A

PRESENTATION
ON
LAW OF DEMAND
 INTRODUCTION
LAW OF DEMAND
It is relationship between

QUANTITY DEMANDED

PRICE OF COMMODITY
STATEMENT OF LAW
By Prof Ceteris Paribus
Higher the price of commodity

the smaller is the quantity demanded

larger is the quantity demanded

Lower is the price of commodity

EXPLAINATION

EX-
Hypothetical market demand schedule of
Mobile Phones
Market Demand Schedule
Price (Rs) Market
Demand
6000 10
5000 20
4000 30
3000 40
2000 50
1000 60
 DEMAND CURVE

Y-Price of Mobile in Rs X-Quantity Demanded in 000

12

10

0
0 1 2 3 4 5 6 7 8 9 10
WHY DEMAND CURVE SLOPES DOWNWARD

Income Effect

Substitution Effect

Diminishing Marginal Utility

ASSUMPTION TO THE LAW

No change in consumers income preferences

and fashion
No change in price of related goods
No change in expectation of future price
changes or shortages
No change in distribution of income and
wealth of the community
No change in government policy
No change in weather conditions
EXCEPTIONS TO THE LAW

Giffen Good

Snob Appeal

Speculation

Consumer’s Psychological Bias

ELASTICITY OF DEMAND

To measure the responsiveness or extent of

variation , economist use this term

% Change in Quantity
Elasticity of Demand = Demanded
% Change in Determinant
of Demand
 TYPES OF ELASTICITY
Price Elasticity –Responsiveness sensitiveness
of demand for a commodity to the changes in
its price

% Change in Quantity
Price Elasticity of Demand = Demanded
% Change in price of
Commodity
 Income Elasticity – Degree of responsiveness of
demand for a commodity to change in the
consumer’s income

% Change in Quantity
Income Elasticity of Demand = Demand
% Change in consumers

income
 Cross Elasticity – Degree of responsiveness of
demand for a commodity to a given change in
the price of some related commodity

% Change in Quantity
Income Elasticity of Demand = Demand of X
% Change in Price of Y
 TYPES OF PRICE ELASTICITY OF DEMAND
Perfectly Elastic Demand-
It is a situation when With
the slightest change or no change in a price of commodity
leads to infinite change in the quantity demanded

Any change in quantity demanded

ed = =∞
NO change in price
 Y

ed = ∞
Price
P

O Q Q1 Q2 X

Quantity Demanded
 Perfectly Inelastic Demand-
When any change in
price of a commodity leads to no change in the demand
of that commodity

Any change in quantity demanded

ed = = 0
Any change in price
 Y

ed = 0
P2

Price
P1

O Q X

Quantity Demanded
 Relatively Elastic Demand -
Proportionate change
in the quantity demanded is greater than the
proportionate change in price

Relative change in quantity demanded

ed = >1
Relative change in price
 Relatively Elastic Demand -
Proportionate change
in the quantity demanded is greater than the
proportionate change in price

Relative change in quantity demanded

ed = >1
Relative change in price
 Y

Price

P1
P

O Q Q1 X
Quantity Demanded
 Relatively Inelastic Demand -
When percentage
change in quantity demanded is less than the
proportionate change in price then it is relatively
inelastic demand

Relative change in quantity demanded

ed = <1
Relative change in price
 Y

Price
P
P1

O Q Q1 X
Quantity Demanded
Unitary Elastic Demand -
When change in the
demand for a commodity is equal to the change in price
of that commodity it is unitary elastic demand

Relative change in quantity demanded

ed = =1
Relative change in price
 Y
Qd=1

Price
P
P1

O Q Q1 X
Quantity Demanded
 THANK YOU
POONAM
VIJAY

SAGAR

NAYANESH

PRATIK