Business Economics - BECO101
Topic: Demand and Elasticity of Demand
1. Meaning of Demand
Demand in economics refers to the quantity of a good or service that consumers are willing and abl
It is not just a desire - it must be backed by both the ability and willingness to pay.
2. Law of Demand
The Law of Demand states that, other things being equal, as the price of a good increases, the qua
There is an inverse relationship between price and quantity demanded.
3. Exceptions to the Law of Demand
Some goods do not follow the law of demand. These are:
Giffen Goods - Basic necessities where higher prices may lead to higher demand.
Veblen Goods - Status symbol items where higher price increases demand (e.g., luxury watches, b
Necessities - Goods that people buy regardless of price (e.g., medicines).
Future Expectations - If consumers expect prices to rise further, they might buy more even at high p
4. Elasticity of Demand
Elasticity of demand measures the responsiveness of quantity demanded to changes in its determin
Types of Elasticity:
1. Price Elasticity of Demand (PED):
Measures how much demand changes in response to a change in price.
2. Income Elasticity of Demand (YED):
Measures demand’s response to a change in consumer income.
3. Cross Elasticity of Demand (XED):
Measures how the demand for one good changes when the price of a related good (substitute or co
5. Importance of Elasticity of Demand
Helps businesses in pricing decisions to maximize revenue.
Aids the government in tax policy and understanding the impact of indirect taxes.
Important for international trade and utility pricing, especially for essential public goods.
Topic: Demand and Elasticity of Demand
1. Meaning of Demand
Demand in economics refers to the quantity of a good or service that consumers are willing and abl
It is not just a desire - it must be backed by both the ability and willingness to pay.
2. Law of Demand
The Law of Demand states that, other things being equal, as the price of a good increases, the qua
There is an inverse relationship between price and quantity demanded.
3. Exceptions to the Law of Demand
Some goods do not follow the law of demand. These are:
Giffen Goods - Basic necessities where higher prices may lead to higher demand.
Veblen Goods - Status symbol items where higher price increases demand (e.g., luxury watches, b
Necessities - Goods that people buy regardless of price (e.g., medicines).
Future Expectations - If consumers expect prices to rise further, they might buy more even at high p
4. Elasticity of Demand
Elasticity of demand measures the responsiveness of quantity demanded to changes in its determin
Types of Elasticity:
1. Price Elasticity of Demand (PED):
Measures how much demand changes in response to a change in price.
2. Income Elasticity of Demand (YED):
Measures demand’s response to a change in consumer income.
3. Cross Elasticity of Demand (XED):
Measures how the demand for one good changes when the price of a related good (substitute or co
5. Importance of Elasticity of Demand
Helps businesses in pricing decisions to maximize revenue.
Aids the government in tax policy and understanding the impact of indirect taxes.
Important for international trade and utility pricing, especially for essential public goods.
