Market Demand

Function
Market demand function
• Demand function shows the relationship between quantity
demanded for a particular commodity and the factors
influencing it.
• It can be either with respect to one consumer (individual
demand function) or to all the consumers in the market
(market demand function)
• Market demand function refers to the functional relationship
between market demand and the factors affecting market
demand.
Determinants of Demand

•Income
•Price
•Expectations, tastes, and preferences
•Customer base
•Economic conditions
Determinants of Demand
• Income • Price
When an individual’s income rises, The laws of supply and demand
they can buy more expensive dictate that if the cost of a
products or purchase the products particular product rises, demand
they usually buy in a greater will decrease.
volume. As a result, this causes an
increase in demand. Conversely, if
incomes drop, then demand is
likely to decrease
Determinants of Demand
• Expectations, tastes, and preferences
If consumer suspect that the price of a product will rise in
future, the demand for said product will increase in the
present.
For instance, a popular celebrity is involved in marketing a
product, demand may increase. Conversely, if a scientific study
reports a product is detrimental to your health, demand will
drop.
Determinants of Demand
• Customer base
One of the most important
determinants of demand is the
size of the market. The more
consumers want to purchase a
product, the faster demand will
rise.
• Economic conditions
Consumer’s perceptions of the
economy affect their propensity to
consume. To illustrate, if
consumers are confident their jobs
are secure, they are more likely to
spend. This is known as consumer
confidence. However, if consumer’s
confidence is low, individuals are
more likely to put their money into
savings accounts.
Industry Demand vs. Firm Demand

•Industry demand is subject to

general economic conditions
•Firm demand is determined by
economic conditions and
competition
Market Demand Function
QDx = f ( Px, N, I, Py, T)
1. QDx = Quantity demanded of Commodity X
2. Px = Price per unit of commodity X
3. N= Number of Consumers on the market
4. I = Consumer income
5. Py = Price of related (substitute or complementary) commodity
6. T= Consumer tastes
PRODUCT RULE OF
DIFFERENTIATION
 ∆ 𝑌 𝑌 𝐹− 𝑌 𝐼
 

=
∆ 𝑋 𝑋 𝐹− 𝑋𝐼
(4,4)
 
∆𝑌 4−2
=
∆ 𝑋 4−2
(2,2)
 
𝑑𝑌
𝑑𝑋
 NOTATIONS
LEIBNIZ LANGRAGE

 
 LEIBNIZ

Y= U*V
20
 

Then
 LEIBNIZ
 

Y= UV
20
 

+
20 - 7
 
LANGRAGE

f
20
 

+
20 - 7
FUNCTION
Refers to the relationship
between one (dependent)
variable’s value of one or
more (independent)
variables.

21
Calculus
is a mathematical technique that enables
one to find instantaneous rates of
change of a continuous function.

22
 The chain rule has been known since 
Isaac Newton and Leibniz first
discovered the calculus at the end of the
17th century. The rule facilitates
 calculations that involve finding the
derivatives of complex expressions,
such as those found in many physics
applications.

23
Derivative
The slope of the line that is
tangent to some given
point on a curve.

24
DIFFERENTIATION
Process of
determining the
derivative of a
function i.e finding
dY/dX when Y= f(x)

25
 Power

1
function
rule
“
A power function is one in
which the independent
variable, X, is raised to the
power of one or more. This
type of function can be
expressed in general terms as

27
Y= bXn

28
 where Y X
Dependent Independent
variable variable

b
Coefficient of the n = Power to which the
dependent
independent variable is
variable
raised
29
Rule:

dY (n-1)

dX nX

30
• Marginal revenue refers to the incremental
change in earnings resulting from the sale of one
additional unit.
• Analyzing marginal revenue helps a company
identify the revenue generated from one
additional unit of production.

MARGINAL REVENUE
PRICE ELASTICITY
• Price elasticity refers to the degree to which
individuals, consumers or producers change their
demand or the amount supplied in response to price
or income changes. It is predominantly used to assess
the change in consumer demand as a result of a
change in a good or service's price.
Demand Curve
 The demand curve is a graphical
representation of the relationship
between the price of a good or service
and the quantity demanded for a given
Demand period of time.
Curve In economics, a demand curve is a
Determinatio graph depicting the relationship
between the price of how much the
n quantity will change in percentage
terms for a 1% change in the price, and
is thus important in determining how
revenue will change.
Example of Demand Curve Determination
Change in
Quantity
Demanded
 • Example: The price of a hot dog decreases to $4,
then customers want to consume three hot dogs:
the quantity demanded moves rightward from
two to three when the price falls from $5 to $4.

Quantity
demanded
rises if price
falls
 • Example: at the price of $5 per hot dog, consumers buy
two hot dogs per day; the quantity demanded is two. If
vendors decide to increase the price of a hot dog to $6,
then consumers only purchase one hot dog per day.

Quantity
demanded
falls if price
rises
Role of Non-Price
Variables
Change in non-price variables will define a new demand
curve.
“marketing strategy”
Firms will engage in non-price competition, in spite of the
additional costs involved, because it is usually more profitable
than selling for a lower price and avoids the risk of a price war.
typically involves promotional expenditures (such as
advertising, selling staff, the locations convenience, sales
promotions, coupons, special orders, or free gifts), marketing
research, new product development, and brand management
costs.
For a company that wants to market
effectively, considering the non-price factors
affecting demand is an important part of
devising a marketing and promotion strategy.
Non-price factors vary depending upon a
wide variety of market influences, climates,
and preferences and may change at any
given point in a product’s life span.
Why Marketers Need to Pay Attention to Non-
Price Factors
Non-price factors have the potential to greatly
influence the success of an item on the market at any
given time. Because of this, it is wise for marketers to
pay attention to non-price factors that affect demand
as they prepare to put together a marketing and
promotions plan. While non-price factors can vary
greatly, they are an important consideration in any
marketing strategy.
Basis of
Demand
“ Demand is simply
quantity of a good or
the
service that
consumers are willing
and able to buy at a
given price in a given
period
4
5
A s t h e price of a c o m m o d i t y increases,
d e m a n d decreases. Also, a s t h e price
decreases, d e m a n d increases. This relationship
c a n b e illustrated g r a p h i c a ll y u s i n g a tool
k n o w n a s t h e d e m a n d curve.
4
6
2 Basis of
Demand

DIRECT DERIVED DEMAND

DEMAND 4
7
 C o m p o n e n t s of Derived
D e m a n d
1. Raw Materials - Raw or “unprocessed” materials
are the elemental products used in the
producti on of goods
2. Processed Materials - Processed materials are
goods that have been refined or otherwise
assembled from raw materials. 4
8

3. The producti on of goods and the provision of

services
• requires workers—labor.
 Direct Demand
MEANING When the goods a nd
services are d e m a n d e d
by consumers to sati sfy
their wants directly, such
d e m a n d is called direct
demand
ORIGIN OF DEMAND Direct d e m a n d comes
from the consumers for
direct consumpti on
DEPENDENCE It depends on utility,
price, income, taste,
preference, and habits
etc. Of the consumers.
Derived Demand
W h e n a commodity is
d e m a nd e d to produce
another product, such
d e m a n d is called derived
d e m a n d or indirect
demand
Derived d e m a n d come s
from producers to carry
out producti on
It depends on the
dem
4
a n d for other goods
9 and service