1.

Demand determinants are the elements that have an impact on consumers'

decisions to buy a good or service. In order to analyse and estimate consumer and
market demand for a good or service, organisations must have a clear understanding
of the relationship between demand and each of its determinants. Demand for a
good or service is determined by a number of variables, including pricing, consumer
income and tastes, and population growth. For instance, as customer tastes, fashion,
and preferences vary, so does the demand for clothing.
 Effect of price of the item (Px) on Demand (Dx): While other parameters
remain constant, the price of a good or service is often inversely proportional
to the amount sought. This suggests that demand for the good or service
decreases as its price rises and vice versa. A drop in demand for an item x will
occur as its price rises. Dx is therefore inversely proportional to Px.
Dx ∝1/Px
This effect is also known as the price effect on demand
 Effect of price on the substitute (Py) on demand (Dx): While other parameters
remain constant, the price of a good or service is often inversely proportional
to the amount sought. This suggests that demand for the good or service
decreases as its price rises and vice versa. If item y is a replacement for item
x, then as the price of item y rises, the demand for item x will rise as well. As
an illustration, y is coffee and x is tea. Both act as each other's replacements.
When a result, as coffee becomes more expensive, more people will move
from coffee to tea, increasing the demand for tea. Dx and Py are therefore
directly related:
D x ∝ Py
This effect is also known as substitute effect on demand.
 Effect of the price on complement Pz on demand Dx : Complementary
items that are used together, for example: Car and fuel. The demand for
complementary commodities is inversely correlated with their cost. This
suggests that a rise in one good's price will lead to a decline in the other
good's demand. If item z is a complement to item x, then as the price of
item z falls, so does the demand for it. Thus, the demand for item X will
rise as a result. Let's use an illustration to help you comprehend this.
Bread and butter go well together. Its demand will rise if the price of the
bread lowers. This will consequently lead to a rise in butter demand. Dx is
therefore inversely connected to Pz:
Dx∝1/Pz
This effect is also known as complementary effect on demand.
 Effect of consumers income B on demand Dx : Individuals' purchasing
power is determined by their income level. In most cases, demand and
income are directly proportionate to one another. This suggests that a
gain in consumer income causes a rise in the demand for a certain
commodity. Nevertheless, the relationship is dependent on the kind of
goods. As the consumer's wealth increases, he or she will buy more
everyday items like tea, sugar, cornflakes, noodles, watches, and designer
 clothing. This outcome is referred to as a positive effect. As a result, if a
product is a typical good, consumer income and demand are directly
correlated:
Dx ∝ B, if x is a normal good.
Additionally, consumers will buy less inferior goods like secondhand
goods, low-quality jowar, and low-quality rice. It is known as a negative
effect. In the case of inferior goods, demand for item x is thus inversely
related to consumer income.
Dx ∝ 1/B, if x in an inferior good.

In the market, supply does not always remain steady. The supply of a
good is impacted by a variety of factors. In general, a good's price and
production cost determine its supply. As a result, it is possible to state
that supply is a function of both price and manufacturing cost. The
following variables or determinants have an impact on a good's supply:
 Input price: It is the expense incurred during the production of
commodities that will be delivered to consumers. The utilisation of inputs
will increase as input prices fall. The supply of items will increase as input
usage increases. In a similar vein, a decline in supply will occur when
input prices rise.
 Price of substitutes: Prices of complementary and substitute goods have a
significant impact on the supply of a good. For instance, the company
would manufacture more tea and less coffee if the price of tea rose. There
will be less coffee available on the market as a result.
 Nature and size of the industry: The supply of a good will be constrained
if the market for it is monopolised. On the contrary, if the market is
competitive, there will be a greater supply of the good. When more
producers enter the market, the supply of the product will likewise rise,
expanding the market's size. Consequently, the organization of the market
in which a company operate affects the supply of commodities.
 Government policy: In the face of restrictive government regulations, such
as resource import quotas, rationing of the availability of resources, etc.,
production of a good drops. As a result, there is less of the good available.
Tax laws adopted by the government have a regulatory effect on supply.
The supply will decline if taxes on items are imposed at high rates. This
occurs because high tax rates drive up overall production costs, making it
challenging for suppliers to sell their goods. Similar to how lower taxes on
items will result in more of them being available on the market.
2. A good or service's responsiveness to supply after a change in its market price is
measured by its price elasticity of supply. Basic economic theory states that
when a good's price grows, so will its supply. A good's supply will fall when its
price rises, on the other hand.
Types of elasticity of supply:
a. Perfectly Inelastic supply: With respect to a proportionate change
in a product's price, the amount supplied in this case remains
 constant. In other words, when supply is perfectly inelastic, the
quantity supplied does not change as the price changes. As a result,
the elasticity of supply is zero 0 . A vertical line drawn straight
up serves as the supply curve, with the elasticity coefficient, es 0.
Products with extremely little supply have a fully inelastic demand.
b. Relative Inelastic supply: Relatively inelastic supply occurs when
the percentage change in the amount supplied is smaller than the
percentage change in the price of a good. The supply elasticity in
this situation is below 1, or e 1. The supply curve has an upward
slope coming from the X-axis. Nuclear power is an illustration of a
good with somewhat inelastic supply. Nuclear power has a long
lead time due to the construction, technical know-how, and
protracted ramp-up process of nuclear plants.

P Rs 100
P1 Rs 120
Q 400
Q1 250

ePd ΔQ/Q X P/ΔP

ΔQ Q1-Q 250 – 400 - 150

ΔP P1 – P 120 – 100 20

ePd -150/400 X 100/20 -15/4 -1.875

3. .
1. Contrary to the logic of supply and demand, wealthy individuals pay more
for luxury products. This is due to Veblen Goods:
Veblen goods are expensive or prestigious objects like gold, gemstones,
priceless artwork, and antiques. These items are exempt from the law of
demand. Extremely wealthy consumers purchase Veblen products
because they act as status symbols. Due to their extraordinarily high
prices, they buy these items so that they can use them as status symbols
to increase their social standing. For example, luxury automobiles are
regarded as desirable consumer commodities for conspicuous
consumption because of their high pricing, not because of them.
2. A number of variables, including the cost of the good itself, consumer
income, and the cost of comparable products, influence demand for a
given good. The variations in the demand curve can be used to observe
these consequences. There are primarily two types of demand curve
changes, which are:
 Movement along the demand curve: There is movement along the
demand curve when the quantity demanded changes in response
to a change in a good's price while other elements remain constant.
When there is movement along the demand curve, there are two
possible outcomes: either demand will increase or demand will
decrease.
 Shift in demand curve: There is a shift in the demand curve when
the demand for a good varies because of multiple factors other
than the good's own price in this situation, price is constant a
new demand curve is drawn on the left or right of the original
demand curve . These variables can include declining customer
demand, declining prices for linked goods, shifting consumer
tastes and preferences, and more. When the demand curve shifts,
there are two possible outcomes: a rise in demand or a drop in
demand.
Expansion and Contraction in Demand Curve:
Expansion or contraction of demand is the change in the quantity
demanded increase or decrease of a good with a change in the price
of that good while other factors remain constant. A rise in the amount
sought as a result of a price decline while other parameters remain
consistent results in expansion of demand. A decrease in a
commodity's demand because of a price increase while other factors
stay the same results in contraction of demand.