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6 Factors affecting elasticity of demand

These are the factors which decide the demand elasticity of the consumer. The elasticity of demand may be more elastic or less elastic. The six factors which determine the elasticity of demand are given below:

  • Nature of commodity: There are three types of commodities. The necessities are the things which are essential for the consumer like salt, sugar etc. The demand of these kinds of products does not change much with the change in the price. So the demand of these kinds of products is inelastic. But in case of luxuries products the demand varies with the change in the price. if the price is high some people will stop buying it while if the price  falls some people will start buying it.  So the demand of these kinds of products is more than elastic. In case of comforts which are required for the comfort of the consumer like air conditioners, heater etc. their demand is elastic.
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3 Exceptions to law of demand

There are sometimes exceptions to the law of demand:

1. Articles of distinction: it is also called Veblen effect. According to Prof. Veblen, there are some goods which are articles of distinction. These articles are demanded buy the consumer due to high price. If their price falls people will not buy it.

2. Giffen goods: this concept was given by Sir Robert Giffin and it is also called Giffin Paradox. These are inferior goods. According to it if the income of the consumer increases then the demand of such commodities will fall on the other hand if the income of the consumer falls then demand of these products will increase.

3. Ignorance: sometime people buy costly goods due to the ignorance. They don’t have the knowledge regarding the value of the product.

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Why does demand curve slopes downward?

Last time, we have discussed about the concept of demand. Today we will show that there is an inverse relationship between demand and quantity demanded. There are the following reasons due to fall in the demand curve (refer below figure):

1. Law of diminishing marginal utility: it means that if we go on consuming more and more units of a commodity the utility derived from each additional unit goes on diminishing. So for every additional unit the consumer is willing to spend only at less price.

2. Income effect: It means the effect on the quantity demanded when the real income of the consumer changes due to change in the price of the commodity. For example the consumer has rs. 50 and each apple cost 10 Rs. And if he buys 5 apples then he will have to pay Rs. 50. But if the price of apples falls from Rs. 10 to Rs. 8 then he will have to spend Rs. 40. This means his real income will increase and he will be able to buy anything else with the saved Rs. 10.

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Concept and assumption of law of demand

Today we will discuss about concept and assumption of law of demand. First, let us discuss about concept of demand.

Concept of Law of demand

The law of demand states that other things being equal, quantity demanded increases with the decrease in own price of the commodity and vice versa. There is a inverse relationship between quantity demanded and its own price, keeping other things equal. The other thing means all other demand determinants or demand functions except price. Continue reading “Concept and assumption of law of demand”

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8 factors affecting demand

Concept of demand: Before discussing the factors affecting demand, let us discuss the concept of demand.

Demand is the ability and willingness to buy a product at given price and a particular time. The word demand is different from the want and the word desire. Want means that a person has the money but he does not want to spend. Desire is just a wish; it means that a person does not have the money to buy a product.

Demand has following conditions:   

1.Time 2. Price that is why Demand is the ability and willingness to buy a product at given price and a particular time. Continue reading “8 factors affecting demand”

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Difference between positive economics and normative economics

Last time we have discussed the types of economics. Today we will discuss the difference between positive economics and normative economics. Let us discuss it:

POSITIVE ECONOMICS:  

It deals with the economic issues of past, present and future and tells about what was, what is, what would be. Positive economics is basically based on the facts and figures which can be verifiable.

For example India is the second largest populated country; it is a positive statement nobody can deny it as it is based on the facts and figures.

NORMATIVE ECONOMICS:

It deals with the opinions of economists related to the economic issues and tells about what ought to be. Normative economics is basically based on the opinions which can’t be verifiable. For example there should be the development industries in underdeveloped countries to make them developing countries. So this statement is just an opinion and it is just a judgment.

I hope you have understood the difference between positive economics and normative economics.