Demand Analysis

Demand
• Desire backed by purchasing power is called demand. • The term demand refers to the quantity of a good which a consumer is willing to purchase at a specific price.

Determinants of Demand • • • • • Price Income Taste Price of related goods Expectations .

. Ceteris paribus: other things remaining the same.Law of Demand • Other things remaining the same as the price of a commodity decreases the demand for that commodity increases and as the price of a commodity increases the demand for that commodity tends to decrease.

Table Price 20 15 10 5 Quantity Demanded 100 150 200 250 .

& tastes should not change • Price of substitutes should not change • Numbers of consumers should not change • Future expectations • Climate/weather should not change .Assumption of law of Demand • Consumer’s income should not change • Consumer’s preferences.

Exception of law of demand • Future forecasting • Precious things • Antiques .

We have a marked demand schedule. .Market demand curve • The market demand is the summation of the individual consumers demands for a homogeneous commodity. If we sum up the different quantities of a commodity demanded by a number of individual at various prices.

Price 20 15 10 Consumers demand Total Demand 100 150 200 A 50 70 80 B 30 45 65 C 20 35 55 5 90 85 75 250 .

It is known as contraction or expansion in demand . If the changes in demand is due to a rise in or fall in the price of a commodity. .Movement Vs Shift in demand Curve • Movement in demand curve. • Shift in demand curve If the changes in demand is due to factor other than price it is known as increase or decrease in demand.

weather etc.e. ceteris paribus assumption is called shift in demand Rise in demand Fall in demand • • .Shift in demand • The result of changes in other factors (income.etc) I.taste.

When the price of good do not change but demand for that product increases. When the price of good increases but the demand remains the same. .Shift in demand • Rise in demand There may be two possible situation of rise in demand 1. 2.

When the price of good decreases but the demand remains the same. When the price of good do not change but demand for that product decreases 2.Shift in demand curve • Fall in demand There may be two possible situation of rise in demand 1. .

a. for example. (competitive goods) • The goods which are considered to be economically interchangeable by buyers.Substitute goods. Rice and Wheat. Tea and Coffee b. .

For example.Complementary products • Goods whose demands are interrelated. Car & Petrol Pen & Ink . An increase in the price of one of the goods results in a fall in the demand for other.

Derived Demand • Derived Demand • Some goods and services are not consumed directly rather they are demanded for the production of desired products • Example • Demand for factors inputs to build a house .

demand for these goods is called joint demand • Example • Ball & Bat .Joint Demand • Some times more than one goods and services are required to satisfy a want .

. • Example Demand for power for industrial uses as well as domestic uses. If we sum up the demand for same good for different purposes it will call composite demand for that good.Composite Demand • Some goods are demanded to fulfill more than one purposes.

. • To the extent quantity demand changes as a result of change in price is called elasticity of demand.Elasticity of Demand • Elasticity of demand is a technical term which is used to measure the proportional changes in quantity demanded as result of proportional changes in price.

Degrees of elasticity of demand Relatively Elastic Demand Relatively less elastic demand Perfect elastic Perfect inelastic demand .

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