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Concept of Demand
Demand
Desire backed
by purchasing
power n
willingness to
part with it at
given price and
time in the
market.
Axiom of utility
maximization
Determinants of Demand
20 A
Price
B
10
0
2 8
Quantity Demanded
Cause for downward sloping
demand curve
Diminishing Marginal utility
New consumer
Substitution effect
Factors that Influence Change in
Demand
A change in the level of consumer
income.
A change in tastes or preferences of
consumers.
A change in the prices of related
goods.
A change in buyer’s expectations
about future prices.
A change in population: size and age
composition.
Shift in Demand Curve
Increase in Demand Extension in Demand
D2
D1
Price
Price
D1
A A
10 10
5 B
2 8 2 8
Quantity Demanded
Shift in Demand Curve
Decrease in Demand Contraction in Demand
D1
D1
Price
Price
D2
A B
10 10
5 A
2 8 2 8
Quantity Demanded
Supply
B
20
Price
A
10
0
2 8
Quantity Supplied
Factors influencing supply
Price
A B
10 10 B
5 A
2 8
Quantity Supplied 2 8
EQUILIBRIUM PRICE
P1
E
Price
P2
D
Q
Quantity
Elasticity of Demand
Availability of substitutes
Nature of need the commodity
satisfies
Time period
No. of uses of commodity
Proportion of income spent on
commodity
PRICE ELASTICITY
E= infinity
Ep>1
PRICE
Ep=1
Ep<1
E=0
QUANTIY
ELASTICITY
Market period
Long run
Secular period
MS LS
P4
SS
P3
P2
P1 E
D2
D1