DEMAND

It is the DESIRE backed by:

The ABILITY

AND

The WILLINGNESS
To PAY THE PRICE

To PAY THE CURRENT MARKET PRICE

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 Demand (contd.)
Hence, D = f(A, W)
Venn Diagrams used to depict Ability and Willingness:
Intersecting sets Intersection
Means ??
Ability Willingness Ability

Willingness
Disjoint sets

Must they be How does one

Congruent make ‘A’ or ‘W’
sets? favourable for a
A W
firm?

UNEQUAL sets ??
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 Demand (contd.)

Elasticity of Demand

Stimuli Technical Term Symbol

Price of the Price Ed Edp

Concerned Good

Income of Potential Income Ed EdY

Consumers

Price of a Cross Ed Edxy

Related Good

Promotions Promotional Ed EdA

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 Demand and Elasticity (= Responsiveness)

   

4
  
Demand and Degrees of Elasticity

    Edp = 0

    Edp < 1

   
Edp = 1

    Edp > 1

  Perfectly Elastic Demand  

5
 Demand and Elasticity (= Responsiveness)

Demand

 
 

     

 
 

 
RIE
RE
A
B
 

Price
6
 Demand and Elasticity (= Responsiveness) Marshallian Mode

Price

 
 
 
 

     

    RE
RIE A
B

Demand

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 Demand and Elasticity (= Responsiveness)

Price Elasticity of Demand

 

Px Dx Px Dx Dx = 120 - 2.7Px
10 400 25 550 At Px = 25, Edp = ?
20 330 10 700
Beta2 = - 2.7
    Px = 25 Dx = 52.5

     

 
 
   
 
 
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 Demand and Elasticity (= Responsiveness)

Income Elasticity of Demand

Income Demand Income Demand Dx = 7000 + 0.3Y

10000 400 100000 600 At Y = 20k, EdY = ?
25000 600 75000 400

 
   

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 Demand and Elasticity (= Responsiveness)

Promotional Elasticity of Demand

Promo Exp. Demand Dx = 10 + 0.7A

50 400 At A = 50, EdA = ?

80 900
 
 

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 Demand and Elasticity (= Responsiveness)

Cross Elasticity of Demand

Competitive Goods Supportive Goods

Py Dy Dx Py Dy Dx

Py Dx Py Dx

50 400 50 900

80 900 80 400

Dx = 25 + 0.7Py Dx = 25 - 0.7Py

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 Demand and Elasticity (= Responsiveness)

Cross Elasticity of Demand

Substitute Goods Complementary Goods

Py Dy Dx Py Dy Dx

Py Py

Dx Dx

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