These are classified on basis of following factors:
Free / Paid
Exclusion of others possible
Rivalry in consumption - more consumers then each gets less
Public goods are non-excludable i.e. individuals
cannot be excluded from use and non-rivalrous i.e. use by one
person doesn't reduce availability to others.
Fig 1: Definition matrix
Types of Demands:
Individual and Market -Demand of a single
household and sum of all household demands.
Ex Ante vs Ex Post - Ex-Ante is wanted to buy
and Ex-Post is actually bought.
Joint demand - Used together and bought
Derived: A construction manager has to build
a house and so he has derived demand for wood, stone and cement.
Composite demand: The commodity is of
multiple alternative uses. e.g. People demand oil as it can be
used for fuel or plastics.
Elasticity of Demands
Elasticity is the responsiveness of demand to the price or income.
Demand curve shown below moves to the left when demand decreases and
right when demand increases. Ordinary goods show this property. Inferior
goods are those whom price increase leads to demand decrease e.g.
public transport demand is high if income low.
Superior goods are those which have higher demand with increase in
income of person.
Fig 1: Demand curve
These goods oppose the law of demand i.e. higher price
means lower demand but in these goods higher price increases the
demand. These are snob goods or status symbols like limozine, gold
where price increase means higher prestige to the buyer and so
Fig 2: Veblen goods demand curve
These too are goods that show behavior like Veblen goods in
terms of the abnormal demand curve i.e. demand increases with price.
However unlike Veblen goods these aren't snob goods or status
symbols.A Giffen good is an inferior good with no close substitute
Hypothetical example Bread is a good food source for people and when
its price increases the people are forced to cut out other eatables
like meat and spend more on bread. Hence its demand increases with
price. But in reality its difficult to find genuine examples of
Types of elasticity:
Cross elasticity - Proportional change in quantity
supplied relative to the proportional change in price of another
good. E.g: If the price of fuel increases then the demand for fuel
inefficient cars decreases this is because both are complements
of each other i.e. negative cross elasticity.
However if both A and B are substitutes then a
decreases in price of A increases the demand for B due to
positive cross elasticity. Zero cross elasticity is seen when
change in price of A doesn't affect quantity of B.
Price elasticity -This means increase in price of
A by X% reduces his demand by X%. However goods can be
perfectly inelastic too i.e. Water, food - where the
company has a monopoly and so increase in price doesn't affect
demand at all. Goods can also be perfectly elastic
i.e. high competition where people buy all of a product X at a
particular price but none at all if the price increases slightly. In
real situations, goods can be relatively inelastic i.e. increase
in price by 10% reduces demand by less than 10% and relatively
elastic i.e. increase in price by 10% but demand reduced
by more than 10%.
Income elasticity -If the salary rises by 10% then
the demand for the good should rise by 10% [perfect elasticity],
more than 10% [high elastic], less than 10% [low elastic].
Fig 3: Price elasticity
If the price offered for a good becomes more then the supply
of it also increases.
Fig 4: Supply curve
Types of Supply
Perfectly inelastic: Price change can
never affect the supply. E.g: Da vinci paintings
Relatively inelastic: Price change by
X% increases supply by less than X%.
Unitary: Price change by X% increases
supply by X% only.
Relatively elastic: Price change by X%
increases supply by more than X%.
Perfectly elastic: Willing to supply
infinite amount at a price but when price reduces supply
Relatively inelastic goods are
perishables whereas relatively elastic are non perishables.
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