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Dx(in Units)
9.5
2.
9.0
3.
8.5
4.
8.0
5.
7.5
Types of Demand
Business cyclerefers to fluctuations in
economic output in a country and has four
phases - recession, depression, recovery,
and expansion.
In the company sense, business cycle
referstostages in thelifespan of asingle
company. Phases in a company's life may
include: birth (or start up), growth,
maturity, decline, and demise.
Types of Demand
Different types of Demand are:
Direct Demand: Refers to demand for goods
meant for final consumption. Example demand
for consumers goods like food items, garments
and houses. Direct demand is not contingent
upon the demand for other products.
Derived Demand: Refers to demand for goods
which are needed for further production.
Example: Industrial raw materials, machine
tools and equipments.
Types of Demand
Domestic Demand: Refers to demand
for goods meant for domestic
purposes.
Industrial demand: Refers to demand
for goods meant for industrial
purposes.
Example: Refrigerator and coal has
both domestic and industrial demand.
Types of Demand
Autonomous Demand: Refers to demand
not derived or induced. All direct demands
may be loosely called autonomous.
Induced demand: Refers to demand for a
product that is tied to the purchase of
some parent product.
Example: Demand for cement is induced by
the demand for housing. The demand for
sugar may be induced by the purchase of
tea.
Types of Demand
Perishable Demand: Refers to
demand for goods which are nondurable or can be used only once.
Example bread or cement
Durable Demand: Refers to demand
for a product that can be used
repeatedly. For example, shirt, car or
a machine which can be used
repeatedly.
Types of Demand
Individual and Market Demand:
Refers to demand for goods from the
individuals and by the aggregate of
individuals (i.e., the market).
Price of
X (Rs.)
Market
(Total)
10
10
16
Law of Demand
Law of Demand: According to the law of
demand, there is inverse relationship
between price and quantity demanded, other
things remaining the same.
Consider
Price (Rs.)
Quantity
the
Demand Schedule
Demande
d
12
10
10
20
30
40
50
60
Change in fashion:
A change in fashion and tastes affects the market for a
commodity. When a broad toe shoe replaces a narrow toe,
no amount of reduction in the price of the latter is
sufficient to clear the stocks.
Price Elasticity
Price
elasticity of demand is the measure of degree of
responsiveness of the quantity demanded with respect to a
change in the own price of the commodity.
It indicates the extent to which demand changes when price of
the commodity changes.
It is given as:
Where is the incremental change in Q and P.
It can also be written as:
Where, is the marginal demand and is the average demand
Price Elasticity
Let
Price Elasticity
Formula:
= -0.5
When P = 10, Q = 10-0.5(10) = 5
Therefore,
Interpretation of elasticity
coefficient
e = -2 indicates that a 1% change in
the price would lead to 2% change in
quantity demanded.
e= 1 indicates that a 1% change in the
price would lead to 1% change in
quantity demanded.
E =-0.08 indicates that a 1% change in
the price would lead to less than 1%
(0.8%)change in quantity demanded.
Interpretation of elasticity
coefficient
Consider the demand curve in a
hyperbolic form.
or
Where, a and n are constants.
Estimate the price elasticity of
demand.
Interpretation of elasticity
coefficient
Numerical Question
Consider the relationship between quantity demanded
for electric hair-dryer and the price of it.
Q = 30,000 - 1,000P
Where, Q is the sales of the hair-dryer and P is its
price.
How many hair-dryers could be sold at Rs.22.50 each?
What price should be charged to sell 12,000 hairdryers?
At what price would hair-dryer sales be zero
Calculate point price elasticity of demand at a price of
Rs.20.
Nature of the commodity: The demand for necessities is inelastic. But the demand for
luxuries is elastic
Extent of use: A commodity having a variety of uses has a comparatively elastic demand.
Range of substitutes: The commodity which has more number of substitutes has relatively
elastic demand.
Income level: People with high incomes are less affected by price changes than people with
low incomes.
Proportion of income spent on the commodity: When a small part of income is spent on the
commodity, the demand is inelastic
Urgency of demand / postponement of purchase: The demand for certain commodities
(such as medicines) are highly inelastic because their purchase cannot be postponed
Durability of a commodity: If the commodity is durable then is used it for a long period.
Therefore elasticity of demand is high.
Purchase frequency of a product/ recurrence of demand: The demand for frequently
purchased goods are highly elastic than rarely purchased goods.
Time: In the short run demand will be less elastic but in the long run the demand for
commodities are more elastic.