ANALYSIS OF DEMAND

Group A
 Agenda
2

 Demand – Types & Determinants

 Law of Demand
 Shift and movement of demand curve
 Exceptions to demand law
 Indifference curve
 Supply and its determinants
 Market equilibrium
 Overview of input markets
 Demand for inputs
Analysis of Demand 12/07/2021
What is Demand?

“Demand means effective desire or need

for a commodity which is backed up by
the ability (purchasing power) to pay
for it and willingness to buy”.
Need/ Desire/ Want

1
Need/
Desire Rain
Willingness to Buy

2
Willingness to
Buy
Ability to Pay

3
Ability to Pay
Individual and Market Demand
 Individual Demand : Individual demand for a product is
the quantity of it a consumer would buy at a given price,
during a given period of time.

 Market demand : Market demand for a product is the

total demand of all the buyers in the market taken
together at a given price during a given period of time.
Types of Demand
 Individual demand & Market demand
 Demand for capital goods and demand for consumer goods

 Autonomous demand & Derived demand

- Direct & indirect demand

 Demand for durable & non-durable goods

- Replacement demand in case of durable goods

 Short term demand & Long term demand
Determinants of Demand
1) Price of the Product

 Price goes Demand goes

Law of Demand

 Price goes Demand goes

Determinants of Demand (contd..)
2 a) Price of related goods (Substitutes)

 Price of goes

Demand for goes

Determinants of Demand (contd..)
2 b) Price of related goods (Complementary goods)

 Price of goes

Demand for goes

Determinants of Demand (contd..)
3)Consumer Income

 Consumer income

Purchasing power

Demand
Determinants of Demand (contd..)
4)Consumer Tastes and Preferences

Consumer is the King

Their tastes and

preferences determine
the level of demand
Determinants of Demand (contd..)
5) Advertisement of the product
Determinants of Demand (contd..)
6) Change in Expectation about future price and
supply position

 If they fear less supply for a particular product then the

demand goes up and vice versa
Determinants of Demand (contd..)
7) Demography
-Size, Structure and Distribution of population
8) Climate and Weather conditions
9) Distribution pattern of national income
10)General Standard of living and Spending pattern
 Law of Demand
17

All other factors being equal, as the price of a good or

service increases, consumer demand for the good or
service will decrease and vice versa

Analysis of Demand 12/07/2021

 Assumption
18

 Ceteris Paribus
fundamental to the predictive purpose
makes the otherwise intricate relationship
easier
 Man as a rational being

Analysis of Demand 12/07/2021

 Demand Function and Equation
19

 Demand equation is a mathematical expression of

relationship
 Qd = f(P; Prg, Y,…)
 Demand function
 Qd = 325 - P - 30Prg + 1.5Y

Analysis of Demand 12/07/2021

 Demand Schedule
20

 Shows the quantity of good demanded for a given

price
Price Quantity
5 10
4 17
3 26
2 38

Analysis of Demand 12/07/2021

 Demand Curve
21

6 Quantity demanded
5
4
price 3
2
1
0
10 17 26 38
Analysis of Demand 12/07/2021
 Shift in demand curve
22

 Right or left shift due to varying factors

 Rightward shift shows positive effect in demand
while leftward is a negative effect
 Supplementary & Complementary
 Income
 Population
Analysis of Demand 12/07/2021
 Shift in demand curve
23

7
6
5
4
Demand 1
Price 3 Demand 2
2
1
0
10 17 26 38
Analysis of Demand 12/07/2021
 Exceptions to Law of Demand
24

Generally, the amount demanded of good increases with a decrease in

price of the good and vice versa.

Exceptions:
 Giffen goods
 Veblen goods
 Snob effect
 Bandwagon effect
 Speculative products
Analysis of Demand 12/07/2021
 Indifference Curve
25

 Represents all combinations of market baskets that

provide a consumer with same level of satisfaction
 Representation of potentially observable demand
patterns for individual consumers over commodity
bundles

Analysis of Demand 12/07/2021

 Indifference Curve for two goods X and Y
26

Analysis of Demand 12/07/2021

 Indifference Curve for perfect substitutes
27

Analysis of Demand 12/07/2021

 Indifference Curve for perfect compliments
28

Analysis of Demand 12/07/2021

 Utility
29

It is the numerical score representing the satisfaction

that a consumer gets from a market basket.

Marginal Utility is the additional satisfaction

obtained from consuming one additional unit of good.

Analysis of Demand 12/07/2021

 Cardinal Approach v/s Ordinal Approach
30

 In Cardinal approach the utility function is

considered to be measurable
 According to Ordinal approach the utility of a
particular good and service cannot be measured
using a numerical scale but different alternatives
can be ordered into worse, equal or better

Analysis of Demand 12/07/2021

 Supply
31

Supply: amount of some product which is available to

customers.
aggregate supply :It is the total amount of goods and
services that firms are willing to sell at a given price
level in an economy.

Analysis of Demand 12/07/2021

 Factors affecting producer’s supply
32

 Price and availability of the product

 Price of inputs
 The current state of technology
 Government regulations
 Number of firms
 Substitutes in production
 Taxes
 Producer expectations
Analysis of Demand 12/07/2021
 Interaction Between Buyers And Suppliers
33

High Price Of Commodity

Analysis of Demand 12/07/2021

34

 Low Price Of Commodity

Analysis of Demand 12/07/2021

35

• Supply function
 Q=S(P, p1, p2, …, pn) where
 Q is quantity of supply
 S is Supply function
 P is the price of goods
 p1, p2, …, pn are the cost of input
Law of Supply
 Quantity supplied is directly related to price of goods provided other
parameters are constant
Analysis of Demand 12/07/2021
Supply Schedule and curve

Price Quantity of goods

supplied
1 12

2 28

3 42

4 52

5 60

36 Analysis of Demand 12/07/2021

  Shifts in Supply curve
37

Analysis of Demand 12/07/2021

  Demand, Supply and Equilibrium point
38

At Equilibrium point,
quantity supplied = quantity demanded

Analysis of Demand 12/07/2021

  Shift in demand
39

Analysis of Demand 12/07/2021

40

 Results of shift in supply Demand Supply Equilibriu Equilibriu

m Price m Quantity
and demand
+ + +
- - -
Where + represents increase, - + - +
represents decrease, blank represents - + -
no change and ? Indicate that net + + ? +
- - ? -
change cannot be determined
+ - + ?
without knowing the magnitude of - + - ?
shift of demand and supply
Analysis of Demand 12/07/2021
 Overview of Input Markets
41

 Theory of Distribution of Income

 Functional Distribution of Income
 Distribution of income between the owners of the main resources
 Size Distribution of Income
 Distribution of income between different households with no reference to
their functional class

 Demand for inputs in input market work in the same way as the
demand for goods and services in the product market
Analysis of Demand 12/07/2021
 Overview of Input Markets (Contd.)
42

Income of owners of primary resources

Analysis of Demand 12/07/2021
 Demand for Inputs
43

 Derived Demand
 Link between the markets for output and the markets for input
 Input quantity demanded is inversely proportional to the
input price, i.e. the input demand curve is also negatively
sloped

Analysis of Demand 12/07/2021

 Demand for Inputs (Contd.)
44

 Input demand in long run

 Substitution effect
 Income effect

 Input demand in short run

 The maximizing firm
 The firm’s demand curve for the input
Analysis of Demand 12/07/2021
 Demand for Inputs (Contd.)
45

 Determinants for demand of inputs

 Diminishing Returns
 Agriculture sector
 Substitution
 Testing Domain in IT sector
 Importance of input
 Dairy product sector
 Elasticity of demand for the output
 Services enabled IT sector
Analysis of Demand 12/07/2021
Thank You