WISH TO BUY WILLINGNESS TO PAY ABILITY TO PAY

yes No No No

yes yes No No

yes yes yes yes

 Individual Demand Schedule Market Demand Schedule
1. Direct and indirect demand

Individual demand schedule refers to a tabular

2. Derived demand and
statement showing various quantities of a
autonomous demand
commodity that a consumer is willing to buy at
various levels of price, during a given period of
time. 3. Durable and non durable goods
demand:

4. Firm and industry demand:

5. Total market and market

segment demand

6. Short run and long run demand:

7. Joint demand and Composite

demand:

8. Price demand, income demand

and cross demand
 EXCEPTIONS TO THE LAW OF DEMAND
1.War: Fear of shortages prompts hoarding, increasing demand despite rising
prices.
2.Depression: Low prices coincide with low demand due to reduced
purchasing power.
3.Ignorance Effect: Consumers mistakenly buy more at higher prices due to
misleading packaging or labeling.
4.Giffen Paradox: For necessities like wheat, higher prices may lead to
increased demand as alternatives become unaffordable.
5.Demonstration Effect (Veblen Goods): High-priced luxury items (e.g.,
diamonds) are bought for status, increasing demand as prices rise.
 The demand for a product is determined by different factors. The main demand determinants are price, income, price
of related goods and advertising. Therefore, demand is a multivariate relationship, i.e. it is determined by many factors
simultaneously.
DETERMINANTS OF INDIVIDUAL DEMAND DETERMINANTS OF MARKET DEMAND

1. Price of the Product: The primary factor; demand increases when prices fall and
decreases when prices rise.

2.Income of the Consumer: Higher income leads to increased demand, while 2.Income Distribution: Fair and equal income distribution boosts demand for essential
lower income reduces it. goods.

3. Tastes and Preferences: Favorable preferences increase demand, regardless of price. 3.Tax Rates: High tax rates reduce demand, while low taxes encourage consumption.

4. Prices of Related Goods:

- Substitutes: Higher price of one leads to increased demand for the other (e.g., tea and 4. Population Growth: Directly affects demand; more people lead to higher
coffee). consumption.
- Complements: Higher price of one reduces demand for the other (e.g., cars and petrol).

5.Advertisement: Increases demand by influencing consumer choices and 5. Future Expectations: Anticipation of price changes influences current
promoting product awareness. purchasing decisions.

6.Consumer Expectations: Future price or income changes affect current

6. Weather Conditions: Seasonal needs significantly impact the
demand; e.g., expected price hikes increase current demand.
demand for specific goods (e.g., warm clothes in winter).
If price changes we know the demand changes, but by how many percentage?
Means what is the elasticity of that demand? Elasticity measures the extent to which demand will change. Elasticity of demand is a measure to responsiveness of change in quantity
demanded of a commodity due to change in a particular factor of demand.

1. PRICE ELASTICITY OF DEMAND 2. INCOME ELASTICITY OF DEMAND 3. CROSS ELASTICITY OF DEMAND

There is cross elasticity of demand when demand for a

The percentage change in quantity demanded due
Price elasticity of demand measures the commodity changes due to a change in the price of another
to percentage change in income is called income
related commodity. In fact cross elasticity of demand measures
percentage change in quantity demanded elasticity of demand. Income elasticity of demand
the change in demand of a commodity (say coffee) when the
caused by a percent change in price. measures the responsiveness of demand for a
prices of another related commodity (say tea) changes by small
good to change in income of consumer
amount.

Where, Where,
Where, ∆q= change in quantity demanded of commodity ∆qx= change in quantity demanded of commodity ‘x’
∆q= Change in quantity demanded of commodity x x ∆px = change in Price of related commodity ‘y’
∆p= Change in price of commodity x ∆y= change in the income of the consumer qx = quantity demanded of commodity ‘x’
p= price of commodity x q= quantity demanded of commodity x px = Price of related goods ‘y’ (substitute or complementary
q= quantity demanded of commodity x y= income of the consumer goods)

TYPES OF PRICE ELASTICITY OF DEMAND TYPES OF INCOME ELASTICITY OF DEMAND TYPES OF CROSS ELASTICITY OF DEMAND
A.ELASTIC DEMAND:- Ep>1 A. POSITIVE INCOME ELASTICITY :- Ey>0 A. Positive Cross Elasticity of Demand:- Ec>0
B.INELASTIC DEMAND:- Ep<1 B.NEGATIVE INCOME ELASTICITY:- Ey<0 B. NEGATIVE CROSS ELASTICITY OF DEMAND:- EC<0
C.UNITARY ELASTIC DEMAND :-. Ep=1 C.ZERO INCOME ELASTICITIES:- Ey=0
D.PERFECTLY ELASTIC DEMAND :-Ep=∞
E.PERFECTLY INELASTIC DEMAND :- Ep=0
 SUPPLY ANALYSIS
MEANING OF SUPPLY
Supply of a commodity refers to the various
quantities of the commodity which a seller is MARKET SUPPLY
willing and able to sell at different prices in a The relationship between the
given market at a point of time, other things INDIVIDUAL SUPPLY
total quantity of a product
remaining the same. Supply is what the seller is The relationship between the
supplied by adding all the
able and willing to offer for sale. quantity of a product supplied by a
quantities supplied by all
single seller and its price.
The quantity supplied is the amount of a particular sellers in the market and its
commodity that a firm is willing and able to offer price.
for sale at a particular price during a given time
period.
Supply Function The supply curve (SS) is the graphical
SX = f (PX, C, T, G, N)
representation of a supply schedule. It
Where,
represents the quantities supplied of a
PX = Price of the commodity
C = Cost of Production (wages, interest, rent and prices of commodity is different price levels.
raw materials) When the price is Rs 1 , the quantity
T = State of Technology supplied is 2 units whereas the price
G = Government policy regarding taxes and subsidies increases to Rs 5 the quantity supplied
(G)
to 10 units
N = Other factors like number of firms The supply function of
a commodity represents the quantity of the commodity that
would be supplied at a price, levels of technology, input
prices and all other factors that influence supply.
 States that, all other factors being equal, “as Exceptions to the Law of Supply :
the price of a good or service increases, the 1.Perishable Goods: Cannot be stored; sold
quantity of goods or services that suppliers even at low prices to avoid loss.
offer will increase, and vice versa.” 2.Fixed Supply Goods: Supply remains
The law of supply says that as the price of an constant (e.g., land, rare items).
3.Future Price Expectations: Producers
item goes up, suppliers will attempt to maximize
withhold supply if higher prices are
their profits by increasing the quantity offered for
anticipated.
sale.
4.Agricultural Products: Supply depends on
P Qdd P Qdd natural factors, not price.
5.Monopoly or Legal Restrictions: Supply is
Assumptions:- controlled or limited regardless of price.
No change in cost of production 6.Backward-Bending Labor Supply: At higher
No change in technology wages, labor supply may decrease due to
No change in prices of substitutes preference for leisure.
No change in price of capital goods
No change in tax policy
No change in climate
 ELASTICITY OF SUPPLY
1.Factor Prices: Higher production costs reduce supply, It measures how responsive producers are to changes in the
while lower costs increase it. price of their goods or services.
2.Transport & Communication: Improved infrastructure • High Elasticity: Supply is very sensitive to price
enhances supply, especially of perishable goods. changes.
3.Climatic Changes: Favorable weather boosts supply; • Low Elasticity: Supply shows little sensitivity to price
natural calamities reduce it. changes.
4.Trade Policy: Government concessions increase supply; • No Elasticity: Supply does not respond to price changes.
restrictions decrease it. It is calculated as the ratio of the proportionate change in
5.Industrial Expansion: Increased productive capacity leads quantity supplied to the proportionate change in price.
to higher supply.
6.Future Expectations: Anticipated higher profits encourage
increased production.
7.Scientific Development: Technological advancements
lower costs and increase supply. TYPES OF PRICE ELASTICITY OF SUPPLY
8.Political Conditions: Stability supports supply; instability
disrupts it. 1. Perfectly inelastic: Es=0
9.Taxation Policy: High taxes reduce supply; low taxes 2. Inelastic supply: Es<1
increase it. 3. Unitary elastic: Es=1
10.Prices of Substitutes: Lower prices of substitutes reduce 4. Elastic: Es>1
supply of the original commodity. 5. Perfectly elastic:Es=∞