand, the reduced price would encourage more people to buy apples,
including some who would not ordinarily buy them at a higher price.

2. Price rise, demand decreases:

A vehicle dealership decides to boost truck pricing in order to increase profits on sales.
According to the law of demand, fewer individuals will now buy trucks at this new,
higher price point.
 INTRODUCTION TO THE LAW OF DEMAND

“The greater the amount to be sold, the smaller must be the price at which it is offered in
order that it may find purchasers; or in other words, the amount demanded increases
with a fall in price and diminishes with a rise in price”- Marshall.

Thus, according to the law of demand, there is an inverse relationship between price and
quantity demanded, other things remaining the same.

 LAW OF DEMAND EXPRESSES THE FUNCTIONAL RELATIONSHIP:-

D = f (P)

Where,
D= Demand
P= Price
f = Functional Relationship

In the law of demand, other factors of demand (except price) should be kept constant as the
demand is subject to various influences. If all the factors would be allowed to vary at the
same time, this may counteract the law. The law of demand can be understood with the
help of certain concepts, such as demand schedule, demand curve, and demand function.1

 LAW OF DEMAND USING DEMAND SCHEDULE

This law can be explained with the help of demand schedule and demand curve as
presented below:
Demand Schedule is a tabular representation of various combinations of price and
quantity demanded by a consumer during a particular period of time. An imaginary
demand schedule is given below:

1
V.K. Ori, Law of Demand
 PRICE / KG (IN RS.) QUANTITY DEMANDED
(IN KG)

10 10

08 20

06 30

04 40

02 50

The above demand schedule shows negative relationship between price and quantity
demanded for a commodity.
Initially, when a price of a good is Rs.10 per kg, quantity demanded by the consumer is 10
kg.
As the price decrease from Rs.10 per kg to Rs.8 per kg and then to Rs.6 per kg, quantity
demanded by the consumer increases from 10 kg to 20 kg and then to 30 kg respectively.
Further, fall in price from Rs.6 per kg to Rs.4 per kg and then to Rs.2 per kg, results in
increase in quantity demanded by the consumer from 30 kg to 40 kg and then to 50 kg,
respectively.
Thus, from the above schedule we can conclude that there is opposite inverse relationship
in between price and quantity demanded for a commodity.

 LAW OF DEMAND USING DEMAND CURVE

It is the graphical representation of demand schedule of the quantities of a commodity

which will be demanded by the consumer at various particular prices in a particular
period of time, other things remaining the same.
In the figure above, price and quantity demanded are measured along the y-axis and
x-axis respectively. By plotting various combinations of price and quantity
demanded, we get a demand curve DD1 derived from points A, B, C, D and E.
This is a downward sloping demand curve showing inverse relationship between price
and quantity demanded.

 ASSUMPTIONS OF THE LAW OF DEMAND

Law of demand holds good when "other things remain the same". Here, other things
refer to other factors, other than own price of the commodity. Thus, other things
remaining constant means that,
(i) Tastes and preferences of the consumers remain constant.
(ii) There is no change in income of the buyers.
(iii) Prices of the related goods do not change.

 LIMITATIONS / EXCEPTIONS OF THE LAW OF DEMAND

1. GIFFEN GOODS

Some special varieties of inferior goods are termed as giffen goods. Cheaper
varieties of goods like low priced rice, low priced bread, etc. are some examples of
Giffen goods. This exception was pointed out by Robert Giffen who observed that
when the price of bread increased, the low paid British workers purchased lesser
 quantity of bread, which is against the law of demand. Thus, in case of Giffen
goods, there is indirect relationship between price and quantity demanded.

2. ARTICLES OF SNOB APPEAL

Sometimes certain commodities are demand just because they happen to be
expensive or prestige goods. These articles are purchased by rich for using them as
a status symbol. Thus, when their prices rise they are purchased in large quantities.

CASE EVALUATION ON INDUSTRY PAY PACKAGES

 HOW DEMAND AFFECTS PAY PACKAGES

If there is a higher supply and lower demand then the salaries will be lower. If there is
a higher demand than supply then the salaries will go up. Salaries are based around the
needs of the product; the more people want it the higher the salaries will be.

 CASE STUDY ON SONAOVERSEAS CORPORATION

Sonaoverseas corporation is a partnership firm trading in food products and processed

food. It was established in 1977.
Company aims at providing food products under 6 different brands. The company is
manufacturing all its products in 5 different manufacturing units which are ISO and
HASSAP certified.
All the recipes are proprietary of the company. Exports in branded packing to various
countries like Canada, USA, UK, Australia is done.

 PRODUCTS
The company deals in various products as below:
1. Pickle paste and chutneys.
2. Spices - whole grounded and compounded.
3. Snacks, fruit juices and baked products.

 MANPOWER
1. Sonaoverseas corporation is a trading company and has 8 workers and 2
consultants.
 2. In these companies, as food is a seasonal process, contract workers are in demand.
For example, in mango season, April - May more than 100 contract workers are
required.

3. The company hires custom and excise consultants. It also takes the service of
logistics and forwarders.

 AVERAGE PAY PACKAGE IN THE FOOD INDUSTRY

 Top level management - Rs. 40000 - 50000 p.m
 Middle level Management - Rs. 20000 - 30000 p.m
 Bottom level management - Rs. 3000 - 15000 p.m

 PAY PACKAGES
 Salaries drawn by the managerial skills range between Rs.35000-50000 (approx.)
 Salaries drawn by the administrative and office staff range between Rs. 8000 -
15000 (approx.)
 Consultants are given remuneration on container basis.
 There is a increase in the salary depending on the company turnover.

 PERKS AND PERQUISITES

 Allowances are given to the employees on their needs.
 Allowances like medical allowance conveyance allowance and children education
allowance.
 The top management has the benefit of ECGC policy.
 The employees are given the benefits of LIC insurance.

 WHY CHANGE IN SALARIES?

The prices of raw materials and procurement of raw materials, packing material and
cost of forwarding went high. The pay and other charges also shooted up but the
company has survived just due to 2 facts:
1. Rise in selling prices
2. Rise in value of US Dollar
 The company deals in US Dollars only and books the rates. Hence the company has
managed to survive so far. 2

CONCLUSION

Thus, after the detailed analyzation of the law of demand, we can conclude that -

It expresses the inverse relationship between demand and price. It basically states that an
increase in price will cause a decrease in the amount requested, whereas a decrease in price
would cause a rise in quantity demanded. 

It does not demonstrate a proportionate link between price changes and subsequent demand
changes. If a price increases by 10%, the quantity demanded may decrease in any
proportion.  

The law of demand is one-sided since it only explains how price changes affect the amount
required. It makes no mention of the impact of changes in demand on the price of the item.

BIBLIOGRAPHY

 https://www.indiamart.com/sonaoverseas-delhi/profile.html
 https://www.economicsdiscussion.net/law-of-demand/law-of-demand-
schedule-curve-function-assumptions-and-exception/3429
 Microeconomics, V.K Ori, Class 11th

2
Dhrumil Shah, Industry Pay Packages A Case Study of Law of Demand,
https://pt.slideshare.net/DhrumilShah12/industry-pay-packages-a-case-study-of-law-
of-demand, (last visited on 21st March,2022)