MARKET DEMAND ANALYSIS FOR DECISION MAKING

Demand Function and Demand Curve

Demand function refers to the relationship that exist between

the quantity demanded of particular product and all
determinant of demand.

Demand curve refers to the relationship that exist between

quantity demanded of particular product and the price of that
product, with all other influencing factors held constant.
THE DETERMINANT OF DEMAND FOR A PRODUCT
Qx = f{Px, Ax, Dx, Ox, Ic, Tc, Ec, Py, Ay, Dy, Oy G, N, W}
Strategic Consumer Competitor Other
Variables Variables Variables Variables

Where
Qx is the quantity demanded of product X, per period
Px is the price of product X
Ax is advertising/promotion for product X
Dx is design/style/quality of product X
Ox is outlets for distribution
Ic is incomes of consumers/customers/clientele
Tc is tastes and preference patterns of consumers
Ec is expectations of consumers regarding future prices, etc.
Py is prices of related (subtitutes, complements)
Ay is advertising/promotion for related goods
Dy is design/quality of related goods
Oy is competitor distribution outlets
G is government policy
N is number of people in the economy
W is weather conditions
THE FORM OF THE DEMAND FUNCTION
Qx=α + β1Px + β2Py + β3Ax + β4Ay + β5Ic + β6Tc + β7Ec + β8N

Example : suppose the demand for product X has been estimated (using regression
analysis) to be

Qx = 5,030 – 3,806.2Px + 1,458.5Py + 256.6 Ax – 32.3Ay + 0.18Ic

Suppose :
Px = $ 8
Py = $ 6
Ax = $ 168 (in thousands)
Ay = $ 182 (in thousands)
Ic = $ 12, 875
We find : Qx = 22,879.1
THE DEMAND CURVE DERIVED FROM THE DEMAND FUNCTION

Qx = A + β1Px
Where :
A = α + β2Py + β3Ax + β4Ay + β5Ic + β6Tc + β7Ec + β8N
Qx = 53,329.7 – 3,806.2 Px

Movement Along versus Shifs of the Demand Curve

(grafik)
RELATIONSHIP AMONG PRICE, TOTAL REVENUE, AND MARGINAL REVENUE

Example : Suppose the demand curve for a carton

of twelve cans of dog food at a dicount super-
market during a particular month specifieced by :

Px = 11 – 0,001 Qx

Marginal Revenue is defined as the change in

total revenue that results from a one-unit increase
in quntity demand.
 Price Quantity Total Revenue Marginal Revenue
($/unit) Demanded (Unit) ($) ($/unit)
10
9
8
7
6
5
4
3
2
1