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economics for school and colleges
Typology: Essays (university)
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By the end of this session you will be able to understand the concepts related to demand viz. Its law, exceptions, determinants and kinds of elasticity Each subtopic will be followed up on by a small discussion around it taking a real life example Happy Learning!
Desire backed by willingness and ability Market Demand – sum total of all individual demands Law of Demand – functional relationship between price and quantity demanded Why a downward sloping curve? Income Effect - Real Y increases when price decreases Substitution Effect – inducement to substitute it for other commodities
When Q changes in response to change in P and we move along the curve When Q changes in response to change in factors other than price and the demand curve shifts
Veblen Effect – example diamonds Giffin Goods Expectations regarding future – example gold Business Cycle Brands – Apple phone
Pricing Decision of Firms Uses in Economic Policy regarding price regulation Explanation of paradox of plenty – example: bumper crop yielding less Y Uses in international trade – example: devaluation of currency Importance in fiscal policy
Cross Elasticity of Demand Cross Elasticity = % Change in Qx / % Change in Py If two commodities are substitutes, the cross elasticity of demand between them is positive. The rise in the price of one causes the demand for the other to rise. (^) If two commodities are complementary, the cross elasticity between them is negative. The rise in price of one causes a fall in the demand for the other Demand curve shifts rightward in case of complementary goods and leftwards in case of substitutes
Income Elasticity of Demand Income Elasticity = % change in Q / % change in Y For normal goods income elasticity in positive, i.e. When Y increases change in Q is positive For inferior goods income elasticity is negative, i.e. When Y increases change in Q is negative For luxuries income elasticity is more than 1 as they bulk larger portion in budget For necessities income elasticity is less than 1 as they show a decline in proportional Y spent as Y increases
Importance of Income Elasticity Decision making both by business firms and industry Marketing strategy
