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Demand: The quan i ! of a commodi ! ha a consumer is "i##in$ and a%#e o %u!& a a par icu#ar price durin$ a $i'en period of ime. 1. Individual demand: The quan i ! of a commodi ! ha a consumer is "i##in$ and a%#e o %u!& a a par icu#ar price durin$ a $i'en period of ime. (. Market demand: The quan i ! of a commodi ! ha a## consumers are "i##in$ and a%#e o %u!& a a par icu#ar price durin$ a $i'en period of ime.
Factors Determining demand / Determinants of demand (individual) 1. Price of the given commodity:- There is a ne$a i'e re#a ionship %e "een quan i ! demanded and price. )s price increases quan i ! demanded decreases and 'ice 'ersa. (. Price of related Goods : Demand is a#so affec ed %! re#a ed $oods. The! are of "o !pes: *i+ Complementary goods- are hose $oods "hich are used o$e her o sa isf! a par icu#ar "an #ike pen-ink. ,f here is increase in he price of comp#emen ar! $ood& he demand cur'e shif s P x #ef "ard. -$. Tea . su$ar& car . pe ro#
D e m o n d f o r in k
P r ic e o f p e n = R s .4 0 /-
D D
1
D e m o n d fo r in k
*ii+ u!stitute goods- These are hose $oods "hich can %e used in p#ace of one ano her e$. ea or coffee. )n increase in he price of su%s i u e $ood increases he quan i ! demanded of he o her $ood. ,f here is an increase in he price of su%s i u e. 3ood he demand cur'e shif s ri$h "ard. -$. 0oke . Pepsi& rice and "hea
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ic e
of
Te
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5. Income of the consumer: -The effec of income on quan i ! D1 demanded depends upon he na ure of $oods. D *a+"ormal goods-There is a posi i'e re#a ionship %e "een income of / u a n i ! o f 0 o ff e e he consumer and demand for a $ood. ,ncome increases demand a#so increase . 'ice 'ersa. -$. Rice& "hea & mi#k e c. *%+Inferior goods-There is a ne$a i'e re#a ionship %e "een income of he consumer and a demand for a $ood. ,ncome increases demand decreases and 'ice 'ersa .-$. 0heap $oods.
Px
P x
2 o rm a # 3 o o d
,n fe rio r 3 o o d .
D D 4
D
1
D
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4. #aste $ Preferences:- ,f here is a chan$e in as es in fa'our of a $ood& hen i "i## #ead o increase in demand and an! unfa'oura%#e chan$e "i## #ead o decrease in demand. The! inc#ude fashion& cus oms& ha%i s e c. 5. %&pectation of change in the price in Future' . ,f peop#e expec a rise in prices of he commodi ies in fu ure he! ma! %u! more . demand cur'e "i## shif ri$h "ard . 6ice 'ersa.
Px
D D D /
1 1
/ X
Market demand chedule: a a%u#ar presen a ion sho"in$ ;'e re#a ion %e "een price . /uan i ! demanded of a commodi ! %! a## consumers.
Demand Curve: Graphical representation of demand schedule Individual Demand Curve: Graphical representation of Individual demand schedule
Market Demand Curve: 3raphica# represen a ion of <arke demand schedu#e. :ori=on a# summa ion of indi'idua# demand cur'es.
Increase in demand: a rise in he demand of a commodi ! caused due o an! fac or o her han he price of he commodi !. , #eads o a ri$h "ard shif in demand cur'e.
Decrease in Demand: a fa## in demand of a commodi ! caused due o an! fac or o her han he price of he commodi !. , #eads o a #ef "ard shif in demand cur'e.
%lasticity of demand: B chan$e in demand of a $ood due o B chan$e in an! of he fac ors affec in$ of ha $ood. Price %lasticity of Demand'0, measures he responsi'eness of demand of a $ood o a chan$e in i s price. 4R , refers o B chan$e in demand of a $ood due o B chan$e in i s price. Measurement of Price %lasticity of demand : hree me hods of measurin$ price e#as ici ! of demand. ,+ #otal outlay or %&penditure Method:- Ahen he price of a $ood fa##s and& as a resu# & if he o a# expendi ure of consumers on he commodi ! rises hen e d C 1D if i remains unchan$ed hen e d = 1D and if i fa##s hen ed E 1. The si ua ion re'erses "hen he price of a $ood rises. Price , 9 7 ,, F 1 ,,, 4 5 Demand 5 4 1 F 7 9 T.-. (4 (9 50 50 (9 (4 ed E 1
4
-#as ici ! ed C 1
eC1 ,n'erse Re#a ion G e=1
ed = 1
eE 1
q! "here TQ stands for total outlay# p and q for price and $uantity respectively
ep =
/ P P /
.-
("ote' #he elasticity of demand is al,ays negative1 #his is !ecause price and 2uantity are inversely related1 3ut !y convention4 for the sake of simplicity4 the minus sign is dropped in economics1) ,,,+ Geometric Method: The e#as ici ! of demand is measured %! usin$ he fo##o"in$ formu#a.
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