V An economic principle that describes a

consumer¶s desire and willingness to pay a price

for a specific good or service.

V The term demand signifies the ability or the

willingness to buy a particular commodity at a
given point of time.
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V According to Benham, ³The demand for anything,
at a given price, is the amount of it, which will be
bought per unit of time, at that price.´

V According to Bobber, ³By demand we mean the

various quantities of a given commodity or service
which consumers would buy in one market in a
given period of time at various prices.´

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DESIRE TO BUY A
COMMODITY

NEED TO
POSSESS A
COMMODITY CONSTITUE
DEMAND
WILLINGNESS TO
S
PURCHASE THE
COMMODITY

ABILITY TO
PURCHASE THE
COMMODITY
BVIMSR 09-11
 v Quantity demanded of
a commodity

v Price at which it is
DEMAND FOR A demanded
COMMODITY
SHOULD INDICATE
v Time period over which
it is demanded

v The market area in

which it is demanded
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V ¢rice of the commodity (¢

V Income of the Consumer (Y

V Consumer¶s taste and preference (T

V ¢rice of related commodities (¢r

V Consumer E pectation (e pected change in price

V istribution of income
V Size and composition of population
V Other Factors e.g., natural calamities
Qdx = f (Px, Pr ,Y , T, D)
BVIMSR 09-11
V emand Schedule is a tabular presentation showing
different quantities of a commodity that would be
demanded at different prices.

V The demand schedule shows the quantity of goods that

a consumer would be willing and able to buy at specific
prices under the e isting circumstances.

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 Types of emand Schedules

Individual emand Schedule Market emand Schedule

Shows various quantities of a Shows the various commodities that

commodity that would be would be purchased at different
purchased at different prices by prices by all the buyers of that
a householdu commodity. It is composed of the
demand schedules of all the
individuals purchasing that
commodity.
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V The demand curve is the graph depicting the relationship
between the price of a certain commodity, and the amount
of it that consumers are willing and able to purchase at
that given price.

V It is a graphic representation of a demand schedule. The

demand curve for all consumers together follows from the
demand curve of every individual consumer i.e. the
individual demands at each price are added together.

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Demand Schedule

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 ã ANTITIES EMANE BY
IN STRY EMAN = INIVI AL CONS MERS AT
IFFERENT ¢RICES

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BVIMSR 09-11
Movement along emand Curve Vs. Shift in emand Curve:

V Change in quantity demanded ~ hen quantity demanded changes

(rise or fall
as a result of change in price alone, other factors remaining
the same.
¬ Contraction/fall in quantity demanded
¬ E tension/Rise in quantity demanded

The change is depicted/represented by the movement up or down on

a given demand curve.
curve. This does not require drawing a new demand
curve..
curve

BVIMSR 09-11
V Change in demand ~ hen the amount purchased of a commodity
rises or falls because of the change in factors other than the price of
the commodity.
¬ Increase in demands
¬ ecrease in demands

This requires drawing altogether a new demand curve.

curve. Two extremes
of demand are vertical & horizontal demand curves, former
represents perfectly inelastic demand and latter demand curve which
shows perfectly elastic demand
demand..

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V Income
V Related goods
V Tastes
V Number of consumers
V E pectations of future prices

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V Elasticity is a measure of the responsiveness
of one variable to another.

V The greater the elasticity, the greater the

responsiveness.

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V ¢rice elasticity of demand is a measure of how much the quantity
demanded of a good responds to a change in the price of that
good.
V It measures the sensitivity of the quantity demanded to changes
in the price.
V The percentage change in the quantity demanded caused by a
one percent change in the price.

BVIMSR 09-11
V According to the law of demand, whenever the price rises, the
quantity demanded falls. Thus the price elasticity of demand
is always negative.
V Because it is always negative, economists usually state the
value without the sign, i.e. to give it meaning.
V hen price elasticity is between µzero¶ and µ-1¶ we say
demand is Ú
Ú.
V hen price elasticity is between µ-1¶ and µ- infinity¶, we say
demand is
Ú.
V hen price elasticity is µ-1¶, we say demand is › Ú
Ú.

BVIMSR 09-11
emand for a product can be said to be very
inelastic if consumers will pay almost any price for
the product, and very elastic if consumers will only
pay a certain price, or a narrow range of prices, for
the product.

BVIMSR 09-11
The price elasticity of demand is computed as the percentage
change in the quantity demanded divided by the percentage change
in price.

V The price elasticity of demand,
, is :-

¢E
= ¢ercentage Change in ãty emanded

¢ercentage Change in ¢rice

Eg: If the quantity of toys sold falls by 3% when the price is raised by 1%, then the
price elasticity of demand is 3/1 = 3.
BVIMSR 09-11
 `alue Meaning
Ed = 0 Perfectly inelastic

-1 > E d > 0 Relatively inelastic

E d = -1 Unit elastic

’> E d > -1 Relatively elastic

Ed = ’ Perfectly elastic

BVIMSR 09-11
V Perfectly Elastic Demand Curve
¬ The demand curve is horizontal, any change in price can and
will cause consumers to change their consumption.

V Perfectly Inelastic Demand Curve

¬ The demand curve is vertical, the quantity demanded is totally
unresponsive to the price. Changes in price have no effect on
consumer demand.

Because the price elasticity of demand measures how

much quantity demanded responds to the price, it is
closely related to the slope of the demand curve

BVIMSR 09-11
BVIMSR 09-11
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BVIMSR 09-11
BVIMSR 09-11
E ample: If the price of an ice cream cone increases from
$2.00 to $2.20 and the amount you buy falls from 10 to 8
cones, then your elasticity of demand would be calculated as
:

BVIMSR 09-11
The midpoint formula is preferable when calculating the
price elasticity of demand because it gives the same
answer regardless of the direction of the change.

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E ample: If the price of an ice cream cone increases from
$2.00 to $2.20 and the amount you buy falls from 10 to 8
cones, then your elasticity of demand using the midpoint
formula, would be calculated as :

BVIMSR 09-11
V Availability of substitutes
V ¢ostponement of consumption
V ¢roportion of e penditure (needles: inelastic; TV: elastic

V Nature of the commodity (necessity vs. lu ury

V ifferent uses of the commodity (paper vs. ink

V Time period (elastic in the long term

V oint demand

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V Total revenue is the amount paid by buyers and
received by sellers of a good.

V Computed as the price of the good times the

quantity sold

TR = P x Q

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V TR increases as price is increased if demand is
inelastic: if e 1 and ¢ then TR 

V TR decreases as price is increased if demand is

elastic: if e 1 and ¢ then TR Ļ

V TR does not change as price is increased if

demand is unit-elastic: if e =1 and ¢ then TR
does not change

BVIMSR 09-11
Price Quantity Revenue
$1000 200 $200,000
$900 400 $360,000
$800 600 $480,000
$700 800 $560,000
$600 1000 $600,000
$500 1200 $600,000
$400 1400 $560,000
$300 1600 $480,000
$200 1800 $360,000
$100 2000 $200,000
BVIMSR 09-11
V ¢rice elasticity of demand measures how much the
quantity demanded responds to changes in the price.
V ¢rice elasticity of demand is calculated as the percentage
change in quantity demanded divided by the percentage
change in price.
V If a demand curve is elastic, total revenue falls when the
price rises.
V If it is inelastic, total revenue rises as the price rises.

BVIMSR 09-11
BVIMSR 09-11
V Abhijeet V. V Chirag ¢.
V Amit G. V La man M.
V Amit K. V ¢riyanka K.
V Anil K. V Vinitha N.
V Babita S. V Zeet G.

Group # 3
BVIMSR 09-11