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Submitted by:

Vishwaroopayadav
Nikitha
Sushmitha To
Bindu
Mr. Yash and Class
 What is demand?

The amount of a particular economic good or service that a

consumer or group of consumers will want to purchase at a
given price.

Demand = Desire + Ability to pay + Willingness to spend

 Determinants of demand

Price of the commodity

Price of the related goods

Level of income of the households

Tastes and preferences

Distribution of income
 Price of the commodity

Ceteris paribus i.e., other things being equal, the demand for
a commodity is inversely related to its price. It implies that a
rise in price of a commodity brings about a falls in its
purchase and vice-versa.
 Price of related goods
There are two types of related goods:

a) Complementary goods: The goods which are consumed

together to satisfy a want are called complementary goods. When the
price of a good increases, the demand for its complementary goods
decreases. T
b) Substitution goods: The goods which are used as alternatives to
satisfy a particular need are called substitute goods. When the price of a
good increases, the demand for its substitute good also increases.

Complementary goods Substitution goods

 Level of income of the households

There are two types:

a) Normal goods: For many of the goods, the quantity that a consumer
demands increases as the consumers income increases and decreases as
the consumers income increases.
b) Inferior goods: The goods for which when the consumers income
increases, demand decreases. When income decreases demand
increases. Such goods are called Inferior goods.

Normal goods Inferior goods

 Tastes and preferences

The demand for a commodity also depends upon the tastes and
preferences of consumers and changes in them over a period of time.
Goods which are more in fashion command higher demand than the goods
which are out of fashion.

o Demonstration effect
 Other factors

a) Size of the Population

b) Composition of population

c) Distribution of income
 Law of demand

Other things being constant (Ceteris Paribus), when the price

of a good decreases, the demand for it increases and when the
price increases, the demand for the good decreases.

The geometrical representation of demand schedule is called demand curve.

 Rationale of law of demand

law of diminishing marginal utility

Price effect

Income effect

Substitution effect

Arrival of new commodities

Different uses
 Exceptions of the law of demand

Conspicuous goods: Articles of prestige value or articles of

conspicuous consumption are demanded only by the rich
people and these articles become more attractive if their prices
go up. This was found out by Veblen in his doctrine of
conspicuous consumption and hence this effect is known as
Veblen effect.
 Giffen goods: When prices of Giffen goods increases the
purchasing power of the consumers for expensive goods
decreases.

Conspicuous necessities: The demand for certain goods is

affected by the demonstration effect of the consumption
pattern of a social group to which a individual belongs . These
goods due to its constant usage have become necessities of
life.
 Future expectations about prices: It has been observed that
when prices are rising, households expecting that the prices in
the future will be still higher, tend to buy larger quantities of
the commodities.
Irrationality: The law has been derived assuming
consumers to be rational and knowledgeable about the
market conditions. However, at times consumers tend to be
irrational. In such cases the law of demand fails.
Speculative goods: In the speculative market, particularly in
the market for stocks and shares, more will be demanded
when the prices are rising and less will be demanded when the
prices de[pcline.
Movement along the demand curve

o Other things are being equal, when the prices of the

commodities changes there is a movement along the
demand curve.
o When the prices of a commodities decreases, the demand
for that commodity increases then there is a expansion in
the demand curve.
o When the price of the commodities are increased the
demand for that commodity decreases then , there is a
contraction in the demand curve.
 Shift in the demand curve
o When price is constant and there is a change in other factors
there is shift in the demand curve.

o For ex: For normal goods, the demand curve shifts to the right.
When the income increases, the demand also increases.
o For inferior goods, the demand curve shifts to the left. It,
means, when the income increases, the demand for inferior
goods decreases.
 Elasticity of demand

Elasticity of the demand is the responsiveness of a good to

changes in one of the variables on which demand depends.

Price of the commodity

Point elasticity

Arc elasticity of demand

Income elasticity of demand

Cross elasticity of demand

Price elasticity of demand: Price elasticity of demand is a measure of
the responsiveness of the demand for a good to change in its price.

Price elasticity = percentage change in demand for the good

Percentage change in the price of the good

Point elasticity of demand: In the point elasticity, we measure

elasticity at a given point on the demand curve.

Point elasticity = (-) percentage change in demand for the good

Percentage change in the price of the good

Arc elasticity of demand: This method is used when price elasticity is

to be found between two prices for two points on the same demand curve.

Arc elasticity= Q1-Q2 P1+P2

Q1+Q2 P1-P2
Income elasticity of demand: Income elasticity of demand is
defined as the responsiveness of demand to a change in
income, with other things remaining constant.

YED= Percentage change in demand

Percentage change in income

Cross elasticity of demand: Cross elasticity of demand is

defined as the responsiveness of demand for good A to a change
in good B, while other things remain unchanged.

CED= Percentage change in demand for good A

Percentage change in price for good B
 Types of price elasticity of demand

Perfectly elastic demand

Perfectly inelastic demand

More elastic or relatively elastic

Unitary or equal elastic demand

Less elastic or relatively inelastic demand

 Perfectly elastic demand

If the price elasticity of demand is unlimited or infinite, then it

is called Perfectly elastic demand. In this case, a very small
change in price leads to an infinite change in demand.
 Perfectly inelastic demand

If the price of the demand is zero (Ped=0), then it is called

Perfectly inelastic demand. Here, whatever may be the price,
quantity demanded will remain unchanged
 More elastic or relatively elastic
If the price elasticity of demand is more than one(ped>1),
then it is called more elastic demand. Here, the percentage
change of demand is greater than the percentage change in
price. i.e., for a small change in price leads to a greater change
inn the demand of a commodity.
 Unitary or equal elastic demand

If the price elasticity of demand is equal to one (Ped=1), then it

is called unitary or equal elastic demand. In this case the
percentage change in demand and the percentage change in
price are equal.
 Less elastic or relatively IN elastic

If the price elasticity of demand is less than one(ped<1), then it

is called less elastic demand. Here, the percentage change in
demand is less than the percentage change in the percentage of
the commodity i.e., for greater change in the price the demand
is less.
Determinants of price elasticity of demand
Nature of goods

Availability of substitutes

Income of the consumer

Habits

Price of goods

Variety of uses

Deferred consumption

Market awareness
 Demand distinctions

Producers goods and consumers goods

Durable and non-durable goods

Derived demand and autonomous demand

Industry demand and company demand

Short run demand and long run demand

Any Questions ??????????