Demand Analysis

DEMAND ANALYSIS
The word demand is defined as the quantity of a good bought at particular price in particular market in a given period of time. In simple words demand is desire or need. But many people have many desires but they cannot fulfill their all desires due to lack of resources. In economics, demand of a thing is not only desire of that thing but also depends upon the affordability. We can say that demand is willingness and ableness of people to buy something.

The Law Of Demand:

The law of demand says that the demand of a thing expands with the fall in price of that thing and contracts with the rise in price provided that other things remain constant. The other things which have to be constant for validation of law are i. No change in income:

The income should not be changed because income has direct relation with demand. As the income increases, demands or desires increase automatically. ii. Taste and attitude remain unchanged: The taste and attitude of customers for a particular thing does not change. The attitude of customers for particular thing can be maintained by advertisements. iii. Prices of related commodities do not change: The prices of alternatives should not change because the change in prices of substitutes affects the demand. This is the violation of demand law. iv. Unchanged expectations: There should be unchanged expectations about future income and prices. From above we can write that Qd = f (P, Y, T, Po, E, N, O) This equation says that Qd (quantity of demand) is a function of P= price Y=Income of consumer T=Taste and preferences Po=Prices of other related commodities E=expectations about future income
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Demand Analysis

N=Extent of need O=Other variables

Changes In Quantity Demanded:

There are two ways due to which demand of a thing changes: i. Rise or fall in price ii. Change in income Rise or fall in price: With the change in price, the demand of goods also changes but in opposite direction. There is a negative relationship between price and demand. If the price of a thing falls, its demand raises and it is called extension in demand but if the price rises, then demand decreases and it is known as contraction of demand. Change in income: Income has direct relationship with demand. If the income increases, the demand or desires also increases. But with the decrease in income, demands decreases automatically. Now we demonstrate these facts with graphs: For Income=X, prices and quantity demanded is given in the table and represented by the graph on the right side of table in fig.1. Income=X Price 100 125 150 175 Quantity 50 40 30 20
Q P

Fig.1 The graph shows the extension and contraction of demand with the increase or decrease in price. Now if income increases from X to 2X, the graph shifts right side as shown in fig.2 due to increase in demand while prices are same as in table of fig.1

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Demand Analysis

Income=2X Price 100 125 150 175 Quantity 100 80 60 40

Q P

Income=X Income=2X

Fig.2

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