This document defines demand and discusses the key determinants and concepts related to demand, including: 1. Demand is defined as the amount of a good or service consumers will purchase at a given price. The main determinants of demand are price, income, tastes/preferences, and prices of related goods. 2. The law of demand states that, all else equal, demand increases when price decreases and decreases when price increases. Exceptions include Giffen goods, conspicuous goods, and speculative goods. 3. Elasticity measures the responsiveness of demand to changes in factors like price and income. Types of elasticity include price, income, and cross elasticity. Demand can be perfectly elastic,

1. WELCOME
Submitted by:
Vishwaroopayadav
Nikitha
Sushmitha
Bindu
To
Mr. Yash and Class

2. 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

3. Determinants of demand
 Price of the commodity
 Price of the related goods
 Level of income of the households
 Tastes and preferences
 Distribution of income

4. 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.

5. T
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.
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

6. 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 consumer’s income increases and decreases as
the consumer’s income increases.
b) Inferior goods: The goods for which when the consumer’s income
increases, demand decreases. When income decreases demand
increases. Such goods are called Inferior goods.
Normal goods Inferior goods

7. 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

8. Other factors
a)Size of the Population
b) Composition of population
c) Distribution of income

9. 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.

10. Rationale of law of demand
 law of diminishing marginal utility
 Price effect
 Income effect
 Substitution effect
 Arrival of new commodities
 Different uses

11. Exceptions of the lawof 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.

12.  Giffen goods: When prices of Giffen goods increases the
purchasing power of the consumer’s 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.

13.  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
consumer’s to be rational and knowledgeable about the
market conditions. However, at times consumer’s 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.

14. Movement alongthe 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.

15. 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.

16. 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

17. 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

18. 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

19. 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

20. 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.

21. 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

22. 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.

23. 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.

24. Less elastic or relatively INelastic
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.

25. Determinants of price elasticityof demand
 Nature of goods
 Availability of substitutes
 Income of the consumer
 Habits
 Price of goods
 Variety of uses
 Deferred consumption
 Market awareness

26. Demand distinctions
 Producer’s goods and consumer’s goods
 Durable and non-durable goods
 Derived demand and autonomous demand
 Industry demand and company demand
 Short run demand and long run demand

28. Any Questions ??????????