Microeconomics: Demand and Elasticity of Demand

Introduction

• Important and interesting chapter of microeconomics: Demand
• Importance of demand and elasticity of demand
• Basic chapter for various courses

Topics covered in today's lecture

1. Meaning of Demand
2. Determinants of Demand
3. Demand Curve
4. Shift in Demand Curve
5. Types of Goods
6. Elasticity of Demand
7. Factors Affecting Elasticity of Demand

Meaning of Demand

• Definition: The quantity of a good that consumers are willing and able to purchase
• Example: Mike's ability and willingness to buy a phone
• Difference between desire, want, and demand

Determinants of Demand

1. Price of the Given Commodity
2. Price of Related Goods: Substitute and Complementary Goods
3. Expectation of Price Change in Future
4. Size and Composition of Population
5. Income of Consumer
6. Taste and Preferences
7. Season and Weather
8. Distribution of Income

Demand Curve

• Individual Demand: Demand of an individual
• Market Demand: Combined demand of all individuals
• Demand Schedule: Tabular representation of price and quantity

Shift in Demand Curve

• Rightward Shift: When demand increases
• Leftward Shift: When demand decreases
• Movement along the Demand Curve: Due to change in price

Types of Goods

1. Substitute Goods
2. Complementary Goods
3. Normal Goods
4. Inferior Goods

Elasticity of Demand

• Price Elasticity: Sensitivity of demand to price change
• Income Elasticity: Sensitivity of demand to income change
• Cross Elasticity: Sensitivity of demand to the effect of related goods

Degrees of Elasticity

1. Highly Elastic
2. Less Elastic
3. Unitary Elastic
4. Perfectly Elastic
5. Perfectly Inelastic

Factors Affecting Price Elasticity

1. Nature of Commodity
2. Availability of Substitutes
3. Income Level
4. Price Level
5. Number of Uses
6. Habits

Conclusion

• Understanding demand and elasticity is like a mirror for microeconomics, helping to understand market dynamics.