MARKET ANALYSIS

(PRICE, DEMAND, COST & PROFIT)

WHAT IS DEMAND?

Desire to buy
Decision to buy
Adequate purchasing power
DETERMINANTS OF DEMAND

 Price of the commodity (P)

 Price of Substitutes (Ps)
 Price of Complements (Pc) Mathematically,
 Income (I) Dx = f(P, Ps, Pc, I, T, A)

 Tastes and preferences (T)

 Advertisement and Promotional Expenses
(A)
LAW OF DEMAND

“Other things remaining same, higher will be demanded

at lower price and lower will be demanded at a higher
price.”

- Prof. Benham
DEMAND CURVE

 It shows the relationship between price and

demand
 The point at which the demand curve crosses the
y-axis indicated the price above which no
customer will buy a product as it becomes too
expensive.
 The point at which the demand curve crosses the
x-axis indicates the maximum number of units the
firm can sell if the price is zero.
ELASTICITY OF DEMAND

Marketers need to understand how responsive, or

elastic, customers’ demand for a product is to a
change in price at a certain point on the demand
curve.

Price Elasticity of Demand

= Percentage change in Quantity Demanded
Percentage Change
in Price
RANGE OF ELASTICITIES

Elasticity Type of Elasticity Description

Ratio
E=∞ Perfectly Elastic Any very small change in price results in a
very large change in quantity demanded.
E>1 Relatively Elastic Small changes in price cause larges
changes in quantity demanded.
E=1 Unit Elastic Any change in price is matched by an
equal change in quantity.
E<1 Relatively Inelastic Large change in price cause small change
in quantity demanded.
E=0 Perfectly Inelastic Quantity demanded does not change when
price is changed.
CONT.
SHIFT IN DEMAND CURVE

 Marketers can attempt to shift their product’s

demand curve outwards by increasing

customer preference for the product through
branding or other marketing initiatives that
increase customers’ desire for the product.

 It can also shift outward or inward because of

substitutes.
INCOME ELASTICITY OF DEMAND

 Relationship between demand and  Negative Income elasticity of demand

income  Zero Income Elasticity of Demand

Direct  Unitary Income Elasticity of Demand

Income Elasticity of Demand  Relatively Elastic Income Demand

= Proportionate Change in Demand /  Relatively Inelastic Income Demand

Proportionate Change in Income

CROSS ELASTICITY OF DEMAND

Change in demand for one commodity due to the changes in the price of related goods
like substitutes and complementary goods.

Cross Elasticity of Demand

= Percentage change in the demand for commodity X / Percentage change in the
price of commodity Y