Law of Demand, elasticity and diminishing marginal utility - Applied economics in real life

(1) Law of Demand

For demand there exists an inverse relationship between price of the quantity and the quantity the consumers are willing to purchase at the given time frame (Assuming all other things are constant)

(This has been taken for reference from Managed Study.Com)

Examples: (a) The price for metro travel increased in Delhi, hence due to increase in metro charges the usage of metro as a means of transport decreased and people started using more of pool cab facilities.

(b) Pantaloons offers month end sales, where there is significant discount offered in all the apparels. As a result, due to significant decrease in price the demand for the apparels increases.

(2) Cross Price elasticity

Cross Price elasticity occurs when the demand for commodity changes with respect to the change in price of its substitute or complementary goods.

(This has been taken for reference from Economic Discussions.com : study notes on cross price elasticity of demand - Article shared by Ritika Muley)

Examples: (a) The Call/internet/SMS Charges for Airtel were high and as a result the customers easily shifted to Jio when it offered all these services at an affordable plan to its customers.

“This shows a direct relationship between the price for airtel and demand for jio”

(b) With the increase in the price for Liquefied Petroleum Gas the demand for gas stoves decreased, and as a result more people shifted towards using induction stoves for cooking.

“This shows an inverse relationship between the price of LPG and demand for gas stoves"

(3) Positive Income Elasticity of Demand

Positive Income Elasticity of Demand is obtained when demand for a commodity changes in the same direction as the income of the consumer.

(This has been taken for reference from Economic Discussions.com : Income Elasticity of demand : Measurement, types and significance- Article shared by Nitisha)

Examples: (a) For a coffee lover, with the increase in income the demand for having coffee from starbucks increased. Earlier she used to have coffee from starbucks once in a month but now with the increase in income she have the same coffee once/twice in every week.

(b)The customer while earning a minimal monthly income, used to rarely purchase shoes from branded stores (like aldo, adidas , Nike etc) but after getting a job and having an upward shift in the income, his demand increased towards branded shoes .

(4) Negative Income Elasticity of Demand

Negative income elasticity is when the demand for the commodity changes in an opposite direction to that of the change in the Income of the consumer.

(This has been taken for reference from slideshow made by Bhawna Bhatnagar)

Examples: (a) There was a shift in the demand for cars from cycle, when the income of the respective consumer increased. As a result, there was a negative elasticity of demand that was observed by the cycle suppliers.

(b) Earlier with minimal income, customer used to purchase affordable skincare products like Ponds, Himalaya, Lakme but as the income of the customer moved upwards she shifted towards much luxurious skincare brands like The body shop, forest essentials, Kama Ayurveda.

(5) Law of Diminishing Marginal utility

With the continuous consumption of a commodity Marginal utility derived from each additional unit starts to decline. This is the theory of Diminishing Marginal Utility.

(This has been taken for reference from Economics concepts.Com)

Example: (a) Worlds of Wonder (an amusement park in Delhi NCR) offers unlimited rides for a specific amount. This has been framed following the concept of “Diminishing Marginal Utility” – The Marginal Utility for customers at the start is high but soon after riding few of the rides the Marginal Utility decreases as a result the customer does not enjoys all the rides and amusement parks succeeds to make profit.

(b) Another example is of Barbeque nation – This again offers unlimited Buffet (Veg/Non – Veg) for a particular price. The buffet contains unlimited barbeque starters, main course, soups and desserts. The customer’s Marginal Utility at the start remains high and the customer have starters but just as the consumption increases, the Marginal Utility for food decreases as a result the customer eats less of main course, desserts. Hence the company manages to make good amount of profit from such schemes.

(Note: All the images are from different websites and by different authors - They have been used for reference purpose only)