Answer to Question #203027 in Economics for Basit Khan

Question

Define and explain demand and law of demand. Explain different elasticity’s of demand with graph and suitable example

Answer 1

Demand is the amount of goods that the buyer wants and can buy for a certain period of time (solvent need). The volume of demand, or demand, must be distinguished from the volume of purchases. The volume of demand is determined only by the behavior of buyers, the volume of purchases - as buyers and sellers alike.

The essence of the law of demand consists in the inverse relationship between the price of a good and the demand for it, all other things being equal, i.e., the demand for a good increases when the price for it falls, and, conversely, the demand for a good decreases when the price for it rises. Reasons for the existence of the reverse the relationship between price and demand is as follows:

- the lower the price, the greater the tendency of people who have previously bought this product to buy it again;

- a lower price enables people who previously could not afford to purchase this product;

- the low price of the product encourages buyers to reduce

consumption of more expensive substitute goods.

The first two reasons are called the income effect, that is, a decrease in price increases the purchasing power of the population. The latter reason is called the substitution effect. Income effect and substitution effect

are combined and lead to the fact that the demand for a product increases with a decrease in the price of it. The process of exchanging goods in a competitive market has its own laws. They are found in the features of the economic the response of market participants to the ratio of the number of exchanged goods and their prices. So, one of the most important laws that "control" the process of commodity exchange and pricing in a competitive market is the law of demand. Demand is at least two-fold concept that connects the amount of purchased goods with its price.

The peculiarity of the law of demand is in the inverse relationship between the price and the quantity of the purchased goods: the higher the price, the less quantity of goods will be bought by consumers. And vice versa, if the price decreases, the number of purchases of this product increases. When the quantity of a given product on the market increases, then, other things being equal, its sale possible only with a declining price. The slightest shortage of goods familiar to buyers in the markets will cause a tendency for their prices to rise.

Elasticity is one of the most important categories of economics. It was first introduced into economic theory by A. Marshall and is a percentage change in one variable in

response to a percentage change in another variable. The concept of elasticity gives an answer to the question of how much the volume of supply and demand will change when the price changes. The measure of the reaction of one quantity to a change in another is called elasticity. An example is the price elasticity of demand, or price elasticity of demand, which shows how much the value of demand for a good will change in percentage terms when its price changes by one percent. The indicator (coefficient) of price elasticity of demand Ер is equal Q is the change in demand,%; Р - price change,%;

Similarly, you can determine the indicator of elasticity by income or some other economic value.