Dr.

R S Ch Murthy Chodisetty
M.Com., MBA (HR)., MBA (FIN)., Ph.D-Finance.
FDP-IIT-Kharagpur, FDP-IIT-Roorkee, MDP-IIT-Kharagpur, STC-IIT-Kharagpur, STC-IIT-Guwahati
MDP-IIT-Kharagpur, STC-IIT-Kharagpur-MDP-IIT-Patna ,FDP-IIT-Ropar, MDP-IMI-Bhubaneswar,
FDP-NIT-Jaipur, FDP-NIT-Meghalaya, STC-NIT-Pondicherry, STC-NIT-Patna, STC-NIT-Mizoram,
STC-NIT-Arunachal Pradesh, MDP-Dr. BRA-NIT-Jalandhar, FDP-NIT-Pondicherry, STC-SVNIT-Surat, FDP-NIT-Karnataka.
Associate Professor, Department of Management Studies
Vardhman College of Engineering, Hyderabad, Telangana.
Mail Ids: murthy1708@vardhaman.org, chodisetty.b4u@gmail.com,
Call: 9989878678,9154889888.
 LECTURE-2
Demand and Supply Analysis
What is Demand:
® Demand for a commodity refers to the quantity of the commodity which an individual
consumer or a household is willing to purchase per unit of time at a particular price.
It implies:
® Desire to buy
® Willingness to buy
® Purchasing power
Types of Demand:
® Individual Demand
® House hold Demand
® Market Demand
Demand Function:
® A mathematical expression of the relationship between quantity demanded of the commodity
and its determinants is known as Demand Function.
Qd = f (Px, I, P1…Pn, T, A, Ep, Ei, U)
Law of Demand:
® The law of demand states that a consumer’s behavior, in demanding a commodity in relation
to the variations in its prices”.
® Other things remaining the same, the amount of the quantity demanded arises with every fall
in the prices and vice versa.”
® The law of demand states that other things remaining constant, the higher the price of the
commodity, the lower is the demand and low the price, higher is the quantity demanded
Exceptions Law of Demand:
® Geffen goods or Geffen paradox
® Goods of status
® Future prices of goods
® Ignorance effect
® War or emergency
Assumptions of Law of Demand :
® The law of demand states that a consumer’s behavior, in demanding a commodity in relation
to the variations in its prices”.

® Other things remaining the same, the amount of the quantity demanded arises with every fall
in the prices and vice versa.”

® The law of demand states that other things remaining constant, the higher the price of the
commodity, the lower is the demand and low the price, higher is the quantity demanded
Demand schedule :
® A demand schedule is a tabular presentation of the relationship between the amount
demanded of a commodities and different price levels of that commodity.
® In other words demand schedule is a tabular statement of price and quantity relationship.

Price of the Demand of a

Commodity (Y) Commodity (X)
5 15

8 14

10 12

12 10

15 8

20 5
Types of Demand :
® A demand schedule is a tabular presentation of the relationship between the amount
demanded of a commodities and different price levels of that commodity.
® In other words demand schedule is a tabular statement of price and quantity relationship.
Types of Demand :
Price Demand Income Demand Cross Demand
Elasticity of Demand:
® “Marshall” introduced the concept of Elasticity of demand. Elasticity of Demand helps in
providing a Quantitative value for the responsiveness of Quantity demanded to change in
each of the determinants in the demand function.

® The concept of Elasticity of demand explain How much demand increases due to a certain fall in
price and How much demand decreases due to a certain rise in the price.

® Types of Elasticity of Demand.

• Price elasticity of demand
• Income elasticity of demand
• Cross elasticity of demand
• Advertising elasticity of demand
Types of Price Elasticity of Demand:
Types of Price Elasticity of Demand:
Numerical Types of elasticity Relationship of demand with the price
Measures
1. Ed = Perfectly elastic demand Increase or decrease in demand to any extent irrespective
of change in price.
Eg. Imaginary
2.Ed=0 Perfectly inelastic demand Demand does not change with the change in price.
Eg. Salt
3.Ed>1 Relative elastic demand Percentage change in demand more then percentage
change in price.
Eg. Petrol
4.Ed<1 Relative inelastic demand Percentage change in demand is lesser than the
percentage change in price.
Eg. Sugar
5.Ed=1 Unitary elastic demand Percentage change in demand is equal to percentage
change in price.
Eg. Cloth
Perfect elastic demand ( Ep=Infinity):
® If a negligible change in price leads to an infinitive change in demand is said to be perfectly
elastic demand. The infinity elastic demand curve is a horizontal straight line to X axis.
Perfect inelastic demand ( Ep=0):
® Even a great rise or fall in price does not lead and change in quantity demand is known as
perfectly in elastic demand.
Relatively elastic demand (Ep >1):
® When a proportionate change in price leads to a more then proportionate change in quantity
demand is called relatively elastic demand
Relatively inelastic demand (Ep <1) :
® When a proportionate change in price leads to a less then proportionate change in quantity
demand is called relatively inelastic demand.
Unitary elastic demand (Ep=1):
® If the proportionate change in price leads to the same proportionate change in quantity demand
is called unitary elastic demand
Significance of Elastic demand:
® Prices of factors of production
® Price fixation
® Govt. policies
® Forecasting demand
® Planning the level of output and price
Demand forecasting:
® Demand forecasting is the process of using predictive analysis of historical data to estimate
and predict customers' future demand for a product or service. Demand forecasting helps the
business make better-informed supply decisions that estimate the total sales and revenue for a
future period of time.
Factors affecting Demand forecasting :
® Nature of demand
® Types of forecasting
® Forecasting level
® Degree of orientation
® Introduce new products
® Nature of goods
® Degree of competition
® Market demand
Why is Demand forecasting Crucial for Business:
Demand forecasting Methods:
What is Supply:
® Supply is a fundamental economic concept that describes the total amount of a specific good
or service that is available to consumers. Supply can relate to the amount available at a
specific price or the amount available across a range of prices if displayed on a graph.

® Supply in economics is defined as the total amount of a given product or service a supplier
offers to consumers at a given period and a given price level. It is usually determined by
market movement. For instance, a higher demand may push a supplier to increase supply.
Determinants of Supply:
Determinants of Supply:
THANK YOU