Demand Analysis

 Elasticity of Demand
- Relatively elastic demand – where a change in
price leads to more than proportionate change
in demand.
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 Demand Analysis
 Relatively inelastic demand
- where a change in price leads to less than
proportionate increase in demand.
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 Unity elastic
- where a given proportionate change in price
leads to proportionate change in demand.
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 Perfectly elastic demand
- where a small change in price leads to big or
infinite change in demand
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 Perfectly Inelastic
- where a change in price causes no change in
quantity demanded.
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 Factors determining the Elasticity of demand.
i) Nature of the commodity – The demand for
necessities is generally inelastic because the
consumption of necessary article does not
change significantly with the change in the
price.
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ii) Range of substitutes
- A commodity having number of substitutes
has relatively elastic demand because if its
price rises its consumption can be curtailed in
favour of its substitutes.
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iii) Income level
People with high income are less affected
than the people with low income.
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 iv) Proportion of income spent on the
commodity.
When a person spends only a small part of his
income on the commodity price changes does
not affect his demand for the commodity.
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 Durability of the commodity
- In case the commodity is durable or
repairable, if the price rises considerably, one
is likely to use the commodity for a longer
period.
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 Demand Shifts.
In economics a shift in demand means an
increase in demand or decrease in demand at a
given price level.
- An increase in demand means that at the same
series of prices as before,increased quantities
are demanded.
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 Factors that causes shifts in the demand
- Change in income
- Change in tastes,preferences,fashion
- change in population