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Unit 2
Unit 2
Demand Analysis
According to Prof. Bober, By demand we mean the various
quantities of a given commodity or service which consumers
would buy in one market in a given period of time at various
prices or at various incomes or at various prices of related
goods.
Demand = Desire + ability to pay + will to spend Ability
to pay: money/purchasing power
Demand depends upon two basic things:Consumers willingness of purchasing, and
2. Consumers adequacy of purchasing power.
1.
Types Of Demand
Consumers
Law OF demand
The relation of price to sales is known as the Law of
Demand. It states that higher the price, lower the demand
and vice versa, other things remaining the same.
Thelaw of demandstates that the quantity
demanded and the price of a commodity are
inversely related, other things remaining constant.
Demand
Schedule
Demand Curve
Demand Function
Demand Function
There are two types of demand functions: Individual
Market
Giffen
Types of Goods
Assumptions of Demand
(A)
Individual Demand
() Price
of the Commodity
() Income of the Consumer
() Tastes and Preferences
() Prices of Related Goods
() Advertisement and Sales Propaganda
() Consumers Expectation
Elasticity Of Demand
The
Elasticity
Elastic Demand
An elastic demand is one in which the change in
quantity demanded due to a change in price is
large.
For example, automobile rebates have been very
successful in increasing automobile sales by
reducing price. Close substitutes for a product
affect the elasticity of demand.
Inelastic Demand
An inelastic demand is one in which the change
in quantity demanded due to a change in price
is small.
Example:- Consumers will not reduce their food
purchases if food prices rise, although there
may be shifts in the types of food they purchase.
Also, consumers will not greatly change their
driving behavior if gasoline prices rise.
Unitary Elasticity
This
Price Elasticity
It is a measure of the relationship between a change in the
quantity demanded of a particular good and a change in
its price.
Price Elasticity of Demand = % Change in Quantity
Demanded / % Change in Price
Businesses evaluate price elasticity of demand for various
products to help predict the impact of a pricing on
product sales. Typically, businesses charge higher
prices if demand for the product is price inelastic.
of the Commodity
Substitutes
Variety of uses
Joint demand
Habit
Time factor
Brand
Distribution of income
Income Elasticity
Income
Income
Demonstration
Frequency:-
Cross Elasticity
In economics, the cross elasticity of demand or crossprice
elasticity
of
demand measures
the
responsiveness of the demand for a good to a change in
the price of another good. It is measured as
the percentage change in demand for the first good that
occurs in response to a percentage change in price of
the second good.
For example:- the two goods, fuel and car
are complements; that is, one is used with the other. In
these cases the cross elasticity of demand will
be negative, as shown by the decrease in demand for
cars when the price for fuel will rise.
Advertising Elasticity
Advertising
elasticity
of
demand
is
an elasticity measuring the effect of an increase or
decrease in advertising on a market. Good advertising
will result in a positive shift in demand for a good. AED is
used to measure the effectiveness of this strategy in
increasing demand versus its cost.
Determination