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Demand plays an import role in the decision making in almost every sphere of life especially for the firms, government and the organisations. An understanding of the demand of goods and services is a essential ingredient for the business firms to compete at the market place. This lesson titles "Elasticity of Demand" is intended to equip the learner in understanding elasticity of demand and its importance in business. (please scroll)
Objective of the Learning Module are:
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Demand is the desire backed by willingness to pay and ability to pay. Merely, a wish to have a commodity does not become demand. A person wishing to have a commodity should be willing to pay for it and should have ability to pay for it. Thus a desire becomes demand if it is backed by willingness to pay and ability to pay. Demand is meaningless unless it is stated with reference to a price.
The Learner is expected to Know the followings before undertaking this module:
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The term elasticity was developed by Alfred Marshall, and is used to measure the relationship between price and quantity demanded.
Law of Demand:
The law of demand states that the price of a commodity falls, the quantity demanded of that commodity will increase. It explains only the direction of change in demand and not the extent of change. This deficiency is removed by the concept of elasticity of demand. |
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There is an inverse relationship between quantity demanded and the price of the good. Accordingly, price elasticity of demand is expressed by negative (-) sign. |