PPT - Law of Demand and Elasticity of Demand | Business Economics for CA Foundation PDF Download

 Page 1


Law of Demand
Law of Demand states that if price of commodity 
increases quantity demanded will falls and if price of 
commodity falls quantity will increases.
Law of demand indicates only direction of change in 
quantity demanded in response to change in price 
but ELASTICITY OF DEMAND states with how much 
or to what extent the quantity demanded will change 
in response to change in any determinants.
Page 2


Law of Demand
Law of Demand states that if price of commodity 
increases quantity demanded will falls and if price of 
commodity falls quantity will increases.
Law of demand indicates only direction of change in 
quantity demanded in response to change in price 
but ELASTICITY OF DEMAND states with how much 
or to what extent the quantity demanded will change 
in response to change in any determinants.
ELASTICITY - The Concept
• If price rises by 10% - what happens to demand?
• We know demand will fall.
• By more than 10% ?
• By less than 10% ?
• Elasticity measures the extent to which demand will 
change.
Page 3


Law of Demand
Law of Demand states that if price of commodity 
increases quantity demanded will falls and if price of 
commodity falls quantity will increases.
Law of demand indicates only direction of change in 
quantity demanded in response to change in price 
but ELASTICITY OF DEMAND states with how much 
or to what extent the quantity demanded will change 
in response to change in any determinants.
ELASTICITY - The Concept
• If price rises by 10% - what happens to demand?
• We know demand will fall.
• By more than 10% ?
• By less than 10% ?
• Elasticity measures the extent to which demand will 
change.
Meaning & Definition of Elasticity of 
Demand
Elasticity of Demand measures the extent to which quantity demanded of 
a commodity increases or decreases in response to increase or decrease in 
any of its quantitative determinants.
So, we have several types of elasticity of demand according to the source 
of the change in the demand. For example, if the price is the source of the 
change, we have the “price elasticity of demand”.
“The elasticity (or responsiveness) of demand in a market is great or small 
according as the amount demanded increases much or little for a given fall 
in price, and diminishes much or little for a given rise in price”. – Dr. 
Marshall.
Page 4


Law of Demand
Law of Demand states that if price of commodity 
increases quantity demanded will falls and if price of 
commodity falls quantity will increases.
Law of demand indicates only direction of change in 
quantity demanded in response to change in price 
but ELASTICITY OF DEMAND states with how much 
or to what extent the quantity demanded will change 
in response to change in any determinants.
ELASTICITY - The Concept
• If price rises by 10% - what happens to demand?
• We know demand will fall.
• By more than 10% ?
• By less than 10% ?
• Elasticity measures the extent to which demand will 
change.
Meaning & Definition of Elasticity of 
Demand
Elasticity of Demand measures the extent to which quantity demanded of 
a commodity increases or decreases in response to increase or decrease in 
any of its quantitative determinants.
So, we have several types of elasticity of demand according to the source 
of the change in the demand. For example, if the price is the source of the 
change, we have the “price elasticity of demand”.
“The elasticity (or responsiveness) of demand in a market is great or small 
according as the amount demanded increases much or little for a given fall 
in price, and diminishes much or little for a given rise in price”. – Dr. 
Marshall.
Elasticity of Demand
According to the source of the change, the following types of elasticity of 
demand can be mentioned:
• Price Elasticity of Demand
• Cross Elasticity of Demand (the elasticity in relation to the change of the 
price of other good and services)
• Income Elasticity of Demand
• Advertisement Elasticity of Demand (the elasticity in relation to the 
advertisement expenditure)
According to the degree of the change in the demand, the elasticity can 
be classified in:
• Perfectly Elastic
• Relatively Elastic
• Unitary Elasticity
• Relatively Inelastic
• Perfect Inelastic
Page 5


Law of Demand
Law of Demand states that if price of commodity 
increases quantity demanded will falls and if price of 
commodity falls quantity will increases.
Law of demand indicates only direction of change in 
quantity demanded in response to change in price 
but ELASTICITY OF DEMAND states with how much 
or to what extent the quantity demanded will change 
in response to change in any determinants.
ELASTICITY - The Concept
• If price rises by 10% - what happens to demand?
• We know demand will fall.
• By more than 10% ?
• By less than 10% ?
• Elasticity measures the extent to which demand will 
change.
Meaning & Definition of Elasticity of 
Demand
Elasticity of Demand measures the extent to which quantity demanded of 
a commodity increases or decreases in response to increase or decrease in 
any of its quantitative determinants.
So, we have several types of elasticity of demand according to the source 
of the change in the demand. For example, if the price is the source of the 
change, we have the “price elasticity of demand”.
“The elasticity (or responsiveness) of demand in a market is great or small 
according as the amount demanded increases much or little for a given fall 
in price, and diminishes much or little for a given rise in price”. – Dr. 
Marshall.
Elasticity of Demand
According to the source of the change, the following types of elasticity of 
demand can be mentioned:
• Price Elasticity of Demand
• Cross Elasticity of Demand (the elasticity in relation to the change of the 
price of other good and services)
• Income Elasticity of Demand
• Advertisement Elasticity of Demand (the elasticity in relation to the 
advertisement expenditure)
According to the degree of the change in the demand, the elasticity can 
be classified in:
• Perfectly Elastic
• Relatively Elastic
• Unitary Elasticity
• Relatively Inelastic
• Perfect Inelastic
Price Elasticity of Demand
Price Elasticity of demand is a measurement of 
percentage change in demand due to percentage 
change in own price of the commodity.
The price elasticity of Demand may be defined as the 
ratio of the relative change in demand and price 
variables.
e= Percentage/Proportional Change in Quantity Demanded
Percentage/Proportional Change in Price