How can we explain Law of Demand and its elasticity?what is demand?concepts of its elasticity?and demand curves?and what will be the limitations of the law?
What Does Law Of Demand Mean?
A microeconomic law that states that, all other factors being equal, as the price of a good or service increases, consumer demand for the good or service will decrease and vice versa.
Different Types of Elasticities
- Price elasticity of demand: how sensitive is the quantity demanded to a change in the price of the good.
- Price elasticity of supply: how sensitive is the quantity supplied to a change in the price of the good.
Examples of Demand Elasticities
- When the price of gasoline rises by 1% the quantity demanded falls by 0.2%, so gasoline demand is not very price sensitive.
- Price elasticity of demand is -0.2 .
- When the price of gold jewelry rises by 1% the quantity demanded falls by 2.6%, so jewelry demand is very price sensitive.
- Price elasticity of demand is -2.6
demand is the law of demand as the price rises the quantity demanded rises, and elasticity is the responsiveness of quantity demmanded to a price change.greater the change in quantity demanded the more elastic it is the less the more inelastic it is.
Demand simply means quantities of a good or service buyers are willing to buy in an economy under specific condition like prices of the good and available disposable income.
A demand curve is a graph showing the quantity of a good that buyers are willing to buy at different price levels assuming all other factors remain constant.. In this graph prices are represented by y-axis and demand is represented by x-axis.
The demand curve is always sloping downwards. This fact is also called the law of downward sloping demand. The downward slope of demand implies that consumers will purchase more of a good as its price is reduced. This law will hold true only when other condition like disposable income, and prices of substitute goods is held constant. This law also assumes that that the good under question is not an essential good or is not a complementary good for some other essential good. Also there are some goods called prestige goods where reduction in prices could lead to reduction of sales quantity also.
The extent to which prices of a goods changes with change in price is measured by price elasticity of demand, frequently called just elasticity of demand.It is a measure of he extent to which demand of a good changes in response to changes in price.