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Difference between The law of demand and elasticity of demand

The difference between the law of demand and elasticity of demand can be understood in quantitative and qualitative term.

The law of demand shows the inverse relationship between price and demand in qualitative
term. The change in demand will not be proportionally against the change in price. According to the law, the rise in price will lead to decrease in demand and the fall in price will lead to increase in demand for a good and service. The law of demand can be compared with seesaw swing. As seesaw one side comes down, other side goes up, same with the law of demand as price comes down, demand goes up and when price goes up demand comes down. Thus the law can be stated as A rise in the price of a product or service tends to decrease in demand and a fall in price tends to increase in demand for a product whiles other things remain same. The phrase other things remain same means that consumers taste and preference, income of the consumer, price of the inter-related goods etc should remain constant. Only then this law will be applicable. According to the Marshall, The greater the amount to be sold, the smaller must be the price at which it is offered in order that it may find purchasers; or, in other words, the amount demanded increases with a fall in price, and diminishes with a rise in price. Main characteristics of law of demand 1 It shows the inverse relationship between price and demand. 2 It indicates the relation between price and demand only in qualitative term 3 Price is an independent variable and demand is a depended variable as according to the law, demand varies with the change in price. 4 Generally, the demand curve slope is negative and it goes downwards from left to right.

Elasticity of demand shows the inverse relationship between price and demand in
quantitative term. It refers how much change will be in demand after the chance in price. Thus price elasticity of demand measures the responsiveness of demand for a product after the change in price of the product. According to the Marshall, The elasticity (or responsiveness) of demand in a market is great or small according as the amount demanded much or little for a given fall in price, and diminishes much or little for a given rise in price. Technically PED is the ratio of the percentage change in demand and the percentage change in price. Thus, Ep = % change in quantity demanded / % change in price Mathematically Ep = ( D / P) X ( P / D ) The change in demand may not always be proportionate to the change in price. It may be more than proportionate, equal to proportionate or less than proportionate If the percentage change in demand is greater than the percentage change in price then, price elasticity will be greater than one and it is said to be elastic demand. If percentage change in demand is less than the percentage change in price then, price elasticity will be less than one and it is said to be inelastic demand If percentage change in demand is equal to the percentage change in price then price elasticity will be equal to one and it is said to be unit elastic demand.

Posted by: Dr Swati Gupta

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