THEORY OF DEMAND,

LAW OF DEMAND ,
ASSUMPTIONS & LIMITATIONS OF LAW OF DEMAND,
ELASTICITY OF DEMAND & ITS TYPES.
THEORY OF DEMAND:
 Meaning of Demand:
Demand means desire of something, but according
to the economics demand refers to effective demand i-e the amount buyers
are willing to purchase at a given price over a period of time.

 DEMAND is :
Demand = desire + ability to purchase + willing to pay

 DEFINATION OF DEMAND :
The demand for a product refers to the amount of it
which will be bought per unit of time at particular price over an specific period
of time.
 SCHEDULE OF DEMAND:
Y-axis
D

PRICE (Rs) QUANTITY DEMANDED 5

5 100 UNITS 4
4 200 UNITS

price
3
3 300 UNITS
2 400 UNITS 2

1 500 UNITS
1
D

It is downward falling curve indicating that 100 200 300 400 500 X-axis
relationship between the price of a product and
Demand
the quantity demanded a negative or inverse
LAW OF DEMAND:
 This law state that:
“ when we increase the price of a product the quantity demanded will decrease,
when we decrease the price of product quantity demanded will increase.”

 EXPLANATION:
Consumers buy more of a good when its price decreases and they buy less
when its price increases.

When Price Demand When price Demand

goes up goes down goes down goes up
LAW OF DEMAND:

 As price falls…
…..Quantity Demanded Rises.

 As price Rises…
…... Quantity Demanded Falls.

Demand

Price
ASSUMPTIONS OF LAW OF DEMAND:

 The law of demand is also based on some assumptions.

 Income remains constant.

 No change in tastes, fashion and habits.

 Price of related goods remains unchanged or same.

 No future expectations.
LIMITATIONS OF LAW OF DEMAND:

 Very high price goods.

 Very low priced goods.

 Ignorance of the consumers.

 Necessities.
ELASTICITY OF DEMAND:
 Rate of change of quantity demanded due to change in price.
CAUSES OF ELASTIC OF DEMAND:

Some causes of Elasticity demand are given below:

 PRICE ELASTIC DEMAND:

Change in quantity demanded due to change in price.

 INCOME ELASTIC DEMAND:

Change in quantity demanded due to change in income.

 CROSS ELASTIC DEMAND:

Change in quantity demanded of “x” product due to
change in price of “y”.
TYPES OF ELASTICITY OF DEMAND:

 PERFECT ELASTIC DEMAND

 PERFECT INELASTIC DEMAND

 RELATIVE ELASTIC DEMAND

 RELATIVE INELASTIC DEMAND

 UNIT ELASTIC DEMAND

PERFECT ELASTIC DEMAND:

 Minor change in price leads the quantity demanded almost infinity “ ∞ “ or

zero.

∞
price
105
104.9

0
Demand
PERFECT INELASTIC DEMAND:
 Quantity demanded never increase or decrease either price is high or low.

50
Price

30

10

Demand 2kg
RELATIVE ELASTIC DEMAND:

 Minor change in price brings major change in quantity demanded.

10

price 9

100 140
Demand e>1
RELATIVE INELASTIC DEMAND:

 Major change in price brings minor change in quantity demanded.

50

Price

20

100 110

Demand
UNIT ELASTIC DEMAND:

 Proportional change in price brings proportional change in quantity

demanded.

10

Price 5

50 100
e=1
Demand