By Naveen Gautam R.i.c.m Bangalore Mba.

BY NAVEEN GAUTAM R.I.C.M BANGALORE MBA.

Demand  Demand for a product refers to the

amount of it which will be bought per unit of time at a particular price.

Meaning of demand  Desire or want backup by money  Demand is always related to price & time.  Demand may be viewed ex –ante & ex – post.

Types of demand  Consumer goods & producer goods.  Perishable & durable goods.  Autonomous & derived demand.  Price demand ,income demand & cross demand.

 Individual & market demand.  Firm & industry demand.

Demand curve Law of demand describes the general tendency of consumers behaviour in demanding commodity in relation to the changes in its price. Law demand the higher price of a commodity the smaller is quantity demand

SHIFTING OF DEMAND CURVE A change in demand thus implies an increase or decrease in demand.

When more of a commodity is brought than before at any given price . There is an increase in demand.

Determinants  Price.  Income.  Taste ,habits & preferences.  Substitute & complementary product.  Consumer’s expectation.  Advertisement.  Standard of living.  Age & sex ratio.

 Level of taxation.

Elasticity of demand .

Factors influencing elasticity  Nature commodity.  Availability of substitutes.  Number of uses.  Consumer’s income.  Height of price & change in price.  Durability of the commodity.  Proportion of expenditure.  Complementary goods.  Habit  Time.

price elasticity of demand It is used to describe the effect of change in price on quantity demand. Types of price elasticity  Perfectly elastic demand.  Perfectly inelastic demand.  Relative elastic demand.  Relative inelastic demand.  Unitary elastic demand .

Perfectly elastic demand A very small change in price leads To an infinite change in demand.

Perfectly inelastic demand The demand for a commodity shows no response at all to a change in price , the demand remain the same it is called a perfectly inelastic demand.

Relative elastic demand Change in the quantity demanded is greater than that of price the demand is said to be relatively elastic demand .

e>1

Relative inelastic demand when the proportion of change in the quantity demanded is less than that of price , the demand is considered to be relative inelastic demand.

e>1

Unitary elastic demand Change in demand is exactly the same as the change in the price the demand is said to be unitary elastic demand.

e=1

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Income elasticity of demand  The income elasticity of demand is numerical measure of the degree to

which quantity demand responds to change in income.

 Income elasticity = % change in quantity of demanded

% change in income

Negative effect Negative effect means if there is increase in income causes a decrease in quantity demand

Example For inferior goods (cheap whisky, artificial jewellery )

Cross elasticity of demand  Cross elasticity of demand is a numerical measures of

The degree to which quantity demand of a good responds to changes in the prices of other commodities. cross elasticity =

% change in quantity demanded of good x % change in price of good Y

CROSS ELASTICITY OF DEMAND BETWEEN TWO SUBSTITUTES If x and y are substitutes ec will be positive. Example ( tea & coffee) If the price of coffee rose ,there would be a decrease in quantity demanded of coffee and an increase in the quantity demanded of tea.

Cross elasticity of demand between two complements If x &y are complements ec will be negative . Example (bread & butter) If the price of bread rose there would be a decrease in quantity of demanded of bread and a decrease in the quantity of butter.

Query s

Thank you