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Topic: Ch-2: Unit 1- Law of Demand and Elastic Demand
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Foundation Paper 4: Part-I:BE | Topic: Ch-2:Unit 1- Law of Demand and Elasticity of
Demand | Part - 1
Demand is a crucial concept when it comes to analyzing elasticity
of demand. It refers to the quantity of a commodity that
consumers are willing to purchase at a given price point. The
rational behind the downward sloping demand curve is due to the
law of demand, which states that when the price of a commodity
rises, the quantity demanded falls, and vice versa, all other
factors remaining constant. However, there are exceptions to this
law of demand, which ultimately affect demand. For example,
there may be movement versus a shift in demand. Demand is
always expressed with reference to a time period, which is why it
is considered a flow concept. There are two major types of
demand: individual demand and market demand. Individual
demand refers to the demand for a commodity by an individual
consumer, while market demand refers to the total demand for a
commodity in a particular market. The demand curve is a
graphical representation of the relationship between the price of a
commodity and the quantity demanded, holding all other factors
constant. The law of demand tells us that when the price of a
commodity rises, the quantity demanded falls, and when the price
falls, the quantity demanded rises. However, it is important to
note that price is not the only factor that influences demand;
other factors such as consumer preferences, income, and the
price of substitute goods also affect demand.
In a market, there are many consumers such as Mr. X, Mr. Y, Mr.
A, Mr. B, Mr. Z, Mrs. B, Mrs. C, Mrs. D, and many others. When we
club their demands together, we can get an idea of the market
demand for a particular commodity or product. Let’s take the
example of Mr. C. When the price of a commodity is 10, Mr. C
demands 100 units. But when the price falls to 8 rupees, Mr. C's
demand increases. Similarly, Mr. B reacts differently. When the
price is 10, Mr. B buys 200 units, but when the price falls, his
demand remains unchanged. Market demands are a little
different from the individual demand curve, as it includes multiple
consumers. When we club all the quantities together, we get the
market demand curve. For example, if we add the demands of Mr.
A and Mr. B, it becomes 100 + 200 = 300. Similarly, when we add
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