Demand And Elasticity Of Demand

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CHAPTER 3: Demand And Elasticity Of Demand

DEMAND:

Demand can be defined as the quantity of commodity which a consumer is able & willing to purchase at any given price during some specific period of time.

 so there are 3 elements

• Desire of commodity 
• Means of purchase commodity
• Readiness to spend the resources

Determinants Of Demand

There are several factors on which the demand of commodity depends the factors may be economic social as well as political the influence of those factors on demand is called demand function these factor can be divided into 2 parts

• Factor affecting individual demand
• factor affecting market demand

Factors affecting individual demand are:

•  price of the commodity
• price of the related goods
• complementary
• income of the consumer
•  taste and preference

Factors affecting market demand

•  population
• season& weather
• govt policy
• state of business

Demand Function:

it is the functional relationship between the demand of a commodity &its various determinants symbolically.

Dx=f(Px,R,Y,T,N,G,W)

        Px:price of a X commodity

        R: price of a related goods

        Y: income of a consumer

        T:taste and preference

        N:population

        G:govt policy

        W:weather &climate

Law of Demand

It is the  most imp law of economics & it is explains the negative or inverse relation between price and demand .According to this law other things held equal.when price of commodity falls there is expansion in demand & vice versa.

Assumption :

1.There should be no change in the price of related goods

2.There should be no change in the income of the consumer

3.There should be no change in the-taste and preference

4.There should be no change in the population

5.There should be no change in the weather and climate conditions

6.Goods should be normal

Demand curve:It is the graphically representation of relationship  between price and quantity demand of a consumer.

Individual demand curve:It is the graphically representation of relationship  between price and quantity demand of a single consumer.

Market demand curve:It is the graphically representation of relationship  between price and quantity demand of all consumer.

Important: why law of demand operate?

1) Law of DMU

Other things held constant,it is the rate where marginal utility's derived by consuming every additional  unit of a consumption of commodity goes in diminishing..

2) Income effect: 

a)price(Inc)                                          b) price (Dec)

       ↓                                                               ↓   

purchasing power(Dec)                    purchasing power(Inc)

      ↓                                                              ↓    

Quantity demand(Dec)                      Quantity demand(Inc))

                                      

3) Substitution effect: price (Dec)   sub goods (expensive)    QD(Inc)         

                                      price(Inc)     sub goods (cheaper)       QD(Dec)

 

                              

4) Entry and exist of consumer

• if the price inc consumer entry do not exist      QD(Dec)
• if price decrease consumer entry exist               QD(Inc)

5) Various uses    eg(electricity,milk)

•          price(Inc)          QD(Dec)
•          price (Dec)       QD(Inc)

Difference between change in Quantity demand  and change in demand.

 Change in quantity demand:Other things held constant there is change in quantity demand due change in its price .Its tools are Extension in demand,Contraction in demand.There is upward and downward movement along the same demand curve.

Change in Demand:when there is change in  quantity demand due to factors other then price.Its tools are  Increase in demand,Decreased in demand.Demand curve will shift either rightward or leftward direction .   

Normal Goods:normal goods are those goods whose price effect is negative and income effect is positive.

Inferior goods:Are those  goods whose price effect is positive and income effect is negative  

Price Elasticity Of Demand

It is the ratio of percentage change in quantity demand to percentage change in its price  

                     Ed= -%change in Quantity Demand

                            ➖➖➖➖➖➖➖➖➖

                             %change in Price        

• perfectly elastic demand (Ep=∝)
• perfectly inelastic demand (Ep=0)
• Unitary  Elastic demand (Ep=1)
• more than unitary elastic demand (Ep>1)

Methods

•   Geometry method/point method
•   Expenditure Method /Total Outlay method

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Utility

 "Dear friends,Hope you are doing well!!This is my Second post related to micro-economics ,I hope it will benefit you a lot in studying .  

 TOPIC : UTILITY

UTILITY (want satisfaction power)

cardinal utility:satisfaction with can be expressed in number for eg :1,2,3

ordinal utility:satisfaction which can be expressed according to preference for eg: orange or apple

UTILS: It is unit for measuring utility/satisfaction

TOTAL UTILITY 

It is the total satisfaction derived by consuming all the units of commodity 

 TU=⅀MU

MARGINAL UTILITY

It is the rate of change in total utility buy consuming ever  additional unit of   commodity.

  MU=TUn-TUn-1

LAW OF DIMINISHING MARGINAL UTILITY

Other things held constant marginal utility derived by consuming every additional unit of a commodity must diminished.

Assumption Of DMU

 1)consumption of a commodity should be same ,shape,size.

 2)consumption of a commodity should be same size.

 3)satisfaction can be measured in cardinal utility .

 4)price of commodity could not be change.

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Introduction

"Dear friends,

Hope you are doing well! .As we all know due to COVID-19 certain breaks occurred in our lives .One day when I was cleaning  my cupboard I found my handwritten  12th class economics notes &  at the same time my friend called me up  and she started telling me that she wrote a blog , suddenly I got an idea for my personal economics notes blog .This is my first post related to micro-economics .I hope it will benefit you a lot in  your studies. 

                    chapter :1 Introduction

Economy:

It is a system where people earn there living livelihood in the process of production of goods and services.

Economy Problem:

It is a problem of choice which arises due to scarce resources having many alternative uses to satisfy unlimited human wants .

Features

1. Resources are scarce

2. unlimited human wants

Scarcity

when demand of a commodity is more than its supply

Demand > supply =scarcity

                            OR

Scarcity means demand of commodity /good  and services /resources is more than its supply.

Central Problem Of  Economy

A: What to produce 

B: how to produce

C: whom to produce

A:WHAT TO PRODUCE:

• It is the basically problem of choice of production of goods and services.
• Basically it is a problem of allocation of resources to give maximum satisfaction .
• This decision is taken on the basis of economy needs and wants.
• for eg : the economy has to decide whether to produce consumer goods,producer good ,luxury goods etc.

Opportunity cost: It is a next best alternative use which is forgone.

B: HOW TO PRODUCE:

• Basically it is a problem of choice of technique for the production of goods and services.
• This decision is taken on the basis of economy needs and wants. 
• For eg: In country like India there is surplus of lobour the economy will use lobour intensive technique  and In the country like america there is surplus of capital so the economy will use capital intensive technique.

C: FOR WHOM TO PRODUCE

• Basically it is a problem of Distribution of National Income.
• Capital Economy : Distribution of  national income unequal  eg: Luxury of goods
• Socialist Economy :Distribution of   national income equal  eg: Necessity of goods

Production possibility curve( PPC)

PPC Represent combination of two goods which can be made /production by the full-utilization of available resources/limited resources.

PPC is concave to origin.

PPC also called as production possibility frontier

                                         OR

                           production possibility boundary

         

                                   (This image help you a  how to draw a PPC )

DIFFERENCE B/W MACRO AND MICRO ECONOMICS    

  Micro-economics    

•  It studies the individual  unit of the economy
•  demand and supply
•   Price theory     

 Macro-economics

• It study the aggregate of  economy
• Aggregate demand supply
• Employment theory & income                                                                                        

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