Definition : “ The demand for a product refers to the amount of it which will be bought per unit of time at a particular price. ’’ What is demand ? Types of demand :- Individual Demand. Market Demand.

Law of demand :-:

Statement : The higher the price of a commodity, the smaller is the quantity demanded and lower the price, larger the quantity demanded. S chedule : Law of demand :- Price of commodity Quantity demanded 1 500 2 400 3 300 4 200 5 100

Diagram::

Diagram: Price Of Commodity Quantity Demanded

Assumptions ::

No change in consumer’s income No change in consumer’s preference No change in fashion No change in the price of related goods No expectation of future price changes or shortage Giffen goods Articles of snob appeal Speculation Consumer’s psychological bias or illusion Assumptions : Exceptions:

Determinants of demand ::

Price Of The Product Consumer Income Price Of Substitute And Complementary Goods Habits, Taste, Preferences And Fashion Advertisement Effect Consumer Future Expectations – Future Income Price Of Goods Customs And Traditions Discounts By Sellers Multiplicity Of Uses Of Product Determinants of demand :

Elasticity of demand ::

Concept of elasticity : Demand usually varies with price but the extent of variation is not uniform in all cases. In some cases, the variation is extremely wide; in some others, it is nominal. To measure this responsiveness or the extent of variation, the term used is “elasticity” In measuring the elasticity of demand, two variables are considered : Demand The determinant demand Ratio : Elasticity of demand : Elasticity Of Demand = % Change In Quantity Demanded % Change In Determinant Of Demand

Types of elasticity::

Price elasticity Income elasticity Cross elasticity Advertisement of promotional elasticity Types of elasticity:

Price elasticity:

The extended of response of demand for a commodity to a given change in price, other demanded determinants remaining constant, is termed as the price elasticity of demanded. F ormula : The relative change of variables can be measured in terms of percentage change as well as proportional change, so the alternate formula is :- Price elasticity e = % change in quantity demanded % change in price e = proportional change in quantity demanded proportional change in price

TYPES OF PRICE ELASTICITY ::

TYPES OF PRICE ELASTICITY : Perfectly Elastic Demand : An endless demand at a given price is case of perfectly elastic demand. When demand is perfectly elastic, with a slight or infinitely small rise in the price of commodity the consumer stops buying it. Diagram Here, numerical co-efficient or perfectly elastic demand is infinity ( e = α ) P R I C E QUANTITY DEMANDED D X Y

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Perfectly inelastic demand: When the demand for the commodity shows no response at all to the change in price that is called as perfectly inelastic demand has zero elasticity ( e = 0) Diagram QUANTITY DEMANDED p 2 p 1 p 3 P R I C E D X Y

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Relatively elastic demand: when the proportional change in quantity demanded is greater than that of price, the demand is said to be relatively elastic demand. It’s numerical value lies between 1 and α ( e > 1 ) Diagram D p 2 X Y P R I C E QUANTITY DEMANDED M 2 M 1 p 1

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Relatively inelastic demand: W hen the proportional change in quantity demanded is less than that of price, the demand is said to be relatively inelastic demand. It’s numerical value lies between 0 and 1 ( e < 1 ) Diagram : P R I C E QUANTITY DEMANDED X Y M 2 M 1 D

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Unitary elastic demand: When the proportional change in quantity demanded is exactly the same that of price, the demand is said to be unitary elastic demand . It’s numerical value is exactly 1 ( e = 1 ) Diagram: P R I C E QUANTITY DEMANDED X Y D M 2 M 1

income elasticity::

income elasticity: The income elasticity is defined as a ratio percentage of proportional change in the quantity demanded to the percentage or proportional change in income. Formula: income elasticity = % change in quantity demanded % change in income Symbolically , e m = % Δ Q % Δ M

Types of income elasticity::

Types of income elasticity: D X Y INCOME DEMAND Unitary income elasticity: W hen the percentage change in demand is equal to percentage income the demand is called unitary income elasticity . e m = 1 Diagram :

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Income elasticity of demand greater than unity: W hen the percentage change in quantity demand is greater than the percentage change in income the income elasticity of demand is greater than unity. e m > 1 Diagram : D X Y INCOME DEMAND

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Income elasticity of demand less than unity: when the percentage change in quantity demand is less than the percentage change in income the income elasticity of demand is less than unity. e m < 1 Diagram : D X Y INCOME DEMAND

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Zero Income elasticity : When the income change in any direction or in any proportion but carries no effect demand so that the quantity demanded remains unchanged it is Zero income elasticity. e m = 0 Diagram : D X Y INCOME DEMAND

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Negative Income elasticity : When an increase in income causes decrease in demand for a commodity the demand is said to be Negative Income Elasticity. e m < 0 Diagram : X Y D INCOME DEMAND

Cross Elasticity::

Cross Elasticity : The Cross Elasticity Of Demand refers to the degree of responsiveness of demand for a commodity to a given change in the price of some related commodity . The Cross Elasticity Of Demand of two goods X and Y is measured by dividing the proportionate change in the quantity demanded of X by the proportionate change in the price of Y . Cross elasticity of demand = proportionate or % change in demand for x Proportionate or % change in price of y

Types of cross elasticity:

Cross Elasticity For Substitute Goods : If two goods are substitutes the value of cross elasticity will be positive. Eg : Let us consider two goods coca cola and pepsi . If the price of coca cola increases , many of its customers will start drinking pepsi . The cross elasticity in such case would be positive Types of cross elasticity e xy > 0 P R I C E QUANTITY DEMANDED

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e xy < 0 cross elasticity for complementary goods : If two goods are complementary the value of cross elasticity will be negative . Eg. Let us consider two goods sugar and tea . If the price of sugar goes up its demand will reduce , and simultaneously the demand for tea will also fall . P R I C E QUANTITY DEMANDED

Promotional elasticity of demand::

Promotional elasticity of demand: The promotional elasticity of demand is a measure of responsiveness of demand for a commodity to the change in outlay of advertisements and other promotional efforts. Formula : e a = % change in demand % change in expenditure on advertisements and other promotional efforts

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