Professional Documents
Culture Documents
Business Economics Presentation ON Law of Demand & Elasticity of Demand
Business Economics Presentation ON Law of Demand & Elasticity of Demand
ON
LAW OF DEMAND & ELASTICITY OF
DEMAND
Presented By :
Anshul Sharma
Akshat Sharma
Jyoti Karel
Rituraj Saikia
Tushar Bhati
What is Demand ?
• In Economics , demand refers to effective
demand.
• Demand is the quantity of a commodity that a
consumer is willing and able to buy, at each
possible price during a given period of time.
• Demand for a commodity may be either with
respect to an individual or to the entire
market.
Law Of Demand
• In our daily life, it is normally observed that
decrease in price of a commodity leads to
increase in its demand.
• Such behaviour of consumers has been
formulated as 'Law of Demand'.
• Law of demand states the inverse relationship
between price and quantity demanded, keeping
other factors constant (ceteris paribus). This law
is also known as the First Law of Purchase.
Law of Demand
Demand Schedule Demand Curve
Price (in Quantity Demanded (in 6
Rs.) units) D
5
5 1 5
4 2 4
4
Substitution Effect
• For example, if price of given commodity (say, Pepsi) falls, with no change in
price of its substitute (say, Coke), then Pepsi will become relatively cheaper
and will be substituted for coke, i.e. demand for Pepsi will rise .
Income Effect
• For example, suppose Isha buys 4 chocolates @10 each with her pocket
money of 40. If price of chocolate falls to 8 each, then with the same money
income, Isha can buy 5 chocolates due to an increase in her real income.
• Price Effect is the combined effect of Income Effect and Substitution Effect.
Symbolically: Price Effect = Income Effect + Substitution Effect.
Exceptions to Law of Demand
Giffen Goods
• For example, in our country, it is often seen that when price of coarse cereals like jowar
and bajra falls, the consumers have a tendency to spend less on them and shift over to
superior cereals like wheat and rice
Fear of Shortage
• For example, during emergencies like war, famines, etc., consumers demand goods even
at higher prices due to fear of shortage and general insecurity.
Necessities of Life
• Another exception occurs in the use of such commodities, which become necessities of life
due to their constant use. For example commodities like rice, wheat, salt, medicines, etc. are
purchased even if their prices increase.
Elasticity- The concept
• If prices rises by 10%- what happens to
demand?
• We know demand will fall.
• By more than 10% ?
• By less than 10% ?
• Elasticity measures the extent to which
demand will change
ELASTICITY OF DEMAND
INTRODUCTION
• The law of demand gives us the direction of change in
the quantity demanded as a result of a change in
price, but it does not specify the magnitude, amount
or the extent by which the quantity demanded
changes with a change in its price. In brief, it does not
indicate, 'how much change in the quantity demanded
due to change in price. Therefore, the concept of
'Elasticity of Demand' was developed to measure the
magnitude of change in the quantity demanded.
ELASTICITY OF DEMAND
• Elasticity of demand refers to the percentage
change in demand for a commodity with
respect to percentage change in any of the
factors affecting demand for that commodity.