1. Demand refers to how much of a good or service is desired by buyers at various prices and is determined by factors like price, income, tastes, and expectations of buyers. 2. The relationship between price and quantity demanded is known as the demand curve, which slopes downward as quantity demanded decreases when price increases. 3. A shift in the demand curve occurs when a change in a determinant of demand causes a different quantity to be demanded at each price, while movement along the curve refers to changes in quantity demanded due to price changes with other factors held constant.

2. Meaning…
Refers to the desire, backed by the necessary ability to pay.
Demand is a buyer's willingness and ability to pay a price for a
specific quantity of a good or service.
Demand refers to how much (quantity) of a product or service
is desired by buyers at various prices. The quantity demanded
is the amount of a product people are willing to buy at a
certain price.
The relationship between price and quantity demanded is
known as the demand.

3. Aspects of Demand…
Desire for specific commodity.
+
Sufficient resources to purchase the desired
commodity.
+
Willingness to spend the resources.
+
a. Availability of the commodity at
 (i) Certain price (ii) Certain place (iii)
Certain time.

4. Willing to purchase:
 Being willing to purchase simply means that one likes
an item enough to want to buy it, and this is usually
what people think of when they encounter the concept
of demand. However, it's important to remember that,
while it's good to want things, desire to purchase is not
the only requirement for economic demand.

5. Able to purchase:
 Wanting to purchase an item doesn't mean a whole lot
if one doesn't have the means to make the transaction
happen. Therefore, ability to purchase is another
important factor of demand. Economists don't specify
how an individual must be able to pay for an item- she
can pay with cash, check, credit card, money borrowed
from friends or taken from the piggy bank, etc.

6. Ready to purchase:
 Demand is, by its nature, a current quantity, so an
individual is only said to demand something if she is
willing and able to purchase it now as opposed to some
point in the future.

7. Types of Demand





-Consumer Goods and producer goods
Perishable and durable goods
Autonomous and derived demand
Individual demand and market Demand
Firm and Industry demand

1.
-
Others:
Income demand
Demand for normal goods (price –ve, income +ve)
Demand for inferior goods (eg., coarse grain)
 Cross demand
- Demand for substitutes or competitive goods (eg.,tea & coffee, bread and
rice)
- Demand for complementary goods (eg., pen & ink)





Joint demand (same as complementary, eg., pen & ink)
Composite demand (eg., coal & electricity)
Direct demand (eg., ice-creams)
Derived demand (eg., TV & TV mechanics)
Competitive demand (eg., desi ghee and vegetable oils)

8. Demand Schedule and Curve
 Demand curve:
 a curve showing the
relation between the
price of a good and
quantity demanded
during a given period,
other things constant.
 Suppose we are making
pizza.
Price of Quantity
Good
Demand
ed
3
200
4
150
5
100
6
75
7
50

9. The geometrical representation of demand schedule is called
the demand curve.

10. Determinants of Demand
 Economic demand- how much of an item one is
willing, ready and able to purchase- depends on a
number of different factors. For example, people
probably care about how much an item costs when
deciding how much to purchase. They might also
consider how much money they make when making
purchasing decisions, and so on.

11. Determinants of Demand
 Price of Product
 Income of Consumer
 Price of Related Good
 Complementary Goods
 Substitute Goods






Tastes and Preferences
Advertising
Consumer’s expectation of future Income and Price
Growth of Economy
Seasonal conditions
Population

12. Price as a Determinant of Demand
 Price, in many cases, is likely to be the most
fundamental determinant of demand, since it's
often the first thing that people think about when
deciding how much of an item to buy. The vast
majority of goods and services obey what
economists call the law of demand- that, all else
being equal, the quantity demanded of an item
decreases when the price increases and vice versa.
(There are some exceptions to this rule, but they
are few and far between.)

14. Income as a Determinant of Demand
 People certainly look at their incomes when
deciding how much of an item to buy, but the
relationship between income and demand isn't as
straightforward as one might think. Do people buy
more or less of an item when their incomes
increase? As it turns out, that's a more complicated
question than it might initially seem. For example,
if a person were to win the lottery, he would likely
take more rides on private jets than he did before.
On the other hand, the lottery winner would
probably take fewer rides on the subway than
before.

15.  Economists categorize items as normal goods or
inferior goods on exactly this basis. If a good is a
normal good, then the quantity demanded goes up
when income increases, and the quantity demanded
goes down when income decreases. If a good is an
inferior good, then the quantity demanded goes down
when income increases and goes up when income
decreases.

16.  In our example, private jet rides are a normal good and
subway rides are an inferior good. There are two things to
note about normal and inferior goods:
 What is a normal good for one person may be an inferior
good for another person, and vice versa. For an overall
market, a good is normal if market demand increases when
income increases, on average, for the people in that market,
and a good is inferior if market demand decreases when
average income increases.
 It's possible for a good to be neither normal nor inferiorfor example, it's quite possible that the demand for toilet
paper neither increases nor decreases when income
changes!

19. Prices of Related Goods as Determinants of
Demand
 When deciding how much of a good they want to
purchase, people take into account the prices of
both substitute goods and complementary goods.
Substitute goods, or substitutes, are goods that are
used in place of one another. For example, Coke
and Pepsi are substitutes because people tend to,
well, substitute one for the other. Complementary
goods, or complements, on the other hand, are
goods that people tend to use together. DVD
players and DVDs are examples of complements,
as are computers and high-speed internet access.

20.  The key feature of substitutes and complements is
the fact that a change in price of one of the goods
has an impact on the demand for the other good.
For substitutes, an increase in the price of one of
the goods will increase demand for the substitute
good. (It's probably not surprising that an increase
in the price of Coke would increase the demand for
Pepsi as some consumers switch over from Coke to
Pepsi.) It's also the case that a decrease in the price
of one of the goods will decrease demand for the
substitute good.

21.  For complements, an increase in the price of one of the
goods will decrease demand for the complementary
good. Conversely, a decrease in the price of one of the
goods will increase demand for the complementary
good. (For example, decreases in the prices of video
game consoles serves in part to increase demand for
video games.)

22.  Goods that don't have either the substitute or
complement relationship are called unrelated goods.
In addition, sometimes goods can have both a
substitute and a complement relationship to some
degree- for example, gasoline is a complement to even
fuel-efficient cars, but a fuel-efficient car is a substitute
for gasoline to some degree.

24. Tastes as a Determinant of Demand
 How much of a particular good or service also depends
on an individual's taste for the item. In general,
economists use the term "tastes" as a catchall category
for consumers' attitude towards a product. In this
sense, if consumers' tastes for a good or service
increase, then their quantity demanded increases, and
vice versa.

26. Expectations as a Determinant of Demand
 Today's demand can also depend on consumers'
expectations of future prices, incomes, prices of
related goods, and so on. For example, consumers
demand more of an item today if they expect the price
to increase increase in the future. Similarly, people
who expect their incomes to increase in the future will
often increase their consumption today.

27. Number of Buyers as a Determinant of
Market Demand
 Although not a determinant of individual demand, the
number of buyers in a market is clearly an important
factor in calculating market demand. Not surprisingly,
market demand increases when the number of buyers
increases, and market demand decreases when the
number of buyers decreases.

29. Law of Demand
 States that a quantity of a good demanded during a
given period relates inversely to its price, other things
constant.
 Price increases  Quantity Demanded decreases
 Price decreases  Quantity demanded increases
 Creates a downward sloping demand curve

31. Demand Curve
A curve showing the relation between
the price of a good and the quantity
demanded.
Price
6
5
Point on the line that matches the schedule
Every point on the line matches the schedule.
It is a price/quantity demanded that consumers
are willing and able to buy.
4
3
0
50
75
100 150
Demand
Quantity
200

32. Demand curves usually slope down because the quantity
demanded rises as the price falls.

33. Movement Along the Demand Curve
 Caused by a change in price
 Only a change in price
 Move from one point to another on the same graph
 Called a
 Change in quantity demanded.

34. Movement along the Demand Curve
Price
B
6
5
A
Demand
0
75
100
Quantity

35. Demand
 Individual demand
 The demand of an individual consumer
 Market demand
 Sum of individual demands of all consumers in the
market

36. Aggregate or Market Demand Curve
 The
market demand curve describes the quantity
demanded by the entire market for a category of goods or
services. An example of this is gasoline prices overall.
When the cost of oil goes up, all gas stations must raise
their prices to cover their costs. Even if the price drops 50%,
drivers aren't going to increase the amount bought by that
much. That's why, when the price skyrockets from $3.20 $4.00 a gallon, people get very upset. They can't cut back
their driving to work, school and the grocery store very
easily, and so they are forced to pay more for gas.

37.  By the way, this lowers their incomes for things other
than gas. Income is another determinant of demand,
so that means the demand curve for other things they
would like to buy, like ice cream, will drop. This is
called a demand shift. In this case, the entire demand
curve for ice cream shifts to the left. Since buyers have
less income, they will purchase a lower quantity of ice
cream even at the same price.

38. Change in Demand
 Shift in demand Curve
 Movement along with demand curve

39. Shifts in the Demand Curve
 A demand curve isolates the relation between prices of
a good and quantities demanded when other factors
that could affect demand remain unchanged.
 Factors called assumptions or determinants

40. Changes in determinants
 Results in changes to the RELATIONSHIP BETWEEN
PRICE AND QUANTITY DEMANDED.
 At each and every price a DIFFERENT quantity is
demanded.
 Results in a shift in the demand curve
 New curve must be drawn

41. Changes in Demand
 Increase in demand
 At each and every price
MORE of the good is
demanded
 Shifts to the right
P
4
Qd1 Qd2
150
Price
5
A
B
D2
200
5
100
150
6
75
100
D1
100
150
Quantity

42. Causes of Increase in Demand
 Increase in consumer
income
 Causes consumers to
buy more of the product
at each and every price.
 Normal goods
 Inferior goods

43. Change in consumer income
 Normal goods
 A good for which demand
increases as consumer
income rise
 Inferior goods
 A good which demand
increases as consumer
income falls

44. Changes in Price of Related Goods
 Substitutes
 Goods that are not
consumed jointly
 Goods that are related in
such a way that an increase
in the price of one shifts the
demand curve for the other
rightward.
 Increase in price of Coke
leads to increase in
demand for Pepsi

45. Changes in Price of Related Goods
 Substitutes
 Suppose that the price of Coke rises from 1 to 1.50, then
the demand for Pepsi will decrease from 75 to 100.
Price
1
D2
D1
75
100
Qty

46. Changes in the price of related goods
 Complements
 Goods that are
related in a such a
way that an increase
in the price of one
shifts the demand of
the other leftward
 Two goods that are
consumed jointly.
 An decrease in the
price of one will
increase demand
for the other

47. Changes in Price of Related Goods
 Complements
 An decrease in the
price of DVD players,
increases the demand
for DVDs
 Suppose that DVD
players decrease in
price from 145 to 100,
now the demand for
DVDs will decrease
from 750 at 20 to 900.
20
D2
D
750
900

48. Changes in Consumer Expectations
 Such as expectations in
 Prices and income
 Affect how consumers spend
their money and their
demand
 If product cheaper today
than tomorrow, then
increase in demand

49. Changes in consumer tastes
 Consumer preferences
likes and dislikes in
consumption assumed to
be constant along a given
demand curve assumed
constant along a given
demand curve
 Changes in taste will
cause a shift in the
demand curve as different
quantities are demanded
at each and every price.

50. Changes in taste
 Consumers prefer
platform shoes.
 At 50, demand
increases from 100
to 200.
50
D2
D
100
200

51. Change in the number and composition of
consumers
 The market demand curve is the sum of the individual
demand curves.
 If the number of consumers falls then the sum will be
smaller thus shifting the demand curve

52. Changes in Demand
 Decrease in demand
 At each and every price
Less of the good is
demanded
 Shifts to the Left
P
4
Qd1 Qd2
150
Price
A
5
D1
110
5
100
90
6
75
60
D2
90
100
Quantity

53. Causes of Decrease in Demand
 Decrease in consumer
income
 Causes consumers to
buy less of the product
at each and every price.

54. Exceptions to law of demand
 Some special varieties of inferior goods are termed as Giffen goods.
Cheaper varieties of this category like bajra, cheaper vegetable like
potato come under this category. A few goods like diamonds etc are
purchased by the rich and wealthy sections of the society. The prices of
these goods are so high that they are beyond the reach of the common
man.
 Certain things become the necessities of modern life. So we have to
purchase them despite their high price. A consumer’s ignorance is
another factor that at times induces him to purchase more of the
commodity at a higher price. Emergencies like war, famine etc. negate
the operation of the law of demand. Households also act speculators. A
change in fashion and tastes affects the market for a commodity. When
a broad toe shoe replaces a narrow toe, no amount of reduction in the
price of the latter is sufficient to clear the stocks.
 Though as a rule when the prices of normal goods rise, the demand for
them decreases but there may be a few cases where the law may not
operate.

55. The law of demand does not apply in every case and situation.
The circumstances when the law of demand becomes ineffective
are known as exceptions of the law. Some of these important
exceptions are as under.
 (1) Prestige goods/Veblen goods. There are certain commodities like
diamond, sports, cars etc., . which are purchased as a mark of
distinction in society. If the price of these goods rise, the demand for
them may increase instead of falling.
 (2) Price expectations. If people expect a further rise in the price of a
particular commodity, they may buy more inspite of rise in price: The
violation of the law in this case is only temporary.
 (3) Ignorance of the consumer. If, the Consumer is ignorant *about
the rise in price of goods, he may buy more at a higher price.
 (4) Giffen goods. If the prices of basic goods, (potatoes, bajra, sugar
etc) on which the poor spend a large part of their incomes declines, the
poor increase the demand for superior goods, hence when the price of
Giffen good falls, its demand also falls. There is a positive price effect in
the case of Giffen goods. •

56. Elasticity – the concept
 The responsiveness of one variable to changes in
another
 When price rises, what happens
to demand?
 Demand falls
BUT!
 How much does demand fall?

57. Types..
 Price elasticity of demand
 Income elasticity of demand
 Cross elasticity of demand
 Promotional elasticity of demand
 Expectations elasticity of demand

58. Kinds Of Price Elasticity Of Demand
1) Perfectly elastic demand (Ed= ∞)
2) Perfectly inelastic demand (Ed=0)
3) Elasticity of demand equal to utility(Ed=1)
4) Relatively inelastic demand (Ed<1)
5) Relatively elastic demand(Ed>1)

59. Measurement Of Price Elasticity Of
Demand
There are main methods like
1. Percentage method or proportionate method
2. Total outlay method or total revenue method
3. Geometric method or point method
4. Arc elasticity of demand

60. Percentage method or proportionate
method
Price elasticity of demand (ep)
Proportionate change in quantity demanded of good X
Proportionate change in price of good X
(Q2-Q1)
Q1
=
(P2-P1)
P1
Where Q1 and P1 are original quantity and price
respectively, and Q2 and P2 are the new quantity
and price respectively

62. Perfectly elastic demand
y
Perfectly elastic
demand curve
P
R
I
D
C
E
0
D
When the
demand for a
product changes
–increases or
decreases even
when there is no
change in price,
it is known as
perfect elastic
x
demand.

63. Perfectly inelastic demand
Y
D
When a change in
price, howsover
Perfectly inelastic
large, change no
demand curve
changes in quality
demand, it is known
as perfectly inelastic
demand
P
R
I
C
E
0
D
demand
X

65. Elasticity of demand equal to utility

66. Relatively inelastic demand
Y
D
Relatively inelastic
demand curve
P
R
I
C
E
D
O
X
demand
When the
proportionate
change in demand
is less than the
proportionate
changes in price, it
is known as
relatively inelastic
demand

67. Relatively elastic demand
y
P
Relatively elastic
demand curve
R
D
I
C
E
D
0
demand
x
When the
proportionate
change in
demand is more
than the
proportionate
changes in price,
it is known as
relatively elastic
demand.

69. ALL KINDS OF DEMAND CAN BE SHOWN IN
ONE DIAGRAM AS FOLLOW
Y
P
R
D
D1
I
C
D2
E
D3
D4
0
D5
DEMAND
X
WHERE
D1) Perfectly elastic
demand
D2)Relatively elastic
demand
D3)Elasticity of demand
equal to utility
D4)Relatively inelastic
demand
D5)Perfectly inelastic
demand

70. Factors Affecting Price Elasticity Of
Demand
 Nature of the Commodity
 Availability of Substitutes
 Variety of uses of commodity
 Postponement
 Influence of habits
 Proportion of Income spent on a
commodity
 Range of prices

71. Factors Affecting Price Elasticity Of
Demand
 Income Groups
 Elements of time
 Pattern of income distribution

72. Practical Importance of the
Concept of Price Elasticity Of
Demand
 The concept is helpful in taking Business Decisions
 Importance of the concept in formatting Tax Policy of
the government
 For determining the rewards of the Factors of
Production
 To determine the Terms of Trades Between the Two
Countries

73. Practical Importance of the
Concept of Price Elasticity Of
Demand
 Determination of Rates of Foreign Exchange
 For Nationalization of Certain Industries
 In economic Analysis ,the concept of price elasticity of
demand helps in explaining the irony of poverty in the
midst of plenty.

74. Determinants of Price Elasticity
of Demand




Demand for a commodity will be more elastic
if:
It has many close substitutes
The share of the commodities in buyers’
budget is high
Nature of the commodities, luxuries
More time is available to adjust to a price
change

75. Determinants of Price Elasticity
of Demand




Demand for a commodity will be less elastic if:
It has few substitutes
The share of the commodities in buyers’
budget is low
Nature of the commodities, Essentials
Less time is available to adjust to a price
change

77. Types Of Income Elasticity Of Demand
 Positive Income elasticity of demand
 Negative Income elasticity of demand
 Zero Income elasticity of demand

78. Positive Income elasticity of demand
Y
D
Income
P
A
O
D
B S
Quantity Demanded
X

79. Positive Income elasticity of demand
 Income Elasticity Equal to Unity or
One (Edy =1)
 Income Elasticity Greater Than Unity
Or One (Edy >1)
 Income Elasticity Less Than Unity or
One (Edy < 1)

80. Price
Negative Income elasticity of demand
P
A
Total Revenue
B
S
Quantity Demanded (000s)

81. ZeroY Income elasticity of demand
Income
D
O
D
Quantity Demanded
X

83. Measurement Of Income Elasticity Of
Demand
Proportionate change in Demand
Income Elasticity Of Demand
Proportionate change in Income
=
i.e.
∆q
∆y
Income Elasticity Of Demand
+
Q
Y
=

85. Measurement Of Income Elasticity Of
Demand
 Here , ∆q = Change in the quantity
demanded.
Q = Original quantity demanded.
∆y = Change in income.
Y = Original income.
 For e.g. ,when Income of the consumer =
2,500/- , he purchases 20 units of X, when
income = 3,000/- he purchases 25 units of X

86. Measurement Of Income Elasticity Of
Demand
 Thus
Income Elasticity of Demand
∆q
∆y
+
=
Y
Q
= (5/20) + (500/2500)
= 1.5
therefore here the IED is 1.5 which is more
than one.

87. Factors Affecting Income Of Demand
 Income Itself Only.
 Price Of the Commodity

88. Importance Of the Concept of Income
Elasticity Of Demand
 In production planning and management
 In forecasting demand when change in
consumers income is expected
 In classifying goods as normal and inferior
 In expansion and contraction of the firm by
the figure of income elasticity of demand
 Markets situations could be studied with
the help of IED

89. (8) Elasticity Of Substitution
 The selection between two product or thing
is called substitution
 So Elasticity of Substitution measures the
rate at which the particular product is
substituted .
 Thus EOS is the degree to which one
product could be substituted in context of
price and proportion

90. Elasticity Of Substitution
 Elasticity of Substitution
= Proportionate change in the quantity
ratios of goods x & y DIVIDED BY
Proportionate change in the price ratios of
goods x & y.

91. Types of Elasticity Of Substitution
 Zero Elasticity of Substitution.
 Infinite Elasticity Of Substitution
 Elasticity of Substitution greater than
unityor1
 Elasticity of Substitution is equal to one
 Elasticity of Substitution is less than one

92. Change in QUANTITIY ratio of good x
&y
Types of Elasticity Of Substitution on
Y
Graph
O
E4
E3
E5
E2
E1
X
Change in PRICE ratio of good x & y

93. Relationship Between Price Elasticity,
Income Elasticity and Substitution
Elasticity
 As Price is depended on income and
substitution effect similarly Price Elasticity
is depended on Income Elasticity an
Substitution Elasticity .
 These relationship can be represented by
 Ep = Kx E1 + ( 1 – Kx ) es

94. Price elasticity of demand depends
on:
 Proportion of income spent on particular
good say X.
 Income elasticity of demand.
 Elasticity of substitution.
 Proportion of income spent on product
other than X.

95. Cross Elasticity of Demand
 Cross elasticity of demand express a
relationship between the change in the
demand for a given product in response
to a change in the price of some other
product
 E.g. if the X tea demand reduces
tremendously than it effect could be seen in
demand of sugar and milk.

96. Types of Cross Elasticity of Demand
 Cross Elasticity of Demand Equal to Unity
or One
 Cross Elasticity of Demand Greater than
Unity or one
 Cross Elasticity of demand less than unity
or one

97. Measurement Cross Elasticity of
Demand
Proportionate change in Demand
for product X
Cross Elasticity of Demand
=
i.e.
Proportionate change in Price of
product Y
Cross Elasticity of Demand ∆qx
Qx
=
+
∆p y
Py

98. Price of Y
Cross Elasticity of Demand For
Y
Substitutes
D
D
O
X
Demand for Y

99. Cross Elasticity of Demand For
Complementary Products
Y
Price of Y
D
D
O
X
Demand for Y

100. Cross Elasticity of Demand For Neutral
Products
Y
Price of Y
D
O
X
Demand for Y

101. Importance of Cross Elasticity Of
Demand
 The concept is of very great importance in
changing the price of the products having
substitutes and complementary goods .
 In demand forecasting
 Helps in measuring interdependence of price of
commodity .
 Multiproduct firms use these concept to measure
the effect of change in price of one product on the
demand of their other product

102. Advertising Elasticity of Demand
 Advertising elasticity of demand is the
measure of the rate of change in
demand due to change in advertising
expenditure
 The amount of change in demand of goods
due to advertisement is known as
Advertisement Elasticity of Demand .

103. Advertising Elasticity of Demand
Proportionate change in Demand
for product
Advertising Elasticity of Demand
=
i.e.
∆qx
Advertising Elasticity of Demand
Q
=
Proportionate change in
Advertising expenditure
÷
∆a
A

104. Relationship Between Advertising
Expenditure and Sales
Y
Sales
S
S
O
X
Advertising

105. Factors Affecting Advertising Elasticity
Of Demand
 The stage of the Product’s Market
Development .
 Reaction of market Rival Firms.
 Cumulative Effect of Past Advertisement.
 Influence of Other Factors.

106. Importance of the Advertising
Elasticity Of Demand in Business
Decisions
 It is useful in competitive industries.
 Though advertisement shifts the demand
curve to right path but it also increases the
fixed cost of the firm.

107. Limitation of Advertising Elasticity
of the Demand
 The impact of advertising on sales is
different under different conditions, even if
other demand determinants are constant.
 Like wise, it is difficult to establish any corelationship between advertising
expenditure and volume of sales when there
counter advertisements by rival firm in the
market . The effect on sales depend on what
the rivals are doing.

108. Review of Demand
 A change in quantity demanded is not a change in
demand
 Change in quantity demanded is caused by a
change in price
 Change in quantity demanded is a movement
along the demand curve
 Change is demand is caused by a change in the
determinants
 Change in demand shifts the demand curve

109. Thanking You All