MANAGERIAL ECONOMICS AND

FINANCIAL ANALYSIS

TOPIC : INCOME,CROSS &

PROMOTIONAL DEMAND
 TYPES OF DEMAND

2.INCOME DEMAND:
It is a relationship between changes in quantity demanded due to changes in
income of a consumer,all factors other than income of a consumer remains
constant.
Qd = f(Px,Psc,I,T,AE,W,....)
Where Qd /D = quantity of a product demanded
f = demand function
Px = price of a product “x”
Psc = prices of Substitutes and Complementary goods of product “x”
I = income of consumer
T = taste and preferences of a customer
AE = advertising expenses
W = weather conditions
We assume, variables other than Income of a consumer remain constant.
Qd = f(I)
 INCOME DEMAND
Goods classification: Goods classified into two types
a.Superior goods b.Inferior goods
a.Superior goods:
In the case of superior goods, income and demand are directly related,
meaning that an increase in income will cause demand to rise and a
decrease in income causes demand to fall.
Example: consumer durables, technology products,Luxury cars,precious
metals(gold,diamond,platinum),branded products.

Qd I
• Positive slope
• Demand slope upwards.
 INCOME DEMAND
b.Inferior goods:
In the case of inferior goods income and demand are inversely related,
which means that an increase in income leads to a decrease in demand and a
decrease in income leads to an increase in demand.
Example:Used cars,store brand goods and cheaper goods.

Qd 1/I
• Negative slope

• Demand slope downwards.

 CROSS DEMAND
3.CROSS DEMAND:

It represents the relationship between changes in quantity demanded of one

product due to the changes in price of other product.
Classified into two types:
a. Substitutes goods b. Complementary goods

We assume, variables other than Price of substitutes and complementary goods of

a consumer remain constant.
Qd = f(Psc)
Related goods are of two types, substitutes and com-plementary. In the case
of substitute or competitive goods, a rise in the price of one good-A raises
the demand for the other good-B, the price of B remaining the same.
 CROSS DEMAND
a.Substitute goods
Substitute products are goods that are in direct competition. An increase in
the price of one product will lead to an increase in demand for the
competing product. For instance, an increase in the price of petrol will
force consumers to go for diesel and increase the demand for diesel.

Qd for Product x Price of Product y

• Positive slope
• Demand slope upwards.
 CROSS DEMAND

b. Complementary goods
As the price for one item increases, an item closely associated with that
item and necessary for its consumption decreases because the demand for
the main good has also dropped.
For example, if the price of Tea increases, the quantity demanded for milk
drops as consumers are drinking less Tea and need to purchase less milk.

Qd for Product A 1/Price of Product B

Negative slope
Demand slope downwards.
 PROMOTIONAL DEMAND
4.Promotional demand
It represents the relationship between changes in demand as a result of
change in advertisement expenditure,assuming other things remains
constant.
Qd = f(AE)
Qd AE
EXTENSION AND CONTRACTION IN DEMAND
It refers the movement along the demand curve.
Extension of demand: The increase in demand due to the fall in price, all other
factors remaining constant.
Contraction of demand: Contraction of demand is the fall in demand due to
the rise in price, all other factors remaining constant.
General,P=3000$,Qd=5millions
Extension of demand:
If Price falls from 3000 to 2000$
Then Qd extended from 5 to 6 millions
Contraction of demand:
If Price rises from 3000 to 4000$
Then Qd contracted from 5 to 4 millions
 INCREASE AND DECREASE IN DEMAND
It refers to shifts in demand due to changes in influencing factors
income,Psc,AE etc.
Increase in demand:Shift of demand curve OUTWARDS shows an increase in
demand at the same price level. It is known as INCREASE IN DEMAND.
Decrease in demand:Shift of demand curve INWARDS shows that less is
demanded at the same price level. It is known as a FALL IN DEMAND.
General Values,
P=4000$,Qd = 5 millions
Increase in demand:
P=4000$, Qd shifts from 5 to 6 millions
Decrease in demand:
P=4000$,Qd shifts from 5 to 4 millions