UNIT – II DEMAND

Meaning
• Demand in economics is defined as consumers' willingness
and ability to consume a given goods. An increase in price will
decrease the quantity demanded of most goods. A decrease in
price will increase the quantity demanded of most goods.
• Demand is an economic principle referring to a consumer's
desire to purchase goods and services and willingness to pay a
price for a specific good or service.

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 UNIT – II DEMAND

Syllabus :
Demand

Meaning
Demand analysis
Demand distinctions

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 Demand

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 Demand
Meaning of Demand
Demand for a particular commodity refers to the commodity which
an individual consumer or household is willing to purchase per unit
of time at particular price.

Demand for particular implies:

• Desire of the product to buy the product.

•The customer willingness to buy the Product.

•Sufficient purchasing power in the customer possession to buy the

product.
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 Market Demand
Market Demand:
The demand for a particular commodity by an individual
consumer is known as individual demand for the commodity
and summation of the individual demand is known as market
demand.
• Low of demand
•Demand analysis
•Demand schedule

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 Types of Demand

• Demand for consumer Goods

• Demand for producers Goods
• Autonomous Demand
• Derived Demand
• Individual Demand
• Market Demand
• Company Demand
• Industry Demand
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 Determinates of demand

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 Distinction of Demand

• Short run and long run demand: short run demand refers

to demand with its immediate reaction to price changes and
income fluctuations.
• Price demand, income demand and
cross demand: demand for commodities by the consumers at
alternative prices are called as price demand

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 Law of Demand

• Law of Demand
The law of demand states that other factors being constant
price and quantity demand of any good and service are
inversely related to each other. When the price of a product
increases, the demand for the same product will fall.

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 Law of Demand

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 Elasticity of Demand

• Price elasticity of demand is a measure of the

responsiveness of consumers to a change in a
product's cost. The more general term demand
elasticity measures the impact of a change in
any of a variety of factors including the
product's Price.
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 Contd…..

• Price elasticity of demand is an indicator of the

impact of a price change, up or down, on a
product's sales.
• Demand elasticity is a more general term,
allowing the impact on demand of a number of
factors to be estimated.  
• Higher price elasticity of demand suggests that
consumers are more responsive to a product's
price change.

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 Demand Forecasting

What is demand
• Demand for a product refers to
• Desire of an individual for a product
• Ability to pay for the product
• Willingness
Forecasting
• It’s a prediction or estimation of future
situation

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 Demand Forecasting

•Demand forecasting it’s a systematic process.

• The demand for the product and services of an
organization future under a set of uncontrollable
and competitive forces.
•Essential for a firm
•Produce quantities at the time right to arrange
various inputs.
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 Elasticity of Demand

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 Importance of demand forecasting
• Planning and production analysis
• Sales forecasting
• Control of business
• Inventory Control
• Long term investment Programs
• Helpful for planners and policy makers

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 Supply
Meaning
Its refers to the quantity of a commodity which
producers or sellers are willing to produce and offer
for a sale at particular price in a given market at a
particular period of time.

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 Aspects of importance
Three importance as follows,

•Supply is a desired quantity

• Supply is always explained with reference to price

• Supply is a flow variable

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 SUPPLY FACTORS
• A decrease in costs of production.
• More firms

• Investment in capacity

• Related supply

• Weather
• Technological improvements
• Lower taxes
•Government subsidies
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 LAW OF SUPPLY
Law of supply is the micro economic law that states
that, all other factors being equal, as the price of a good
or service increases, the quantity of goods or services
that suppliers offer will increase, and vice versa. The
law of supply says that as the price of an item goes up,
suppliers will attempt to maximize their profits by
increasing the quantity offered for sale.

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 Elasticity of Supply
• Price elasticity of supply measures the responsiveness
to the supply of a good or service after a change in its
market price.
• According to basic economic theory, the supply of a
good will increase when its price rises.
• Elastic means the product is considered sensitive to
price changes.

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 Factors determining of Supply
• Number of producers or seller in the market
• state of production technology
• Cost of Production
• Prices of another products or related products
• Objectives of the firm
• Future price expectation

• Taxes and subsidies

.
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 Elasticity of Supply
According to Lipsey, "Elasticity of supply is the ratio of percentage change in
quantity supplied over the percentage change in price.“
.
Prof. Bilas, "Elasticity of supply is defined as the percentage change in quantity
supplied divided by percentage change in price."

Price elasticity of supply measures the relationship between change in quantity

supplied and a change in price.  The formula for price elasticity of supply is:

•∆Q =change in the demand.(difference in demand)

•∆P=change in the price.(difference in the price)
•P1=initial price. (first price/ old price)
•Q1=initial demand. (first demand/ old demand)
 
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 Factors determine elasticity of Supply

• Increase in output without much rising in selling price

• Responses of producers
• Availability of input
• Possibility of substuition of one product by the other.
• Time available

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 Factors determine price elasticity of Supply

• Spare production capacity

• stock of finished products and components

• Ease and cost of factor substuition / mobility

• Time period and production speed

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