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Demand Analysis
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 a particular price.
Demand for a particular commodity implies:
Desire of the customer to buy the product;
The customers willingness to buy the product;
Sufficient purchasing power in the customers possession to buy the
product.
The demand for a particular commodity by an individual
consumer or household is known as Individual demand for
the commodity and Summation of the individual demand is
known as the Market demand.
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Demand Analysis
Law of Demand:
Law of demand expresses the relationship
between the Quantity demanded and the
Price of the commodity. P Qd
The law of demands states that, 1 60
“Ceteris Paribus, (other things remaining 2 50
constant) the lower the price of a commodity
the larger the quantity demanded of it and 3 40
vice versa.”
In simple terms other things remain constant, 4 30
if the price of the commodity increases, the
demand will decrease and if the price of the
commodity decreases, the demand will
increase.
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Demand Analysis
Assumptions:
No change in taste and preference.
Income of the consumer is constant.
No change in customs, habit, quality of goods.
No change in substitute products, related products and
the price of the product.
No complementary goods.
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Demand Analysis
Demand Schedule:
A demand schedule is a numerical
tabulation that shows the quantity of
demeaned commodity at different prices.
The demand schedule may be of 2 types :
Individual demand Schedule
Market demand Schedule.
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Demand Analysis
6 4 3 5 6 19
7 3 2 4 5 14
8 2 1 3 4 10
6 9 0 0 1 2 03
Demand Analysis
Graphical Representation of IDC & MDC
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Demand Analysis
Demand Function:
A Mathematical relationship between quantity demanded
of the commodity and its determinants is known as
Demand Function.
When this relationship relates to the demand by an
individual consumer it is known as Individual demand
function and while it relates to the market its known as
market demand function.
Individual Demand Function :
Qdx = f (Px, Y, P1……. Pn-1, T, A, Ey. Ep, U)
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Demand Analysis
Qdx = Quantity demanded for product X.
Px = Price of product X
Y = Level of Income
P1..Pn-1 = Prices of all other products
T = Taste of the consumer
A = Advertisement
Ey = Expected future income
Ep = Expected future price
U = Other determinants not covered in the list of
determinants.
Market Demand Function:
Qdx = f (Px, Y, P1……. Pn-1, T, A, Ey, Ep, P, D, U, P)
P = Population
D = Distribution of consumers.
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Demand Analysis
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Demand Analysis
Exceptions of Law of Demand:
In certain cases the slope of Demand Curve is upward i.e.
positively sloped, it is known as the exceptions of Law of
Demand.
These exceptions are as follows:
Giffen Goods (Giffen Paradox)
Emergency (War etc…)
Conspicuous necessities (Car, Fancy Cloths etc…) and
Conspicuous Consumption (Fancy Diamonds, High price
shoes, pens etc…)
Depression ( Price and quantity demand is low)
Ignorance Effect (High priced commodity is better in quality)
Speculation (Future change in price)
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Demand Analysis
The situations given below are the cases where Individual’s demand
depends on the demands of the other people.
Bandwagon Effect (Positive Network Externality) : Flatter or more
elastic
Snob Effect: (Negative Network Externality): Steeper or Less elastic
Veblen Effect : Steeper or Less elastic
Shift (Contraction & Expansion) and Change in Demand:
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Demand Analysis
Factors Determining Demand:
General Factors:
Price of the product
Taste and Preference
Income
Prices of the related goods
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Demand Analysis
Demand Distinctions:
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Demand Analysis
Problems:
1. The demand equation is Q = 90 – 3P. At what price would no one be
willing to buy any of the commodity? If the commodity is given free,
what is the quantity demanded? If the price is reduced by 1 unit how
much the quantity demanded change?
2. The demand equation is Q = 25 – 5P. What is the quantity demanded if
the price is Rs 3? Assume the demand is 18 units, then what is the
corresponding price? What would be the demand if the commodity in
question were a free good? What is the highest price anybody will pay
for the commodity?
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Elasticity of Demand
Elasticity of Demand:
Elasticity of demand is defined as the percentage change in
quantity demanded caused one percent change in each of the
determinants under consideration while the other determinants
are held constant.
Ed = % change in quantity demanded / % change in the
determinant.
There are mainly five types of Elasticity of Demand :
Price Elasticity of demand
Income Elasticity of demand
Cross Elasticity of demand
Promotional Elasticity of demand
Expectation Elasticity of demand
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Elasticity of Demand
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Elasticity of Demand
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Elasticity of Demand
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Elasticity of Demand
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Elasticity of Demand
Importance or Significance of Elasticity of Demand:
Practical Importance:
Production Planning
Theory of Pricing
Theory of distribution
Theory of Foreign exchange
Theory of International Trade
Theory of Public Finance
Declaration of Public Utilities
Theory of Forecasting of Demand
Plenty of Paradox
Theoretical Importance:
MR = AR ( 1 – 1/ e)
Monopoly Market and limits of monopoly power
Determinants of the status of the commodity, complementary or substitute.
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Elasticity of Demand
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Demand Forecasting
Meaning:
Forecasting is defined as a study with scientific
prediction in regard to an event which may have
future demand for goods, services either at the micro
level or at the macro level.
Demand forecasting is a prediction or estimation of a
future situation, under given condition.
Demand forecasting is all about prediction rather
than estimation as the former one predicts about
future trends where as later one tries to find out
expected present sales level, given the sales
determinant.
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Demand Forecasting
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Demand Forecasting
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Demand Forecasting
Objectives:
Helping for continuous production
Regular supply for the commodities
Formulation of the price theory
Effective sales performance
Arrangement of finance
Determination of the production capacity
Labour requirement.
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Demand Forecasting
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Demand Forecasting
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Demand Forecasting
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Demand Forecasting
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