2. Contents:
Demand
Law of Demand
Demand curve
Forces behind the demand curve & Shift
Elasticity
Calculating Demand Elasticities
Factors affecting Elasticity
Supply
Law of Supply
Supply Curve
Shift in supply curve
calculating Supply Elasticity
3. What is Demand?
Quantity demanded of a product or service is the number
that would be bought by the public at a given price
Quantity Demand is the function of Price level.
4. Law of Demand
Quantity Demand is Inversely Proportional to the Price Level.
while keeping other things constant.
Law of Demand is affected By:
1. Substitution Effect
2. Income Effect
5. Assumptions
Homogeneous Commodity
Same taste or feasibility
No change in income
No change in climate
No change in price of substitutes
No change in population growth
6. The Substitution Effect
As the price for one good rises compared to a
similar good, consumers will substitute the
similar good for their purchases.
7. The Income Effect
As prices go up, your money becomes worth
less than it was worth before
People are less likely to buy the good now
9. Forces Behind the Demand
curve
These are the Constant things:
Average Income
Size of Market
Influence of Related Goods
Taste And Preference
Special Influence
Population Growth
Climate
10. Shift in Demand Curve
When We relax any of the constant
Things there is a Shift in The Demand
Curve.
Two Types of Shift
Upward Shift
Downward Shift
11. Elasticity
Elasticity refers to how responsive the quantity demanded is to
a change in prices, it is also called price elasticity of demand.
14. Calculating Elasticity
Price Elasticity:
Total Outlay method(Expenditure Method):
In it we measure the change in expenditure. Before and after the
Variation in price.
Geometrical Method(Point Method):
no. of Lower points of Demand curve
Elasticity demand = ______________________________________
no. of upper points of the Demand curve
Percentage Method
Elasticity demand = (%age change in Q)/(%age Change in P)
15. Calculating Elasticity
Income Elasticity:
%age change in Q
Elasticity = _______________________________
%age change in Income(Y)
Cross Elasticity:
%age change in Quantity of Y
Elasticity = ________________________________
%age change in Quantity of X
17. What is Supply?
Quantity supplied is the quantity of a commodity that
producers are willing to sell at a particular price at a particular
point of time.
Quantity Supply is the function of Price level.
18. Law Of Supply
“Other things remaining same, when price of a
commodity increases its quantity supplied increases
and if price of a commodity decreases, quantity
supplied also decreases”.
Quantity Supply is Directly Proportional
To the Price level.
19. Assumptions:
No Change in cost of production
No change in Technology
No change in efficiency of Factors of production
No new Invention/ Innovation
No natural Calamities
No change in Weather conditions
No change in Government Policies
21. Shift in Supply Curve
When We relax any of the constant
Things there is a Shift in The Demand
Curve.
Two Types of Shift
Outward Shift
Inward Shift
22. Supply Elasticity
There is only one supply elasticity.
%age change in Quantity Supply
E(S) = __________________________________
%age change in Price Level