ECONOMICS
TOPIC:
ELASTICITY OF DEMAND
PRESENTED BY:
HAMZA , UMAR , MOAZEM SAGHIR
DEMAND
Demand refers to the quantity of goods that potential
purchasers would buy or attempt to buy while having
buying or purchasing power.
DEMAND SCHEDULE
It represents the amount of a good that buyers are
willing and able to purchase at various prices, assuming
all other non-price factors remain the same. The
demand curve is almost always represented as
downwards-sloping, meaning that as price decreases,
consumers will buy more of the good.
The main determinants of individual demand are the
price of the good, level of income, personal tastes, the
price of substitute goods, and the price of
complementary goods.
The shape of the aggregate demand curve can be
convex or concave, possibly depending on income
distribution.
DEMAND CURVE
The demand curve can be defined as the graph
depicting the relationship between the price of a
certain commodity, and the amount of it that
consumers are willing and able to purchase at that
given price (demand).
Demand curves are used to estimate behaviors in a
competitive markets, and is often combined with
supply curves, often to estimate the equilibrium price
(The price at which all sellers are able to find a
willing buyer, also known as equilibrium price and
market clearing price) and the equilibrium quantity
(the amount that good or service that will be
produced and bought without surplus/excess supply
or shortage/excess demand) of that market. Please
see the article on Supply and Demand for more
details on how this is done.
This negative slope is often referred to as the "law of
demand," which means that when all things but price
are held equal, if the price of the good/service
increases, the less of that good/service will be
purchased by consumers.
CHANGES IN MARKET
EQUILIBRIUM
Practical uses of demand analysis often
center on the different variables that
change equilibrium price and quantity,
represented as shifts in the respective
curves.
DEMAND CURVE SHIFTS
where:
P = price
Q = quantity
Qd = original quantity
Pd = original price
ΔQd = Qdnew - Qdold
ΔPd = Pdnew - Pdold
CROSS ELASTICITY OF
DEMAND
cross elasticity of demand and cross price
elasticity of demand measures the
responsiveness of the quantity demand of a
good to a change in the price of another good.
It is measured as the percentage change in
quantity demanded for the first good that
occurs in response to a percentage change in
price of the second good. For example, if, in
response to a 10% increase in the price of fuel,
the quantity of new cars that are fuel
inefficient demanded decreased by 20%, the
cross elasticity of demand would be -20%/10%
= -2.
The formula used to calculate the coefficient cross elasticity of demand is
OR
The phrase "supply and demand" was first used by James Denham-
Steuart in his Inquiry into the Principles of Political Economy, published
in 1767. Adam Smith used the phrase in his 1776 book The Wealth of
Nations, and David Ricardo titled one chapter of his 1817 work
Principles of Political Economy and Taxation "On the Influence of
Demand and Supply on Price".
In The Wealth of Nations, Smith generally assumed that the supply
price was fixed but that its "merit" (value) would decrease as its
"scarcity" increased, in effect what was later called the law of demand.
Ricardo, in Principles of Political Economy and Taxation, more
rigorously laid down the idea of the assumptions that were used to
build his ideas of supply and demand. Antoine Augustin Cournot first
developed a mathematical model of supply and demand in his 1838
Researches on the Mathematical Principles of the Theory of Wealth.
During the late 19th century the marginalist school of thought
emerged. This field mainly was started by Stanley Jevons, Carl Menger,
and Léon Walras. The key idea was that the price was set by the most
expensive price, that is, the price at the margin. This was a substantial
change from Adam Smith's thoughts on determining the supply price.
The model was further developed and popularized by Alfred Marshall
in the 1890 textbook Principles of Economics.Along with Léon Walras,
Marshall looked at the equilibrium point where the two curves crossed.
They also began looking at the effect of markets on each other. Since
the late 19th century, the theory of supply and demand has mainly