Demand and Price Elasticity of Demand

■ ,
- - - - -

tudicd the ,onsumcr's

~ s('(tll)ll, \\l: ~ ,
In the pre, wu t I > ls the Lonsuwcr s
·1 b
equ1 1 num P' e
r• . l
3

n the tlC~ 0 t lt f,Ol l , ,

1 tlut the amou 11 t
.mcome an J h ~ '"-"' c "'ll -,-·s lt "Lls o )~en co
'- l'-• • l t
of a good th t the .-,11,111nc1 purd1ases opti1n:11ly, l epcnh<. s
'" d 11· l 1.· e of other goods, t e
on the pn'----e (_·-.f the goo ttse . t 1e P JC
consumer's cc,me J 1d his tastes and preferences. Whenever
one or more of these factors ch.mge, the quantity of the
good demJnded bY the consumer is also likely to change. In
this s~-rion. ,, e shall change one of these factors at a time
and study hm, the demand of the good by the consumer is 0 q ql ~
. X
related to that factor. Quantity Demanded

Demand Demand Curve and its Slope

Demand for a commodity refers to the q~!ity o( d!e
commodity that a consumer is willing_to buy and is able
to afford at a _g!Ven _erice during a period of time, other
factors remaioi~ unchanged.
If the prices of other goods, the consumer's income and
his tastes and preferences remain unchanged, the quantity
demanded of a good that the consumer is willing to buy,
becomes entirely dependent on its price.
Demand curve is a graphical presentation of various
<t,uantities of a commodity that a consumer is willing and
able to buy at different prices during a period of time,
other factors remaining the same.
Demand curve of an individual for commodity
The i_ndependent variable ~price) is measured alo
Y-axis and dependent variable (quantity demandng
measured along the X-axis. The demand curve .
the quantity demanded by the consumer at each p~
There is an inverse (negative) relation between pri
a goo? and its quantity demanded. In other wordsr»
~uantIty. of a good that a consumer is willing to '
!'k~ly to increase when the price of the good falls
1s hkely to decrease with a rise in the price of the good.
When price falls from Op to Op 1, demand rises from
to. Oq1. Thus, there is an inverse relationship be
pnce of a good and its demand, other things remai
the same. Therefore, the demand curve is nega ·
sloped (downward sloping from left to right).
 there is a negative (or · · .
, when price o e comm mcreases, demand for it falls
r• • - . band for it rises, other factors remaining the same.
ii t..cl oa 1he USUJnption of ceteris paribus, which literally means 'other things remaining

j otfa
, . . unchanged,
goods remain
- • s Ula>me remam constant, and
and prefurences of the consumer remain unchanged.
r., Jeaiia od can be understood with the help of a demand schedule.
~ I o rfulP, is a tabular presentation showing the different quantities of a good that a consumer is
alb I * able to buy at different prices during a period of time.,)
TABLE 2.8: Demand Schedule of Good X
/>rn.c ( ~per unit) Demand (units)
I

50 5
45 10
40 15

Demand schedule given in Table 2.8 illustrates that as price falls from tSO per unit to t40 per unit,
demand
price falls,
for the good rises from 5 units to 15 units. Thus, more quantity of a good are demanded when its
ceteris paribus.
Reasons behind Law of Demand- Derivation of law of demand from the law of
diminishing marginal utility
ng
Why is there an inverse relationship between price of a good and its quantity demanded, other things remaini
the same? Let us understand this using utility analysis.
(a) Using the principle MU = Price
ed
Aa we consume more and more units of a commodity, marginal utility (MU) of each successive unit consum
OD diminishing due to the operation of law of diminishing marginal utility.
Therefore, we will be w1llm c
b ach succcwve unit. Thus, we will buy more units of a commodity only when its price fall
 m naJ utilJty and price are equal 1

_.,.........~ to MU Price. Since marginal uttltty

l'-
good This shows that when price of a good £
dus UKIIIICeS
dcm
Con'1USC:I p cc scs then MU < Pncc. Thercfurc, the consumer will buy less quantity of the
This esablishc:s the nvcrse rdanonship between price of a good and its quantity demanded.
Cb) Using the law of equi-marginal utility
es onl two oods X and Y.
remaining unchanged, the consumer will be in eqm 1 num w
Let their respective prices be Px and Py.
1
. ~ M l I.u:Lf'
.
,, ..

Now, suppose price of good X (Px) fulls. The situation changes. The consumer is no longer in equilibri
The above equality rums into an inequality: MUx/Px > MUy!Py. It means that per rupee marginal u ..
consumption ofX is greater than from consumption ofY. This induces the consumer to buy more ofX
ofY. The consumer rransfers expenditure from Y to X. The consumer now demands more ofX.
This shows that when price of a good falls, the consumer demands more of that good.
 cc
t ,9,, n: I, J

lloYIIMnts atoh9 the Demand curve.

l1 higher prices, the demand Is less, and at lower
prices, the demand Is more. Thus, any change In the
,,_ lelds to mowmenfsalong the demand curve.
When price of the good falls from,
10 per unit to'
9 per
unit, its quantity demanded rises from 50 units to 70
ll ild~
units. It leads to downward movement of the demand
curve from Pto a. (Expansion of demand)
I

When the price rises from , 10 per unit to , 11 per unit,

its quantity demanded falls from 50 units to 30 units. It
70 leads to upward movement of the demand curve from P
to R. (Contraction of demand)
that when price of the good fulls from f IO per unit
_,,,-.., d5 quantity demanded rises from 50 units to 70 units.
Coanction of demand (or decrease in quantity 8y
.......rd) i
k ai:rs to fall in demand due to rise in own price of the good, other
thing., remaining unchanged. It leads to upward movement along
the demand curve.
TABLE 2.10: Contraction of Demand

~at~•'"'E"''".,
Table 2.10 illustrates that if the price rises from flO per unit to
o.________.___..._____,.
30 SO 70 X
Quantity Demanded

f 11 per unit, its quantity demanded falls from 50 units to 30 units. Figure 2.15

Shifts in the Demand Curve.

Shifts in the Demand Curve
(Change in Demand)
Price of the good remaining constant, change in any other factor
(c.g, income of the consumers, prices of related goods, etc.) leads to
•ai& in the demand curve.
also called change in demand. It refers to rise or fall in
U to change in any factor, other than the own price of the
an demand is called 'increase in demand' while the
called dccrcasc in demand'.
1
Changes in any of the other things lead to a shift in the
demand curve.
When price of the good remaining constant at ? 10 per
unit, due to any other factor, say, if the income of a
consumer rises, then he buys more quantity of rt at the
same price from 50 unrts to 70 units It leads to a
rightward shift of the demand curve from OD to D1D
(Increase in Demand)
When price of the good rema n ng constant at t 1 pe
umt, due to any other factor say u favourable change
n taste and preference for rt a
quantity of t at the same e
unrts It lead to a of
from DO to OzO Deer
 I I 111 I I\)

70
llllillnlng constant at ,10 per unit, due to any other 6
more quantity of it at the same price from 50 units to 70

at the same price, due to change in any factor other th

die demand curve.

Deman d ( unit\)

30
• price of the good remaining constant at fl0 per unit, due to any other
Ill tute and preference for it, a consumer buys less quantity of it at the same Price,
ti!!!!!! - 3G units.

Dsr e innn1'.s of Dema nd (Shift factors)

1. Gang e in incom e of the consumer
The demand function is a relation between the consumer's demand for a good and its price when other things
given. Instead of studying the relation between the demand for a good and its price, we can also study
the
between the consumer's demand for the good and the income of the consumer. The quantity of a good that
consum er demands can increase or decrease with the rise in income depending on the nature
of the good.
The effect of change in income on demand for a good depends on whether it is a normal good
or an inferior
Norma l good is any good whose demand increases as the consumer's income increase
s, and decreases u
consumer's income decreases.
Thus, a consumer's demand for a normal good moves in the same directio n as the income
of the cons
Exampl es of normal goods include good quality food items like full cream milk, Basmati
rice, etc.
Effect ofincrease in consumer's income on demand for a nonnal good: Suppose with rise
in income a cons
buys more of X, then X is a normal good for that consumer. An increase in income of
the consumer inci
the disposable income, and the consumer is in a better position of spending more on the
good X. Therefore,
consum er may buy more quantity of the good at the same price. So the price-demand curve
of the normal
shifts to the right at the same price.
Figure 2.16 shows that as income increases, the demand for a normal good X increases
from OQ to OQi al
same price OP. It leads to a rightward shift in the demand curve of normal good X from
OD to 0 1D 1•
Effect ofdecreas e in consumer's income on demand fo r a nonnal good: Suppose with fall
in income a co
buys less of X, then X is a normal good for that consumer. A decrease in income of the
consumer decrci.KI
disposa ble income and thus, he can buy less quantity of the good X at the same price.
~o the pn
curve of the normal good shifts to the left at the same price.
agwc 2. I 7 shows that as income decreases, the demand for a normal good X decrease fr m OQ
price OP. It leads co a leftward shift in the demand curve of normal good X fr m DD t
 y
IC Llftward lhlft In ~ demand
curve Gf normal good xdue t.o
I
I • D
D decru1e In Income.

I
P
I
I'
p

D
0
Q Ql
X 0
Demand for DOOd X (1 normal 900d) Q2 Q X
Demand for good X (a normal good)

Figure 2.17
Iofenor good is any good whose de d fall '
income deaeases, the demand for it man
rises. s as the consumer's income increases, and as the consumers
Thus, a consumer's demand for an in£ · d • . . . · f h
Examples of inferior goods include lo enor goo moves
a1· c d · m the
1· opposite d1rect1on
• of the mcome o t e consumer.
0 . . w qu ity roo items 1ke toned milk, coarse cereals, etc.
Effett / mer.ase m consumer~ income on demand for an inferior good: Suppose with rise in income a
consumer buys less of Y. then good Y is inferior for that consumer. As the consumer's income rises, his ability to
buy normal goods increases. So he prefers to buy less quantity of the inferior good. Therefore, the price-demand
curve of the inferior good shifts to the left at the same price.
Figure 2.18 shows that as income increases, the demand for an inferior good Y decreases from OQ to OQi at
the same price OP. It leads to a leftward shift in the demand curve of inferior good Y from DD to D D .
1 1
Effect of decrease in consumer's income on demand for an inferior good: Suppose with fall in income a
consumer buys more of Y, then good Y is inferior for that consumer. As the consumer's income decreases, his
bility to buy normal goods decreases. So he buys more quantity of the inferior good. Therefore, the price-
emand curve of the inferior good shifts to the right at the same price.
igure 2.19 shows that as income decreases, the demand for an inferior good Y increases from OQ to OQi at
he same price OP. It leads to a rightward shift in the demand curve of inferior good Y from DD to D2D2.

y y
Leftward shift in price-demand Rightward shift in price-demand
curve of inferior good Y due to )
curve of inferior good Y due to
D increase in income. decrease in income.
► >
"C "C
0 0
0 0
DI DI
~
0 p 'o p
a, a,
IJ IJ
'C: 'i:
0. 0.

0 Q 0 Q Q2 X
QI X
Demand for good Y (an inferior good) Demand for good Y (an Inferior good)

1
Figure 2.19
 2. Change in prices of rel,ttcll goods
Related goods a~ eithc1 suh~titnte~ ot Lomplcmcnts.
Sub.st tut , , arc those goods which can he use,! i11 place of 011c another, for satisfaction of a
want, e.g., (i) Pepsi and Coca-Cola (ii) Tea and Coffee.
There is a diro.t relation bemccn d1.1ngc in prin· of a substitute good and change in demand for the . 1
p,.
Fffect of i,,nw,s, ;,, pritt of a substitute good: An increase in price of a substitute good makes the gi:en ~
rdatn-dv cheaper. A.s a result, demand for the given good increases at the same price, and hence demand l\lvcii
riglu."~· for ~ample, Pepsi .m~ C~-Cola are close substitutes '.or each o~er. Sup~ose the given good ~;rvc
prier ot its subsntute good Coe-a-Cola nses. So the consumer can shift to Pepsi because it has become rdativel ~~
Therefure, it leads to increase in demand for Pepsi at the same price. Demand curve of Pepsi shifts to the ~ nJ
Figure 2.20 shm\s thar as price of Coco-Cola rises, the demand for Pepsi increases from OQ to OQ.i a t
price OP. It leads to a rightward shift in the demand curve of Pepsi from DD to D 1D 1• t the
Fffict ofdecrease in price of a substitute good: A decrease in price of a substitute good makes the .
relath·dy costlier. ,I\:; a result, demand for the given good decreases at the same price, and hence d given
~
sh1·&s letrwards. For example, Pepsi and Coca-Cola are substitutes for each other. Suppose the given g00d.
ernand
.and pnce· ot· its substitute good Coca-Cola falls. So the consumer will substitute Coco-Cola for Pepsi. 1'hu
it_ leads to decrease in demand for Pepsi at the same price. Demand curve of Pepsi shifts to the left. et
Fi~re 2.21 shows that as price of Coco-Cola falls, the demand for Pepsi decreases from OQ to OQi at th
pnce OP. It leads co a leftward shift in the demand curve of Pepsi from DD to D 2D 2. e

y
y Leftward shift in
Rightward shift in
demand curve of Pepsi
D. demand curve of Pepsi
due to decrease in price
due to increase in price D of Coco-Cola, a
of Coco-Cola, a
'iii substitute good.
'iii substitute good.
Q. Q.
a, C1J
~ A.
....0 "'0"' p
p
a, C1J
u u
'i: 'i':
~ A.
D1
D

0 0 Q2 Q X
Q Qt X
Demand for Pepsi Demand for Pepsi

Figure 2.20 Figur~

.
2.21
.. ...
.-
 Llftward lhlft In Nffllnd
cuM " . Cold-drink
llnrA l'IIWI NPOl1I dalm
that r.ontUmptlon d cold
drlnkl has harmful lffec:t
on human health.

0 Q2 Q X
~ .....- - -..x
o- - - - -Q Demand

Demand

Markt De d
Marht ckmao<I is the sum of quantity demanded which all the consumers are willing to buy at a
•
pnunwket
The a periodfurofatime.
daringdemand good at each price can be derived by adding up the demands of all the consUtn
char price. Suppose there are only rwo consumers in the market for a good. Suppose at price ~ per un·
demand by consumer A is JO units and that by consumer B is I 5 units. Then, the market demand for th:
at price f3 per unit is 10 + 15 = 25 units. Similarly, at price ~4 per unit, if the demand by consume
8 units and thar by consumer B is I 2 units, the market demand of the good at ~4 is 8 + I 2 = 20 units.
TABLE 2.13: Market Demand Schedule
Market Demand
Individual Demands
Priu: (A+ B)

25 (= 10 + 15)

12 20 (= 8 + 12)

Marker demand curve is derived by the horizontal summation of individual demand curves in the market

yt>. y
y D
d d

B4 ······~ B4 ············~
·c ·c
A. 3 A. 3

dA
~d
01 ,... 25
0 12 15 0 20
8 10 X X
Demand by B Market demand
Demand by A

Derivation of the Market Demand Curve

,nd dd. are the md1v1dual demand curves of the onl tw •
o consumers
tal summat on of the ind v dua demanYd curves A a d B n the
dd and d
 ,.._.,e,#e
itAilllli'li.latttlldW'1dt. (Amvenely,
. . . . . pod lealirt., a rightward

change in tastes and preferences for the good will

IMlillfi',,. ~ - So the market demand curve will shift to the

--• ht taste, &sh.ion, etc. will result in decrease in market demand.

DJl;BJet demand curve at the same price.
IOll!le is equally distributed among the people, then market demand for
MYet, if income distribution is uneven, i.e., people are either very rich o
B11Cmand will be low.
1':" du11;11Hl cunc Caw.es of leftward ,hift of demand curve
..,.,.tutr goods • Fall in the price of substitute goods
mmpkmeotary goods • Rise in the price of complementary goods
al its buym (in case of a normal good) • Fall in income of its buyers (in case of a normal good
of its buyers (in case of an inferior good) • Rise in income of its buyers (in case of an inferior go
in tast.e etc. for the good • Unfavourable change in taste etc. for the good
...,,.,be, of its buyers • Decrease in the number of its buyers

w••• dme an two mDIWllas A and B and the demand cuna of the two CODIIUllal

lll!INll•t•/• tla 10. dle awoaw A clcmands Oanit of the good, wl .....,_ •
••••---n I • ••• 9 aait of the good.
 ;;a
is
--•iaihanl5.
(NCERT) II• II

~ - - • S. a pod and they have identical demand functions:

,_...te.tllanorequalto 10/3
....I I than 10/3
••--f-.actioa. (NCERT) CI mark)
10
20(10-3p); when p ~ -
• - - • .Madre,- demand function: 3
10
O; whenp>-
3

it yourself 9

am 10 consumers for a good and they have identical demand functions:

- 2p lor any price less than or equal to 5
• at any price greater than 5
~ drr demand function. (NCERT) (1 mark)

Price Elasticity of Demand

The demand for a good moves in the opposite direction of its price. But the impact of the price change is always
not the same. Sometimes, the demand for a good changes considerably even for small price changes, e.g., milk,
electricity, mobile phones, expensive clothes, etc. On the oth er hand, there are some goods for which the demand
is not much affected by price changes, e.g., medicines, salt, textbooks, newspapers, toothpaste, match-box, et
Pdce elastidty of demand is a measure of the degree of responsiveness of demand for a good to change ■
lllpice.
tlllle elasticity of demand for a good is defined as the percentage change in demand for the good du t
tagc change in its price. Price elasticity of demand for a good is calculated as follow .

percentage change in quantity demanded

percentage change m pn e
 I Ill lfi•j llf)i/

4p P PGd . . . la the quandty dcmanclcd is, Aq • q1 - q.

1\e pero:naiat change In price ~ x l 00
p
1bc pcruntage change in quantity demanded = dq x 100
q
dq xlQ0
Thus, price dasticity of demand, c
0
q = dq x £.
dp xlO0 dp q
p
£um.pie: If the price of a commodity falls from f28 per unit to f23 per unit and its quantity demanded rises
from 50 units to 100 units, then price elasticity of demand will be calculated as follows:

~
Mi&H~•a,,_;~,;. c;:;,;;a~
_ _ _ _ Ongmal = 50 ~ .
Ongmal = 28
New = 23 New = 100
eo change in quantity demanded (~q) x original price (p) = 50 x 28 = _ _
56
change in price (~p) original quantity (q) -5 50
(minus sign is ignored as it only represents the inverse relation between price and quantity demanded.)
e0 = 5.6 (e0 > I, Elastic demand)

Top Tip
The measure of price elasticity of demand has a minus sign because there is inverse relation between price and quantity
demanded of a good, other factors remaining the same. However, for simplicity, we will ignore the minus sign.
------------ - ---- --

Degrees/Kinds of Price Elasticity of Demand 8Y

'i:
The more responsive the demand for a good is to its price, the 0..
D
higher is the price elasticity of demand for the good.
I. Inelastic demand
When the percentage change in demand for a good is less than
the percentage change in price, then eo < 1 and the demand for
the good is said to be inelastic. Therefore, demand curve is steeper.
h mple: The demand for a consumer for a good declines by 10% D
when price increases from ~5 to ~6 per unit. Here, percentage 0 q q1 X
change in demand for the good = -10%, and percentage change Quantity Demanded
. 6-5
m pnce = - x 100 = 20°0
) Figure 2.27 Inelastic Demand Curve(~ < 1)
 q ql X
0 quantltY l)efflllnded

Figure 2. 28 Elastic oernand curve ( e. >

lt..i,iq,,escnts the inverse relation between price and quantity demanded.)

.,__, d,mand fur the good is relativdy more price-elastic as 1o/o change in price ca

••rychnanded of Apples.
All •rzrnd for a good is equal to the percentage change in price then
., __,, elastic. '
ill in price of a good, its demand 5Y
·c
A.
D
--10%
..,. uawamoded
20 p
100= x = IO%
200
l!l!"'l•••in quantity demanded
P1
c:haogc in price D

0 q q

ts the inverse ·
relanon
Figure 2.29 Unitary Elastic Det'Mf'IO Cur,·
" ' • .-1}.
 0 q X
Ap = 9 - 10 =-1; Quantity Demanded
and change in quantity

Aq p O 10
e0 =-x- =-x-=O
Ap q 1 18

...« ae willing to buy any quantity of it

8Y
I
fdde, It Is called perfectly elastic demand,

~ ·r.ontal (i.e., parallel to X-axis).

p i---------D

Demand (kg)
II

0 X
I ylll pricc, Ap=9- 9 = 0
1111111111_,. 1 • 100 and change in quantity
Figure 2.31 Perfectly El.1c;t1c Dt•m.11',
Curve (e ~
• • I I I . Ill
 i,.naad for Luxuries d
• ili of dose substitutes of the. goo
ty . f variety of pulses nses, consumers
--■IQH; if the price . pri
b • ot aSo demand for sueh a goo d 1s
~P -
which is a dose su sntu e. '

• • .,.;lal,le, more is the choke before the consumer and so lllO

,al,mwtts are not available, e.g. salt, water etc., the demand is price-inelasti

oa die good/Own price of the good

,peat on a good, higher is its price elasticity of demand.
of a high priced good has substantial effect on the budget of the consume
good affects elasticity of demand.
,am good (e.g. expensive clothes, mobile phones, etc.) is price-ela<;tic, eD >
of ahigh priced good has substantial effect on the budget of the consumer.
pdad good (e.g. salt, toothpaste, match box, newspapers, etc.) is price-inclast'
-1 proportion of a consumer's income is spent on it.

Daaanc1ror Iow priced goods

 4. 111De period of ,_po_
Loapr the tune Pldocl of
• Habits change but n " 1P •-. • • .1......... ~ ..L
. . . orrn.ny ""- ...._ 1111 t1...c1.
and •~ pncc nscs, It fs Ve -•~r 1onpr p rlod, Wh
good immediately. Th ry diffl ult for th n I on um r I habltu t d to con urning a p,c,d
• However, over a Ion
· us, de,n d on
. an Is price lnclaatt
um r to redu
or to g1 ve up thr conaumpdon of the
demand is relativ I ger tune period the • co 1 In the short period.
e y rno"' pr, 1 • consumer may b bl d fy
substitutes, if price of th . ce e astic, co > 1 an the I e a. ~ to mo I or change habns. Thus,
e giVen good rises ong run as It 18 comparatively easier to shift to other
5. Income IeveI o f consumers ·
• Price elasticity of demand fu
because rich people r any commodity is ge II I
!
• On the ocher h d ar~ not influenced much b hnera ow (e~ < I) for higher income level consumers
. . an • price elasticity O f d Y c ange in the pnce of goods.
1s high (e0 > 1) b emand for m d .
ecause poor people are hi hi ost goo s m cas~ of lower income group of consumers
6. Number of uses of a commodi g Y affected by change m the price of goods.
If a commodity has multiple al ty
1 . F 1 ternate uses (e g I ..
e aSCJC. or examp e, milk can be £ .· ·• e ectncity, milk, etc.), then its demand will be highly price-
use w
ill b . d
e restncte only to essenrialor prepanng
.
curd h d
' cream, g ee an sweets. Bue if its prices increases, its
purposes lake feeding the children and making tea.

Demand-Quantity of the commodity that

period of time, other factors remainf ha consumer Is wnllng to buy and is able to afford at a given prrce during a
ngunc anged
Market demand-The sum of quantity d · .
period of time. ema nded which all the consumers are willing to buy at a given price during a
Demand schedule-A tabular presentation h . . ..
able to buy at different prices duri·n . ds owing th e different quantities of a good that a consumer is willing and
g a perio of time.
Demand curve-A graphical presentati f · •·
buy at different prices during •· . d ofn_o various quantities of a commodity that a consumer is willing and able to
a perio o time, other factors remaining unchanged.
Slope of the demand curve-It measur th h'
es e rate at w 1ch demand changes due to change in its price, i.e. Dq/Dp.
law of Demand-It states that other th' · · unchanged,
. . ings remaining there ·1s a negative
· (or inverse)
relation between
price of a commodity and its quantity demanded,.
Income effect-When price of a good falls, the purchasing power (real income) of the consumer increases as he will be
able to purchase more quantity of the good with the same money income. This phenomenon is called income effect.
Substitution effect-When price of good falls, it becomes relatively cheaper than its substitutes. As a result, demand
for the given good rises. This phenomenon is called substitution effect.
Change in quantity demanded-Increase (decrease) in quantity demanded due to fall (rise) in own price of the good,
other things remaining unchanged.
Expansion of demand-Increase in quantity demanded due to a fall in own price of the good, other things remaining
unchanged.
Contraction of demand-Decrease in quantity demanded due to a rise in own price of the good, other things remaining
unchanged.
Change in demand-Rise/fall in quantity demanded due to change in any factor, other than the own price of the good.
increase in demand-Rise in quantity demanded due to change in any factor, other than the own price of the good.
Decrease in demand-Fall in quantity demanded due to change in any factor, other than the own price of the good.
Movement along the demand curve-Diagrammatically, a change in quantity demanded implies a movement along the
mand curve A fall (rise) in the price of the good leads to downward (upward) movement along the demand curve.
all In the demand curve-Diagrammatically, a change in demand implies a shift in the demand curve. Increase
11orn:1nd e ds to a rightward (leftward) shift in the demand curve.
ood whos d mand increases as the consumer's income increases and vice--vena
 coeftld•11 of price -...IR;J' rl
-0.11,-IJl.-a..,1
Solutioai --0.53, -0.80, -0,87, 3.1 (mJnua alp onlr
demanded).
 ~

ciU in its price. Its price elasticity of demand is (-)0.8. (3.-ks)

Calculate

\~ .. ~ ~ ~ "ft,.

,..d,rf
D q,,aatitywill
6,u guoilbels clm,anded wh Th
animy elastic. •~"?demanded
. of this good at a price of '{10 is 80 units, How
s.,h,lioD' en the pnce rues by 20'll,! Calculate. (} m,rlu)

Demand (units)
Prkc (<)
80

10 + 20% = 12

Price elasticity of demand, e0 = -1

· l · · f deman,
nceeast1c1tyo d e =~q
- xP - x10-
- - l =~q
0 ~p q 2 80
P
⇒ ~q = -16
Therefore, new quantity demanded= 80 - 16 = 64 units.
--------
Top Tip
In Numerical 14, new quantity demanded can also be calculated as follows:
Suppose new quantity demanded be x units.
~q p x-80 10
e =-x- ⇒ - 1 = - x -
0 ~p q 2 80

or, x-80=-16 ⇒ x=-16+80=64

New quantity demanded = 64 units

Do it yourself 14
Market demand for a good a1 ~ per unit is I 000 umis. The price rises. As a result, ,he m1rkt1 dem nd
25%. Find 1he ne\, price if demand is unirar)' das1k. [Ans, f1! (} .....
 ......
erado Jpn

ded -IO
-----=-=-2
5

• • .••••
Demand ( unit<.;)

120
 l>etMm price and quantity demanded.)

&om 120 units to 150 units. Calculate its price elasticity of

(3 marks)

W- pdcie of good decreases to one-fourth of the original price, its demand increases three times more. What is
i1I pria elasticity of demand? Calculate. , (.l marks)

Solution: Let original price be "p' per unit. Therefore, new price= .£.
4
Let original demand be 'q' units. Therefore, new demand = q + 3q = 4q
p -3p
--p -
4 4
Percentage change in price = - - x 100 =- - x 100 =-75
p p
. 4q-q 3q
Percentage change m demand = - - x 100 =- x 100 =300
q q
percentage change in demand 300 =_
4
Price elasticity of demand, eo percentage change in price - 75

Since e0 = 4 > 1, therefore, demand for the good is elastic.

Do it yourself 18

Aeomumer buys 8 kg of potatoes at a price of fl per kg. Price elasticity of demand is (-) 1. How much quantity
wll be demanded if the price rises to f8 per kg? [Ans. 6.85 kg appx.] (3 marks)
 new demand is 50 + 10 = 60 units

r
its price falls by f 1 per unit, its quantity demanded t
~ - was 30 units, what was the price at this demand? (3

~
a, 25'6 .,_ daae i, no effect on demand of the good due to this price rise. Cal
Suppo,e demand for the good remains unchanged at 'q' units .
~I
.Pe«enrage change in demand = q - q x I00 = ~ x I00 = 0
q q

percentage change in demand O

eo ----......;:;.---.::;....____ =- =0
percentage change in price 25
Therefore, demand for the good is perfectly inelastic.

odr self 20

1 ciaq of demaod for a commodity when its price r

20 urua.
 •••pr1a1ofGc,odX6oa

10 lOO 100 0%
J>erc)en 10
IIF change in quandty demanded ( ) 40%
Pric:c elasoaty of demand (co) 40% 2
. . . . 20%
CO -
(manus CO> 1sI,ignored
sign as it on1Yrepresents the inverse
Elastic demand) · re1auon
. between price and quantity demanded.)
2(

lilillr -~--1..•
1,c a clcmaod .,__......
D(p) -- 10 .- 3p· w w.t IS th• elasttaty
Ca ·tD
. fr 4:lae - - cane
r..-...JalGm,-. "nnL-. • · · of demand at price 5/31 Is the claoand cune
(NCEim (4mark•l

Soluuoa: Demand curve D(p) = q = I0-3p

Price elasticity of demand, e0 = ~q x £.
~p q

~q = - (Since for a demand curve q = a - bp, slope is -b, which measures

Slope of the demand curve, ,1.p 5

the rate of change in demand due to change in price, i.e., Ll.q.

~p

5 5
At p == - , q == 10 - 3 x - == 10 - 5 == 5
3 3
Substituting these values, we get e0 = - 3 x (5/3)/5 = - I
No, the demand curve is not likely to be a ,ectangular hyperbola but a straight line downward sloping

demand curve since the demand curve equation is a linear demand curve equation.

(3 marks)
Do it yourself 22 curve D(p) = JO - 5p- What is the elasticity of demand at price 3/51
the dcJnand