LAW OF DEMAND & SUPPLY

THIS IS AN IMPORTANT ASPECT OF ECONOMICS

 LAWS
• LAW OF DEMAND – THE LAW OF DEMAND STATES THAT
PRICE AND QUANTITY ARE INVERSLY RELATRD
• LAW OF SUPPLY -- THE LAW OF SUPPLY STATE THAT WHEN
PRICE INCREASE SUPPLY INCREASES
DEMAND CURVE
SUPPLY CURVE
 LAW OF MARGINAL UTILITY

By marginal utility we mean extra

utility or satisfaction which a consumer
derives from one extra unit of
consumption
 DETERMINANT OF DEMAND

• TASTE
• NUMBER OF BYER
• PRICE OF RELATED ITEM
• INCOME
SHIFT OF CURVE(DE & SU)
 WHAT IS SHIFT OF SUPPLY CURVE?

A shift in supply curve means that each price different

quantity will be supplied.
At price p we can see in the graph two quantity is supplied
q1 & q2 the supply curve shift from s1 to s2.
 What is shift of demand curve?

• If there is change in demand at given price then that is

called shift of demand curve
 ELASTICITY OF DEMAND & SUPPLY

• PRICE ELASTICITY OF DEMAND • ELASTICITY OF SUPPLY

• The price elasticity of demand means
percentage change in quantity
demanded of a good divided by
percentage change in its own price
other factor remaining constant
• The degree to which quantity offered
for sale respond to change in price is
known as price elasticity of supply

• formula:- • F
• % change in quantity demanded /
%change in price
FOLLOWING SLIDE SHOW DIFFERENT
ELASTICITY OF SUPPLY
 ELASTICITY OF DEMAND

• Ep > 1 elastic
• Ep = 1 unitary elastic
• Ep < 1 inelastic demand
POINT ELASTICITY OF DEMAND

• Point elasticity can be used to

measure elasticity at different point
on a linear demand curve.

formula ;-
Lower segment of tangent / upper
segment of tangent
i.e. Cb/ac