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1. Defination . 2. Demand Function ... 3. Factors AffectinDemand . 4. Demand Schedule ...................................... 5. Kind Of Demand 6. Law Of Demand 7.

Assumption Of the Law Of Demand 8. Elasticity Of Demand.. 9. Nature Or Kinds Of Elasticity of Demand.. 10. Degrees of Price Elasticity of Demand. 11. Conclusion

Factors Affecting Demand


1. Price of the commodity : The demand of a commodity mostly depends upon its price, price and demand have inverse relationship meaning thereby that demand increases

on decrease in the price and it will decrease on increase in price 2. Tastes, Habits and Fashions of the consumers : The demand of the commodities changes in tune with the changes in the tastes habits and fashion of the consumers like coffee in place of tea. The demand goes on increasing or decreasing on their basis. 3. Change in monetary and real incomes: Change in monetary income means change in quanantity of money or purchasing power whereas chang in real income means change in the quantity of commodities and services purchased from the consumers increases his scale of preference will also change. Changes in demand will be different for different commodities, on change of income.
4. Change in population :

In a country in which population grows fast the child ratio will be high and hence the demand for commodities, like milk, biscuits,dolls, toffee and chocolates used by children will be high. On the contray, if population growth is slow, the ratio of old persons will be high and hence goods of their preference, say matches, spectacles, sticks etc. will be in high demand. 5. Changes in climate and weather:

The demand for commodities is also affected by the climate and weather of verious places. Like demand of woolen clothes in winters, whereas in summers, there is sharp decline in their demand.

Defination Of Demand
Demand means those various quantities of a given commodity, which the consumers will purchase in the market at the certain time.

According to Penson, Demand implies three things, (i) desire to possess a thing (ii) means for purchasing it and (iii) willingness to use those means for purchasing it. For Example, It is erroneous to say that today the demand of milk at a place is of 10 quintals at the rate of Rs. 20 per kilogram, because the demand is related to certain price and time. The demand of the commodity to not affected only by its price, but also by the income of the consumers, their tastes, weather and population etc.

Demand Function
The volume of commodity to be purchase by a consumer or by all existing consumers in the market will not depend only upon its price, but by various factors, which we have studied. The

factors, which are known as independent variables affect the quantity of demand for a commodity, either independently or collectively. In algeb raic terms, we may say that demand is a function of several variables: Qdx=f(Px, Py, Y, T,P.) In equation (i) Qdx shows the quantity to be demanded. It may also be observed that the demand of Qd x is a dependent variable and its price depends on these variables Px Py Y T P. Qdx
=

= = = = =

Price of X Pricce of related commodity Income of the consumer Tastes, linking of the consumer Population

f(p) i.e. other factors remaining the same, demand is a

function of price, meaning thereby that for every price, there is a corresponding quaintly demanded.

Demand Schedule

The quantity of a commodity sold, in any market at the given time, at given prices, shown in a schedule is knows as the demand schedule. Demand Schedules are of two types : 1. Individual demand schedule, and 2. Market demand schedule. 1. Individual demand schedule : The schedule shows the different quantites of any commodity, which an individual consumer purchases at various prices. Individual demand schedule Price of Mango (Rs. Per k.g.) 8 5 4 3 Quantity demanded (per day) 1 2 3 4

2. Market Demand Schedule : Marked demand schedule shows that total of various quantities of commodity which are purchased by all the consumers, at different prices.

Kind Of Demand
Three kinds of demand in his definitions of demands

(1) (2) (3)

Price demand Income Demand Cross demand

(1) Price Demand : Price demand means those quantites of a commodity which are demanded by the consumers at specified price. If other things remain the same, the demand of the commodity will go down on increase in its price and it will go up if the prices decline. Here, other things remaining the same means that when a consumer demands any particulars commodity at a particular time, then at that time income, tastes and behaviour of the consumer should not any change. The price demand curve having negative slope has been shown in the diagram, DD, curve is price demand curve having slope from left to right. It shows inverse relationship between the price and demand. The demand of commodity is OQ at price Op when the price goes down to OP1 from OP the demand goes upto OQ, from OQ, On other things remaining the same.

(2) Income Demand:- Income demand expresses the relationship between the income of the consumers and the quantities demanded. The quantities of various commodities and services to be purchased that beginning. The consumer fulfills his essential necessities. But, as the income increases he starts consumption

of commodities providing comforts and luxury and the demand for superior goods also goes up.

Cross Demand:- When the demand of any commodity is affected by the changes in the price of other commodities also, then it is called cross demand for the commodity. Two type of Cross Demand (1) Substitute goods (2) Complementary Goods : (1) Substitute goods : In respect of substitute goods when the price of a commodity increases, then on other things remaining the same, the demand of the substitute commodity will go up. For for example, on increase in the price of coffee the demand of tea will go up.

Exmple. It has been shown in this diagram. DD curve show the demand curve of substitute commodity. At price OP of commodity Y, the demand of substitute commodity is OX. If the price of commodity Y increases to OP,. then several consumers will shift to consumption to commodity Y, which will increase the demand of X commodity. As shown in this diagram, demand of commodity X has increased from OX, to OX.

(ii) Complementary Goods : Complementary goods are those goods which are used together for fulfilling any particular objective like scooter and petrol if the price of scooter goes up very high , it will have adverse effect on the demand of the complementary commodity petrol as well although the price of petrol remains unchanged.

Example: In this diagram DD is the demand curv of complementary commodity if price of Y commodity goes up to OP from OP then the demand of X the complementary commodity of Y decreases from OX to OX demands for complementary commodities are explained as follows.

Law Of Demand
A law expressing relationship between the price of a commodity and the quantity to be demanded is known as, law of demand in other words, the inverse process of decrease in the demand of a commodity, on increase of its price and increase in demand, on dcrease in price, on other things remaining the same is known as law of demand Since the relationship between the price and quantity of demand is inverse the demand curve will be negative slope sliding from left to right. It is said that law of demand is a quantities statement and not a quantitative statement.

Assumptions of The Law Of Demand


The law of demand states inverse relationship betwoun the price of the commodity and its quantity of demand . this law is operative, only when other things remain equal. It has following assumptions. 1. the income of the consumer should remain the same, without any change. 2. there should be no change in the prices of related commodities. 3. the consumer should have no knowledge of any substitute commodity if it exists. 4. there should be no possibility of change in the price of the commodity. 5. there should be no change in the size of the population age compositition and sex ratio.

6. there should be no change in the quality of the commodity. 7. there should be no change in government policies also.

Elasticity Of Demand
Definition The Proportionate change in the quantity of demand as a result of proportionate change in its price is studied in elasticity of demand. As a relationship between price and demand is inverse, its value is always in negative. But in practice negative sign is not used for demand and price elasticities. According to MAYERS The elasticity of demand is measure of relative change in the amount purrchased in response to a relative change in the price on a given demand curve. The formula of calculating elasticity is as follows

Elasticity of demand= Percentage change in quantity demand Percentag Change in Price

Nature Or Kinds Of Elasticity Of Demand

The nature or kinds of elasticity of demand may be stated in following three headings: 1. Price Elasticity Of demand:The Change in the prices are considered within price elasticity of demand.
Proportionate (percentage)changes in quantity of demand Price elastically of demand = Proportionate (percentage)changes in quantity of commodity

2. Income elasticity of demand:The proportionat (or percentage) change in the demanded quantity of a consumer, due to proportionate (or percentage) change in his income is known as income elasticity of demand.
Proportionate (percentage) changes in demand Income elasticity of demand= Proportionate (percentage) changes in Income

3. Crose elasticity of demand:The proportionate change in the demand of any commodity due to change in the price of the related commodity is known as cross elasticity of demand.
Proportionate (percentage) changes in demand of commodity X Cross Elasticity of Demand= Proportionate (percentage) changes in demand of commodity Y

Degrees Of Price Elasticity Of Demand

Elasticity of Demand we mean price elasticity of demand. Changes in price do not affect the demand of various commodities, equally. In respect of some commodities even small changes in price substantially, affects their demand, whereas for some other commodities, this effect is quite meager. Following are the degrees of elasticity of demand :

1.

Perfectly Elastic Demand : - When the demand increases of decreases very fast, even by nominal or no change in the Price of a commodity, its demand is said to be perfectly elastic.

Perfectly Elastic Demand

This diagram shows that when price is NQ, the demand of the comoodity is OQ. But without any change in the price (NQ and SQ) shows the same price. Demand curve has increased from OQ to OQ1 This is a notional situation, which is not visible in the real life.

2.

Perfectly in elastic Demand : When the demand of a commodity does not change at all, even when there is substantial change in its price, demand. In real life, such elasticity of demand is normally not visble. It may be expressed by e=0.

Perfectly in elastic Demand

In this diagram, DD is demand curve, When price is OP, the quantity of the commodity is OQ. However, when the price decreases to P, there is no change in the demand of the comoodity and it countinues to remain at OQ. Here, the demand of the price remains unchaned, even on decrease in price of the commodity. This is case of perfectly inelastic demand.

3.

Elastic Demand : When the proportionate change in demand is equal to the proportionate change in the price, the elasticity is equal to the unit.

For example, if the price of commodity increases by 10 percent, causing decrease in its demand of 10 percent, it will be know as elastic demand.

Elastic Demand

This diagram, it becomes clear that when the price is OP, the demand of the commodity is OQ and when the price of the commodity decreases to OP1, the demand of the commodity increases to OQ Here, the proportionate change in the price and demanded quantity of the commodity is equal. Elastic demand expressed by e=1.
4.

Highly Elastic Demand : When the proportionate change in the demand of any commodity is more than the proportionate change in its price, it is known as highly elastice demand. For example, if the price of some commodity decreases by 10 percent, but is demand increases by 25 percent, the demand will be known as highly elastic demand. Edacity of demand for such commodity is also known as elasticity higher than the unit (e <1)

Highly Elastic Demand

IN this diagram, DD is a demand curve. At OP price; OQ is the demanded quantity of the comoodity. But when price reduces to OP1.. The demand increases to OQ 1 In this diagram, PP1 is the decrease in the price, whereas the increases in quantity of demand is OQ1. It is clear that the increase in quantity of demand (OQ1 ) is more than decrease in price (PP1 )
5.

Inelastic Demand . When the proportionate change in demand is less than the proportionate change in the price of the commodity, this is the situation of inelastic demand. For example, when the price of a commodity decreases by 25 percent and increase in its demand is 5 percent only, it is known as elasticity less than the unit or inelastic demand. in mathematical term, it is expressed as e < 1. It includes essential commodities. Inelastic Demand

diagram

The shows

that

when price reduces from O1P2, to O1P2 the demand of the commodity increases from O1 Q2 to O1 Q2, Here the increase in demand (Q1 to Q2 ), is low than the decrease in price (P1, to P2). Hence, here the elasticity of demand is less than unit.

Conclusion

Demand and supply refer to the relationship price has with the quantity consumers demand and the quantity supplied by producers. As price increases, quantity demanded decreases and quantity supplied increases. Elasticity tells us how much quantity demanded or supplied changes when there is a change in price. The more the quantity changes, the more elastic the good or service. Products whose quantity supplied or demanded does not change much with a change in price are considered inelastic. Utility is the amount of benefit a consumer receives from a given good or service. Economists use utility to determine how an individual can get the most satisfaction out of his or her available resources. Market economies are assumed to have many buyers and sellers, high competition and many substitutes. Monopolies characterize industries in which the supplier determines prices and high barriers prevent any competitors from entering the market. Oligopolies are industries with a few interdependent companies. Perfect competition represents an economy with many businesses competing with one another for consumer interest and profits.