Fundamentals of Agricultural

Economics 2(2+0)
 Submitted To – Dr. Rita kapil narvariya
 Submitted By –
1. Purnima Choudhary
2. Vishakha Nagle
3. Palak Kapse
4. Khushi Mishra
5. Priyanshi Rajput

 TOPIC = Demand meaning, demand schedule, demand

curve,
Law of demand, elasticity of demand
Demand
 Meaning of Demand

 Demand in economics means a desire to possess a good

supported by willingness and ability to pay for it. If you have a
desire to buy a certain commodity, say, a tractor, but do not
have the adequate means to pay for it, it will simply be a wish,
a desire or a want and not demand. Demand is an effective
desire, i.e., a desire which is backed by willingness and ability
to pay for a commodity in order to obtain it. In the words,
“Demand means the various quantities of a good that would be
purchased per unit of time at different prices in a given
market. There are thus three main characteristics of demand in
economics.
 Willingness and ability to pay. Demand is the amount of a commodity for
which a consumer has the willingness and also the ability to buy.


 Demand is always at a price. If we talk of demand without reference to

price, it will be meaningless. The consumer must know both the price and
the commodity. He will then be able to tell the quantity demanded by
him.


 Demand is always per unit of time. The time may be a day, a week, a
month, or a year.
 Demand Schedule
 Demand Schedule Demand schedule is a
tabular representation showing various
quantities demanded at various levels of price.

 According to Proffessor ‘Samuelson’, “The

table related to price and quantity demanded is
called demand schedule,”
Demand Schedule is of two types:
1. Individual Demand Schedule
2. Market Demand Schedule
 Individual Demand Schedule
 The individual demand schedule represents the
demand of one individual or firm, means the
quantity demanded of a good that a consumer will
buy at a specific price level at a specific point of
time.
 Market Demand Schedule
 The market demand schedule is the horizontal
addition of the demand curves of all individuals buying
the commodity. In addition with the other
determinants market demand is also influenced by the
no. of consumers(N).
 For example , there are four buyers of apples in the market,
namely A, B, C and D.
Demand schedule for APPLES :
 The demand by buyers A, B, C and D are
individual demands. Total demand by the four
buyers is market demand. Therefore, the total
market demand is derived by summing up the
quantity demanded of a commodity by all buyers
at each price.
Importance :
 Helps to determine appealing price .
 Assist in determining elasticity of commodity.
 Use to manage supply of raw materials.
 Use data from schedule to plot demand curve.
 Helps
in determining other factors impacting
demand.
• Elasticity of Demand
 The concept of elasticity of demand was developed by Alfred
Marshall,

 According to him Elasticity of demand refers to the

sensitiveness or responsiveness of demand to changes in
price. Elasticity of demand indicates the degree of relation
between quantity demanded and price

 It is the rate at which the quantity demanded of a

commodities varies with a change in price

 Demand is also affected by the income of the customer and

Types of Elasticity of Demand
 There are three types of Elasticity of Demand
1. Price Elasticity of Demand
2. Income Elasticity of Demand
3. Cross Elasticity of Demand

 Price Elasticity of Demand

It shows the responsiveness of quantity demanded of a
commodity, when the price of that commodity changes,with
other factors being constant .

 Price elasticity of demand= % ∆ in quantity demanded

. % ∆ in price
 Income Elasticity of Demand
It measures the responsiveness of demand due to change in the income
of the consumers in terms of percentage , when other factors
influencing demand viz price of the commodity, price of substitutes ,
tastes , preferences etc. Are kept at constant level .

 Income elasticity of demand= % ∆ in quantity demanded

% ∆ in income

 Cross Elasticity of Demand

It measures the responsiveness of demand for one good (X) is also
influenced by the price of other related good (Y), these maybe
substitutes or complements

 Cross elasticity of demand= % ∆ in quantity demanded of commodity

X
Degree of Elasticity of Demand
(ep)
The concept of price elasticity reveals that the degree of
responsiveness of demand to the change in price differ from
commodity. Demand for some commodity says more elastic
while that for certain others are less elastic. Using the formula
of elasticity,it is possible to mention following different types
of price elasticity.

 Perfectly inelastic demand (ep=0)

- This describe a situation in which demand shows no response to
a change in price.
 Inelastic demand (ep<1)
- In this case the proportionate change in demand is smaller
than the proportionate change in price.

 Unitary elastic demand (ep=1)

- When the percent change in price produces on the equivalent
percent change in demand
 Elastic demand (ep>1)
- In case of certain commodities the demand is relatively more
responsive to change in price.

 Perfectly elastic demand (ep=♾️indefinite)

- It can be noticed that a given price of a infinite quantity
demanded, a small change in price produced infinite change in
demand.
Demand curve

 Demand curve is a diagrammatic representation of demand

shedule. It is a graphical representation of price – quantity
relationship. Individual demand curve shows the highest price
which an individual is willing to pay for different quantities of
the commodity. While, each point on the market demand curve
depicts the maximum quantity of the commodity which all
consumers taken together would be willing to buy at each
level of price ,under given demand conditions.
 Law of Demand
 The Law of Demand explains the relationship between
price and quantity demamded. It may be states as
follow:” All other factors being constant, as the price
of goods and services increases , the quantity
demanded decreases, and vice versa”.
 Thus, there is an inverse relationship between price
and quantity demanded, other things being same.
 This is because consumers use economic goods to
satisfy their most urgent needs first.
 As price falls from P1 to P2 the quantity demanded
increases from Q1 to Q2. This is a negative relation
between price and quantity, hence the slope is
negative ;as predicted by the law of demand.
The law of demand is used to:
 Understand how buyers and sellers interact in
the market place.
 Determine the efficient allocation of resources
in an economy.
 Find the optimal price and quantity of goods.
 Assumptions of Law of Demand
1. Taste and preferences of the Consumers remains
constant.
2. There is no change in the income of the consumer.
3. Prices of the related goods do not change.
4. Consumers do not expect any change in the price of
the commodity in near future.
Exception of law of demand :
 Unlike other laws, law of demand also has few exceptions i.e.
There is no inverse relationship between price and quantity
demanded for these goods. Few of them are as follows:
1. Giffen goods: These are those inferior goods whose quantity
demanded decreases with decrease in price of the good. This
can be explained using the concept of income effect and
substitution effect.
2. Commodities which are regarded as status symbols:
Expensive commodities like jewellery, AC cars, etc., are used to
define status and to display one‟s wealth. These goods doesn‟t
follow the law of demand and quantity demanded increases with
price rise as more expensive these goods become, more will be
their worth as a status symbol.
3. Expectation of change in the price of
the goods in future: if a consumer expects
price of a good to increase in future, it may start
accumulating greater amount of goods for future
consumption even at the presently increased
price. The same holds true for vice versa.