Demand

Elasticity of demand is the responsiveness of the quantity demanded of a  commodity  to changes in one of the variables on which demand depends. In other words, it is the percentage change in quantity demanded divided by the  percentage  in one of the variables on which demand depends.” The variables on which demand can depend on are: Price of the commodity Prices of related commodities Consumer’s  income , etc. Let’s look at some examples: The price of a  radio  falls from Rs. 500 to Rs. 400 per  unit . As a result, the demand increases from 100 to 150 units. Due to  government  subsidy, the price of wheat falls from Rs. 10/kg to Rs. 9/kg. Due to this, the demand increases from 500 kilograms to 520 kilograms. In both cases above, you can notice that as the price decreases, the demand increases. Hence, the demand for radios and wheat responds to price changes.

The law of demand expresses a relationship between the quantity demanded and its price. It depicts an inverse relationship between price and demand. STATEMENT OF LAW According to Marshall," The amount demanded increases with a fall in price, and diminishes with a rise in price." Prof. Samuelson writes," Law of Demand states that people will buy more at lower prices and buy less at higher prices, other things remaining the same." ASSUMPTIONS The assumptions of the law are as under:- 1) There is no change in the tastes and preferences of the consumer. 2) The income of the consumer remains constant. 3) There is no change in customs. 4) There should not be any substitutes of the commodity. 5) There should not be any change in the prices of other products. 6) There should not be any change in the quality of the product. 7) The habits of the consumer should remain unchanged. Given these assumptions, the law of demand operates. If...

1.  Useful for Business: It enables the business in general and the monopolists in particular to fix the price. Studying the nature of demand the monopolist fixes higher prices for those goods which have inelastic demand and lower prices for goods which have elastic demand. In this way, this helps him to maximize his profit. 2.  Fixation of Prices: It is very useful to fix the price of jointly supplied goods. In the case of joint products like paddy and straw, the cost of production of each is not known. The price of each is then fixed by its elastic and inelastic demand. 3.  Helpful to Finance Minister: It helps the Finance Minister to levy tax on goods. After levying taxes more and more on goods which have inelastic demand, the Government collects more revenue from the people without causing inconvenience to the people. Moreover, it is also useful for the planning. 4.  Fixation of Wages: It guides the producers to fix wages for labourers. They fi...

In the modern competitive or partial competitive market economy, advertising has a great signifi­cance. Under advertising, various visible or verbal activities are done by the firm for the purpose of creating or increasing demand for its goods or services. Informative advertising is very helpful for the consumer in making rational purchase decisions. But the extension of demand through advertising can be measured by advertising or promotional elasticity of demand (E A ) which measures the expected changes in demand as a result of change in other promotional expenses. The demand for some goods is affected more by advertising such as the demand for cosmetics. Following is the formula for advertising elasticity, E A  = ΔQ/ΔA x A/Q Where, Q = quantity sold of good X; A = units of advertising expenses on good X; ΔQ = change in quantity sold of good X; and ΔA = change in advertising expenses on good X. The elasticity of demand for a good should be positive because there is th...

The Cross Elasticity of Demand is the relation between percentage change in the quantity demanded of a good to the percentage change in the price of a related good. According to J.S. SLOMAN," Cross elasticity of demand refers to the responsiveness of demand for one good to a change in the price of another." The Cross Elasticity of Demand between Good A and B is:-                            Eba= Percentage change in the quantity of B/ Percentage change in price of A                                 Let us suppose that when the price of tea is Rs.8 per kg, 100 kg of coffee is bought but when the price rises to Rs.10, the demand for coffee increases to 120 kg. According to the formula, the coefficient of cross elasticity of demand is:-                        Eba= (100-120)/ (...

INDIVIDUAL DEMAND SCHEDULE AND CURVE An individual consumers demand refers to the quantities of a commodity demanded by him at various prices, other things remaining equal. His demand for a commodity is shown on the demand schedule and demand curve. A Demand Schedule is a list of prices and quantities and its graphic representation is a Demand Curve. ****draw demand schedule The above demand schedule reveals that when the price is Rs.6, the quantity demanded is 10 units. If the price happens to be Rs.5, the quantity demanded is 20 units, and so on. ****draw demand curve In the above figure DD1 is the demand curve drawn on the basis of above demand schedule. The dotted points P,Q,R,S,T and U show the various price-quantity combinations. The 1st combination is shown by the 1st dot and the remaining combinations move to the right towards D1. MARKET DEMAND SCHEDULE AND CURVE In a market, there is not one consumer but many consumers of a commodity. The market demand of a commo...

The demand for a commodity is its quantity which consumers are able and willing to buy at various prices during a given period of time. In Economics, use of the word 'Demend' is made to show the relationship between the prices of a commodity and the amounts of the commodity which consumers want to purchase at those prices. DEFINITION According to Prof. Hibdon, " Demand means the various quantities of goods that would be purchased per time period at different prices in a given market." DETERMINANTS OF DEMAND The factors which determine the level of demand for any commodity are:- 1) PRICE:- The higher the price of a commodity, the lower the quantity demanded. The lower the price, the higher the quantity demanded. 2) PRICE OF OTHER COMMODITIES:- There are 3 types of commodities in this context- Substitutes, Complementary goods and Unrelated goods. Substitutes are those commodities which satisfy similar wants such as tea and coffee.Price varia...