This document discusses demand, factors that affect demand, and the elasticity of demand. It defines demand as the quantity of a commodity a consumer is willing to buy at a given price and time. Demand is affected by the price of the commodity, prices of substitutes and complements, income, tastes, and expectations. The law of demand states that, all else equal, demand increases when price decreases and decreases when price increases. Elasticity of demand measures responsiveness of quantity demanded to price changes. It is measured using total expenditure, percentage, and point elasticity methods. Factors like availability of substitutes and nature of the good impact elasticity. Demand can be perfectly elastic, perfectly inelastic, or elastic.

1. CHAPTER NO.3

2. Demand
• Meaning of Demand: Demand of commodity refers
to the quantity of a commodity which a consumer is
willing to buy at a given price, and time.
• Demand Function: Demand Function is the
functional relationship between demand and factors
affecting demand.
• Dx = f (Px, Po, Y, T, E)

3. INDIVIDUAL DEMAND or FUNCTION
• Individual demand Function shows how
demand for a commodity, demanded by
individual consumer in the market. It is related
to its various determinants: -
Dx = f ( Px, Pr, Y, T E )

4. Factors effecting Individual demand
• 1. Own price of the commodity.
• 2. Price of the related goods:-
(i) Substitute goods. ( Tea & Coffee)
(ii) Complementary goods ( Petrol & Car)
3. Income of the consumer.
(i) Normal Goods
(ii) Inferior goods
4. Taste and preferences.
5. Expectations

5. Market Demand Function
• Market Demand: Market Demand refers to
the sum total of the quantities demanded by
all the individual households in the market at
various prices in given time.
Mkt. Dx = f ( Px, Pr, Y, T, E, P, D )

6. Factors affecting Demand
Following are the factors which affect the Demand.
• Price of Commodity: When the price of commodity rises demand of commodity will decrease and vice-
versa.
• Price of other related commodity: Price of other commodity affect the demand of commodity in two
ways:
• Substitute Goods:- In the case of substitute goods, the demand for a commodity rises with a rise in the
Price and fall with the fall in price.
• Example- Tea and coffee
• Complementary Goods:- In case of complementary goods, the demand for a commodity rises with fall
in the Price and decreases with the rise in the price of complementary goods.
• Example: Car and Petrol, Ink and Pen, Bread and Butter.
• Income of Consumer:- When the Income of Consumer rises the demand of normal goods increases
and if the income decreases the demand of normal good decreases.
• In case of Inferior good the demand will decrease with rise in income and increase with decrease in
income.
• Taste and Preference: - If the taste and preference of consumer develop for a commodity the demand
will rise.
• Expectation: - If the consumer expects that price in future will rise the demand will rise and vice-versa
• Population:- More population, more demand, less population less demand.
• Climate: - The demand of commodity changes according to the climate.

7. Law of Demand
Other things are equal, the demand for a good rises with a
decrease in price and decreases with increase in price.
Px Qx
10 100
9 150
8 200
Y
Price
X
O Demand
D
D
Q1
P1
Q
P
Q2
P2

8. ASSUMPTION OF LAW OF DEMAND
• 1. Price of related goods should not be
change.
• 2. Income of the consumer should not change.
• 3. Taste and preferences should not be
change.
• 4. No change in price in future.

9. EXCEPTIONS OF LAW OF DEMAND.
• 1. Inferior good or Giffen goods.
• 2. Goods become scarce in future.
• 3.Articles of social distinctions.
• 5. Necessities.
• 6. Ignorance.
• 7. Emergency.

10. Demand curve upward When Law of
demand fails.
• When Law of demand fails Demand curve
does not slope downward . Its slope upward: -

11. MIND MAP OF MOVEMENT IN
DEMAND CURVE.
MOVEMENT ALONG DEMAND CURVE
CHANGE IN QUANTITY DEMANDED
Extension in demand Contraction in demand
Caused by decrease in
own price of the
commodity
Caused by increase
in own price of the
commodity

12. Mind map Shift in demand curve
SHIFT IN DEMAND CURVE
CHANGE IN DEMAND
Decrease in demand or
Backward shift in demand curve
( Demand Curve shift to left )
Increase in demand or Forward
shift in demand curve
( Demand Curve shift to Right)
Caused by change in factors other than own price of the
commodity.

13. Extension in demand
(Downward movement along the demand curve)
• Extension of demand also called expansion in
demand. Movement along the demand curve
refers to extension and contraction in
demand. Both are caused by change in own
price of the commodity.

14. Contraction in Demand Curve.
• Contraction in demand refers to decrease
in quantity demanded due rise in own
price of the commodity.

15. Change in Demand
It is also called shift in demand curve. When
quantity of commodity changes due to
change in factor other than price. It has two
types: -
1. Rightward shift in demand.
2. Leftward shift in demand.

17. Rightward shift in demand. – or
Increase in demand.
• It means that quantity demanded of a
commodity increases even than price of the
commodity remains constant.
OR
When quantity of a commodity increases due to
other factors and price of the commodity
remains constant.

18. Right ward shift in demand
PRICE DEMAND
20
20
100
150

19. FACTORS SHITING DEMAND
RIGHTWARD.
• 1. When income of the consumer increases.
• 2. When price of substitute good increase.
• 3. When price of complementary good falls.
• 4. When taste of the consumers shifted in
favour of the commodity due to change in
fashion and climate.

20. LEFTWARD SHIFT IN DEMAND
PRICE DEMAND
20
20
70
100

21. FACTORS SHIFTING DEMAND CURVE
LEFTWARD.
• 1. When income of the consumer’s falls.
• 2. When price of the substitute goods
decrease.
• 3. When price of the complementary goods
increases.
• 4. When taste of the consumer shifts against
the commodity due to change in fashon or
climate

23. Elasticity of Demand
The elasticity of demand measures the
responsiveness of the quantity demanded due
to change in price of the commodity

24. Measurement of elasticity of demand
Total Expenditure Method/Total outlay method
If no change in total expenditure as change in
price than Ed=1
If total expenditure and price changes in
opposite direction Ed>1
If total expenditure and price changes in same
direction Ed<1

25. Proportionate or Percentage Method
Under this method elasticity of demand is
measured by the ratio of the percentage
change in quantity demanded to the
percentage in price.
Ed = Percentage change in Quantity Demanded
Percentage change in Price

26. Geometric Method/ Point Elasticity
Method
If elasticity of demand is to be measured on the
point of demand curve following formula is to
be used.
ed = Lower segment from the point
Upper segment from the point

27. Factors effecting elasticity of Demand
• Nature of Goods
• Availability of Substitutes
• Postponement of Consumption
• Number of Uses
• Time period
• Habit of consumer

28. Degrees of elasticity of Demand
Perfectly elastic Demand
Perfectly Inelastic Demand

29. Elastic Demand
Price
Flatter Demand
Curve
Quantity
E
>
1
D

30. Thanks
• Prepared by:-
• HANS RAJ MEENA
• K.V. BSF POKARAN