CBSE Class 11 microeconomics notes Chapter 3 Demand & chapter 4 Elasticity of demand

 Chapter 3  Demand 

Meaning: It refers to the quantity of the commodity which a consumer is willing to buy at given price in a given period of time.

Factors Effecting Demand
                      OR
         Determinants of Demand

(1). Price of the commodity itself: Higher the price of the commodity lesser is the demand and vice-versa.

             Other than price factors
                           ⬇️
(2). Price of the Related goods: these are those goods whose demand change with the change in the price of the another commodity.
   (a). Substitute goods: These are those goods which can be used in the place of one another.

• increase in the price of one leads to increase in demand of others.
       
• Here when price of tea increases the quantity of coffee rises as people leave tea and demand coffee.
• This is positively slopped curve.
  (b). Complimentary goods: These are those goods which are jointly needed to satisfy a given want.
• Increase in price of one good leads to decrease in demand of another.
     
  
• Here when price of car falls, the demand of petrol rises as people now buy more cars.
• This is negatively sloped curve.
  (c). Income of the consumer:
   (1). Normal Goods: These are those goods whose demand increases with an increase in income.
             
  
• Positively sloped curve.
  (2). Inferior goods: These are those goods whose demand falls with the increase in income.
                 
       
  *. this is negatively sloped curve.
   Inferiority is a subjective phenomenon: No commodity is inferior. if any commodity is purchased by a consumer just because of low income level, then this commodity is termed as inferior commodity for that person.
  for example: Bajra is a inferior commodity for a rich person where as this bajra become normal commodity for a poor person.
  (d). Taste and preferences of the consumer: Favorable change in taste and preferences lead to increase in demand.
  unfavorable change in taste and preferences lead to fall in demand.
  
  

  Demand function 

• It is the function relationship between demand and its factors.

  Law of Demand   

• Other things being constant price and quantity demand are inversely related.    

• Assumption of law of demand:
  (1). Price of related goods remains constant.
  (2). Income of the consumer remain constant.
  (3).Taste & preferences remains same.
  (4). Fashion, weather etc remains.
• Demand Schedule:
                    
  
• Demand Curve:
             
  

  Exceptions of law of demand 
  
  (1). Giffen goods and Inferior goods: Giffen goods are a special category of inferior goods in whose case demand falls with fall in price.
  When the price of inferior good falls people start consuming normal good due to increase in purchasing power.

   ∴ P⬇️  D⬇️

  (2). Emergency: In case of emergency the consumer do not behave normal and tends to buy more even if the prices are rising.      

   ∴ P个  D个

  (3). Goods expected to become scarce  OR Costly in future:  Due to the fear of expected price rise or scarcity the consumer tends to buy more even if the prices are rising.
           ∴ P个  D个
  (4). Goods of status: These are those goods whose rises with an increase in price as this lead to increase in status.
          ∴ P个  D个
  (5). Necessities: These are the basic of life existence these are demanded even if the prices are rising so law of demand does not operate here.
          ∴ P个  D个 
  (6). Ignorance: If the consumer is ignorant about the prevailing  prices of the commodity in the market then he might buy more even at rising prices.
          ∴ P个  D个 

  Difference between Change in Quantity demand and  Change in Demand
     

  

  Market Demand 

  
  
• Meaning: It refers to the quantity of a commodity which all the consumers are willing to buy at different price in a given period of time in a market.
• 
  

  Factors affecting market demand
  (1). Price of the commodity itself: [Explained above in factors effecting demand]
  (2). Price of related goods: [Explained above]
  (3). Income of the consumer: [Explained above]
  (4). Taste and preferences:[Explained above]
  (5). Number of consumers: Higher the number of consumer in the market, higher is the market demand and vice-versa.

• Market Demand Schedule:
   
  

  
• Market Demand Curve:
       
  
  
  
  
• Market Demand curve is flatter: Market demand curve is flatter than individual demand curve. It happens because as price changes proportionate change in market demand is more than proportionate change in individual demand.

  Elasticity Of Demand

• Meaning: In general elasticity refers to the responsiveness of one variable to another.
• Price Elasticity of demand: It refers to the degree of responsiveness of demand to change in the price of the commodity.
  PED =  %change in Q.D
               %change in price          

  Degrees Of The Elasticity of Demand

• Perfectly inelastic demand: When quantity demanded does not respond to price change.
  schedule:
  
    
  
  Diagram:
  
      
• Perfectly elastic demanded: When demand expands or contracts to any extent without any change in price.
  Schedule:
  
  
  
  Diagram:
  
  
• Unit Elastic Demand: When percentage change in demand is equal to the percentage change in price.
  Schedule:
  
  
  
  Diagram:
  
• Less elastic demand: When percentage change in Q.D is less than % change in price.
  Schedule:
  
  
  
  Diagram:
  
• Highly elastic demand: When percentage change in the Q.D is more than the percentage change in price.
  Schedule:
  
  
  
  Diagram:
  
  
  
     Factors Affecting Elasticity Of Demand
• Availability of close substitutes: When a commodity has large no. of close substitutes, demand for it is usually very elastic.
  for example: Demand for cold drink like pepsi, coke etc is highly elastic whereas demand for salt is less elastic.
• Share in total expenditure: Demand for a commodity is elastic if amount spent on the product constitutes to be very small portion of total expenditure.
  for example: Demand for matchbox, salt is less elastic where as car and AC being a major portion of total expenditure their demand elasticity is likely to be high.
• Habitual Necessities: Product which are in habit of a person generally have low price elasticity.
  for example: Liquor.
• Nature of a commodity: Elasticity of demand of a commodity is influenced by its nature. a commodity for a person may be necessity, a comfort or a luxury.
  when a commodity is necessity like food grains, vegetables, medicines etc its demand is generally in elastic.
  when a commodity is comfort like fan its demand is generally elastic.
  when a commodity is luxury like AC its demand is generally more elastic.
• Time period: If shot time period is available hen demand is less elastic to price change. if long time period is available then demand for that commodity is more elastic.
• Number of uses: If the commodity under consideration has several uses, then its demand will be elastic. when price of such commodities increases, then it is   generally put to any more urgent uses and as a result its demand falls then it is used for satisfying even less urgent needs and demand rises
  for example: Electricity.
• Level of income: If the income of the consumer is high then change in price level will not effect the quantity demanded.
• Level of prices: Higher price commodities like diamond and low priced commodities like pencil generally have price elasticity.
  High price article -----  More elastic
  Low price article ------Less elastic

Measurement of Elasticity of Demand 

• Percentage method: In the method, elasticity of demand is measured by taking the ratio of percentage change in demand to percentage change in price.
  ed = %change in demand     due to
           % change in price
  = change in demand   *  100
      original demand                   
       change in price       *  100
         original price
  =    change inQ   
            Q       
    change inP   
           P
  =   change inQ      *         P      
           Q                     change in P
  =    change in Q    *    P   
        change in P              Q
  ("*" symbol of multiplication)
  Note :  Ignoring -ve sign because  ed is always negative as price and demand for a commodity is always inversely  related.
• Total Expenditure method: This method measures the change in total expenditure before the price change and after the price change.
  
  Three cases
  (1). When price increases and the total expenditure increase or vice-versa, there is an inverse relation between the two then ed > 1 or more than unit elastic.
  (2). When price increases and total expenditure increases or vice-versa, there is direct relation between the two then ed < 1 or less than unit elastic.
  (3). When price increases or price decreases but total expenditure remains same.

 Geometric method: In this method at any point is measured by diving the length of lower section of demand curve with the length of upper section of demand curve.


ed at any point = Lower section of demand / Upper section of demand                                                                   

• Most Important

Q1.  Explain the factors effecting demand?
Q2. what is law of demand?
Q3. what are the exceptions of law of demand?
Q4. What is market demand?
Q5. what are the degrees of elasticity of demand?
Q6. Explain the factors effecting elasticity of demand?
Q7. Explain percentage method?



******(if you face any doubt then comment below)******