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DHRUV SIRS ECONOMICS CLASSES (9719515194)

Demand: The quan i ! of a commodi ! ha a consumer is "i##in$ and a%#e o %u!& a a par icu#ar price durin$ a $i'en period of ime. 1. Individual demand: The quan i ! of a commodi ! ha a consumer is "i##in$ and a%#e o %u!& a a par icu#ar price durin$ a $i'en period of ime. (. Market demand: The quan i ! of a commodi ! ha a## consumers are "i##in$ and a%#e o %u!& a a par icu#ar price durin$ a $i'en period of ime.

Factors Determining demand / Determinants of demand (individual) 1. Price of the given commodity:- There is a ne$a i'e re#a ionship %e "een quan i ! demanded and price. )s price increases quan i ! demanded decreases and 'ice 'ersa. (. Price of related Goods : Demand is a#so affec ed %! re#a ed $oods. The! are of "o !pes: *i+ Complementary goods- are hose $oods "hich are used o$e her o sa isf! a par icu#ar "an #ike pen-ink. ,f here is increase in he price of comp#emen ar! $ood& he demand cur'e shif s P x #ef "ard. -$. Tea . su$ar& car . pe ro#

D e m o n d f o r in k

P r ic e o f p e n = R s .4 0 /-

D D
1

D e m o n d fo r in k

DHRUV SIRS ECONOMICS CLASSES (9719515194)


P r ic e o f 0 o ffe e

*ii+ u!stitute goods- These are hose $oods "hich can %e used in p#ace of one ano her e$. ea or coffee. )n increase in he price of su%s i u e $ood increases he quan i ! demanded of he o her $ood. ,f here is an increase in he price of su%s i u e. 3ood he demand cur'e shif s ri$h "ard. -$. 0oke . Pepsi& rice and "hea

Pr

ic e

of

Te

Rs

.(

.1

5. Income of the consumer: -The effec of income on quan i ! D1 demanded depends upon he na ure of $oods. D *a+"ormal goods-There is a posi i'e re#a ionship %e "een income of / u a n i ! o f 0 o ff e e he consumer and demand for a $ood. ,ncome increases demand a#so increase . 'ice 'ersa. -$. Rice& "hea & mi#k e c. *%+Inferior goods-There is a ne$a i'e re#a ionship %e "een income of he consumer and a demand for a $ood. ,ncome increases demand decreases and 'ice 'ersa .-$. 0heap $oods.
Px
P x

2 o rm a # 3 o o d

,n fe rio r 3 o o d .

D D 4

D
1

D
/ x

4. #aste $ Preferences:- ,f here is a chan$e in as es in fa'our of a $ood& hen i "i## #ead o increase in demand and an! unfa'oura%#e chan$e "i## #ead o decrease in demand. The! inc#ude fashion& cus oms& ha%i s e c. 5. %&pectation of change in the price in Future' . ,f peop#e expec a rise in prices of he commodi ies in fu ure he! ma! %u! more . demand cur'e "i## shif ri$h "ard . 6ice 'ersa.
Px

D D D /
1 1

/ X

DHRUV SIRS ECONOMICS CLASSES (9719515194)


Factors Determining demand / Determinants of demand (Market) 6. i(e $ Composition of Population: ,ncrease in popu#a ion raises he marke demand . 'ice 'ersa. 0omposi ion& i.e. ra io of ma#es& fema#es& chi#dren . no. of o#d peop#e in popu#a ion in he coun r!. -$. ,f more fema#es are here hen demand for sarees& #ips ick e c "i## increase. 7. eason $ )eather: , a#so affec s marke demand as e$. Durin$ "in ers& demand for "oo#en c#o hes and 8acke s increases& "here as in rain! season demand for raincoa increases. 9. Distri!ution of Income: ,f income in he coun r! is equi a%#! dis ri%u ed& hen marke demand for $oods "i## %e more. :o"e'er if i is une'en hen marke demand "i## remain a #o"er #e'e#. Demand schedule: a a%u#ar presen a ion sho"in$ ;'e re#a ion %e "een price . /uan i ! demanded of a commodi !. Individual demand schedule' a a%u#ar presen a ion sho"in$ ;'e re#a ion %e "een price . /uan i ! demanded of a commodi ! %! a consumer.

Market demand chedule: a a%u#ar presen a ion sho"in$ ;'e re#a ion %e "een price . /uan i ! demanded of a commodi ! %! a## consumers.

Demand Curve: Graphical representation of demand schedule Individual Demand Curve: Graphical representation of Individual demand schedule

Market Demand Curve: 3raphica# represen a ion of <arke demand schedu#e. :ori=on a# summa ion of indi'idua# demand cur'es.

LAW OF DEMAND (same individual demand schedule $ individual demand curve)

DHRUV SIRS ECONOMICS CLASSES (9719515194)


*ssumptions of +a, of Demand *>eepin$ o her fac ors cons an or ce eris pari%us+: 1. Prices of su%s i u e $oods do no chan$e. (. Prices of 0omp#emen ar! $oods remain cons an . 5. ,ncome of he consumer remains he same. 4. There is no expec a ion of chan$e in price in he fu ure. 1. Tas es . Preferences of he consumer remain he same. -easons for +a, .f Demand .r ,hy demand curve slopes do,n,ard : 1. +a, of diminishing Marginal /tility :- , s a es ha as he consumer has more and more of a $ood i s <? $oes on dec#inin$. :e is no in eres ed in %u!in$ more uni s of he same commodi ! a he same price. (. u!stitution %ffect:- , means "i h he fa## in price of a $ood consumer fee#s a rise in re#a i'e price of o her $ood& "hich in urn #eads o more demand for he $ood. 5. Income %ffect:- , means "i h fa## in he price of $ood consumer@s rea# income or purchasin$ po"er rises and he demands more uni s of he $ood. 4. "e, consumers:- )s price of a commodi ! fa##s ne" consumer c#ass appears& "ho can afford he commodi !. 1. Different /ses:- <an! commodi ies ha'e a# erna i'e uses #ike mi#k& su$ar. Ai h fa## in price& i can %e pu in 'arious uses. %&ceptions to +a, of Demand' 1. Giffen Goods: These are specia# kind of inferior $oods on "hich he consumer spends a #ar$e par of his income and heir demand rises "i h an increase in price . 'ice 'ersa. (. tatus sym!ol goods : :i$her he price& hi$her "i## %e he demand for such $oods& as he! are used as s a us s!m%o#. -$. Diamonds& $o#d& an ique pain in$s e c. 5. Fear of hortage' ,f he consumer expec s a shor a$e or scarci ! of a $ood in near fu ure& hen he! "ou#d s ar %u!in$ i more e'en a hi$h prices. -$. Durin$ emer$encies #ike "ar& famines e c. 4. Ignorance' 0onsumers ma! %u! more of a commodi ! a a hi$her price "hen he! are i$noran of he pre'ai#in$ prices of he commodi ! in he marke . 1. Fashion related goods: 3oods re#a ed o fashion do no fo##o" he #a" of demand and heir demand increases e'en "i h a rise in heir prices. -$. Dress& #a es rends e c. %&pansion in Demand: a rise in quan i ! demanded due o a fa## in he price of commodi !& o her fac ors remainin$ cons an . , #eads o a do"n"ard mo'emen a#on$ demand cur'e.

DHRUV SIRS ECONOMICS CLASSES (9719515194)


Contraction in demand' a fa## in he quan i ! demanded due o a rise in he price of he commodi !& o her fac ors remainin$ cons an . , #eads o an up"ard mo'emen a#on$ demand cur'e.

Increase in demand: a rise in he demand of a commodi ! caused due o an! fac or o her han he price of he commodi !. , #eads o a ri$h "ard shif in demand cur'e.

DHRUV SIRS ECONOMICS CLASSES (9719515194)

Decrease in Demand: a fa## in demand of a commodi ! caused due o an! fac or o her han he price of he commodi !. , #eads o a #ef "ard shif in demand cur'e.

DHRUV SIRS ECONOMICS CLASSES (9719515194)

%lasticity of demand: B chan$e in demand of a $ood due o B chan$e in an! of he fac ors affec in$ of ha $ood. Price %lasticity of Demand'0, measures he responsi'eness of demand of a $ood o a chan$e in i s price. 4R , refers o B chan$e in demand of a $ood due o B chan$e in i s price. Measurement of Price %lasticity of demand : hree me hods of measurin$ price e#as ici ! of demand. ,+ #otal outlay or %&penditure Method:- Ahen he price of a $ood fa##s and& as a resu# & if he o a# expendi ure of consumers on he commodi ! rises hen e d C 1D if i remains unchan$ed hen e d = 1D and if i fa##s hen ed E 1. The si ua ion re'erses "hen he price of a $ood rises. Price , 9 7 ,, F 1 ,,, 4 5 Demand 5 4 1 F 7 9 T.-. (4 (9 50 50 (9 (4 ed E 1
4

-#as ici ! ed C 1
eC1 ,n'erse Re#a ion G e=1

ed = 1
eE 1

Direc Re#a ion

Total outlay is (TQ = p

q! "here TQ stands for total outlay# p and q for price and $uantity respectively

DHRUV SIRS ECONOMICS CLASSES (9719515194)


,,+ Percentage Method or Proportionate Method' - -d is ca#cu#a ed %! he fo##o"in$ formu#a:

ep =

B chan$e in /.D. B chan$e in price.

/ P P /

.-

("ote' #he elasticity of demand is al,ays negative1 #his is !ecause price and 2uantity are inversely related1 3ut !y convention4 for the sake of simplicity4 the minus sign is dropped in economics1) ,,,+ Geometric Method: The e#as ici ! of demand is measured %! usin$ he fo##o"in$ formu#a.

-#as ici ! of demand =

Ho"er se$men of demand cur'e ?pper se$men of demand cur'e

DHRUV SIRS ECONOMICS CLASSES (9719515194)


Factors affecting Price %lasticity of demand 1. *vaila!ility of su!stitutes'0 ) $ood ha'in$ c#ose su%s i u es "i## ha'e an e#as ic demand. (. "ature of the commodity:- Demand for necessi ies and essen ia# $oods are ine#as ic %ecause consumers are res ric ed o %u! hose $oods. 5. Different uses of commodity:- ,f he commodi ! has differen uses i s demand "i## %e e#as ic. 4. (5a!its) #aste $ preferences:- ,f a consumer is %ound o use par icu#ar %rand of a commodi ! hen i s demand "i## %e ine#as ic %ecause he consumer "i## %u! ha par icu#ar commodi ! on#!& e'en a hi$her price. 1. +evel of income:- ,f consumer %e#on$s o richer sec ion hen his demand "i## no %e affec ed %! chan$e in price& hence demand "i## %e ine#as ic. F. Proportion of total e&penditure spent on the product :- :i$her he cos of he $ood re#a i'e o o a# income of he consumer& more "i## %e he price e#as ici ! of demand. DEGREES OF PRICE ELASTICIT OF DEMAND!

a"i#$

DHRUV SIRS ECONOMICS CLASSES (9719515194)

a"i#

DHRUV SIRS ECONOMICS CLASSES (9719515194)