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    Demand Analysis

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    Trupthi Shetty
    This document discusses demand analysis and the factors that influence demand. It defines demand as the quantity of a good or service consumers are willing and able to purchase. Key points: 1. Demand is influenced by price, income, prices of related goods, tastes/preferences, expected future prices, and number of consumers. 2. There are two types of demand functions - generalized which relates quantity to multiple factors, and ordinary which relates quantity only to price while holding other factors constant. 3. The law of demand states that quantity demanded is inversely related to price - as price increases, quantity demanded decreases. 4. Elasticity measures the responsiveness of demand to various factors like price, income

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    Demand Analysis

    Uploaded by

    Trupthi Shetty
    61 views36 pages
    This document discusses demand analysis and the factors that influence demand. It defines demand as the quantity of a good or service consumers are willing and able to purchase. Key points: 1. Demand is influenced by price, income, prices of related goods, tastes/preferences, expected future prices, and number of consumers. 2. There are two types of demand functions - generalized which relates quantity to multiple factors, and ordinary which relates quantity only to price while holding other factors constant. 3. The law of demand states that quantity demanded is inversely related to price - as price increases, quantity demanded decreases. 4. Elasticity measures the responsiveness of demand to various factors like price, income

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    This document discusses demand analysis and the factors that influence demand. It defines demand as the quantity of a good or service consumers are willing and able to purchase. Key points: 1. Demand is influenced by price, income, prices of related goods, tastes/preferences, expected future prices, and number of consumers. 2. There are two types of demand functions - generalized which relates quantity to multiple factors, and ordinary which relates quantity only to price while holding other factors constant. 3. The law of demand states that quantity demanded is inversely related to price - as price increases, quantity demanded decreases. 4. Elasticity measures the responsiveness of demand to various factors like price, income

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    61 views36 pages

    Demand Analysis

    Uploaded by

    Trupthi Shetty
    This document discusses demand analysis and the factors that influence demand. It defines demand as the quantity of a good or service consumers are willing and able to purchase. Key points: 1. Demand is influenced by price, income, prices of related goods, tastes/preferences, expected future prices, and number of consumers. 2. There are two types of demand functions - generalized which relates quantity to multiple factors, and ordinary which relates quantity only to price while holding other factors constant. 3. The law of demand states that quantity demanded is inversely related to price - as price increases, quantity demanded decreases. 4. Elasticity measures the responsiveness of demand to various factors like price, income

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    DEMAND

    ANALYSIS
    DEMAND
    Quantity demanded-
    The amount of a good or service
    consumers are willing and able to
    purchase during a given period of
    time.
    Factors affecting demand/
    Determinants of demand
    1. The price of good or service
    2. The income of consumers
    3. The prices of related goods or service
    4. The tastes or preference pattern of
    consumers
    5. The expected price of the product in
    future periods
    6. The number of consumers in the market
    DEMAND
    • Buyer side of market
    • Demand is essential for creation,
    survival and profitability of firm
    • Two types of demand relation

    Ordinary
    Generalized
    demand
    demand
    Function/demand
    functions
    Function
    Generalized Demand Functions-
    It shows how quantity demanded is
    related to product price and five other
    functions that affect demand.

    Qd= ƒ (P,M,P R,T,P e,N)


    Where , ƒ means is a function of or depends on
    Qd =quantity demanded of the good or service
    P = price of good or service
    M = income of consumers
    PR = prices of related goods or service
    T = tastes or preference pattern of consumers
    Pe = expected price of the product in future periods
    N = number of consumers in the market
    Ordinary Demand Function-

    It shows the relation between quantity


    demanded and the price of the product
    when all other variables affecting
    demand are held constant.

    Qd=ƒ (P)
    Types Of Demand
    • Individual Demand
    • Market Demand
    • Autonomous demand
    • Derived demand
    • Demand for Durable goods
    • Demand for Non-Durable goods
    • Short term Demand
    • Long term Demand
    Types Of Demand
    •Individual Demand- A quantity of commodity which
    an individual is willing to buy at a particular price at

    a specific time.

    •Market Demand- The market demand for a


    commodity is simply the horizontal summation of
    demand curve of all consumers in the market.

    •Autonomous demand- The demand for commodity


    which arises on its own.

    •Derived demand-The demand for commodity which


    arises on its parent product.
    Types Of Demand
    • Demand for Durable goods-The goods whose
    total utility is not exhausted in one single use.
    • Demand for Non-Durable goods- The goods
    whose total utility is exhausted in one single
    use.
    • Short term Demand- The demand for goods that
    are demanded over a short period.
    • Long term Demand- The demand for goods that
    are demanded over a long period.
    Law of Demand
    If a price of a commodity falls , the quantity
    demanded of it will rise, and if price of the
    commodity rises, its quantity demanded will
    decline when other factors are kept constant.
    According to law of demand , there is inverse
    relationship between quantity and price when
    other factors are constant.
    Law of Demand
    • Demand schedule- The Price Quantity
    tabular representation of (Rs) demanded
    relationship between 12 10
    price and quantity
    demanded. 10 20
    • Demand curve- The 8 30
    graphical representation 6 40
    of quantity demanded at
    4 50
    different price levels.
    2 60
    Law of Demand
    Price

    0 10 20 30 40 50 60
    Quantity
    Changes in Demand Curve
    Extension

    Contraction
    Price

    0 10 20 30 40 50 60
    Quantity
    Changes in Demand Curve
    Shift in the demand
    curve to the right
    Price

    0 10 20 30 40 50 60
    Quantity
    Changes in Demand Curve
    Shift in the demand
    curve to the left
    Price

    0 10 20 30 40 50 60
    Quantity
    Deviation from the Demand
    Curve
    1. Veblen effect (Goods with prestige value)-

    Founded by Thorstein Veblen-Higher the price


    higher the value of commodity.

    2. Giffin goods (basic necessity)- founded by Sir


    Robert Giffin. Higher the value of product
    higher the expenditure on the commodity.
    Deviation from the Demand
    Curve
    • Band wagon effect-
    Depends upon the consumer tastes
    and preferences. The trend is seen
    irrespective of the pricing.
    Law of Supply
    Concept of Supply :
    Supply of commodity is the schedule of the
    quantities of a commodity that would be offered
    for sale at all possible prices during a period of
    time.
    Supply is the actual quantity which is actually
    brought in the market.
    Law of Supply
    • When the price of commodity rises , the
    quantity supplied of it in the market increases
    , when the price of commodity falls , its
    quantity demanded decreases , other factor
    determining the supply remaining the same.
    • The quantity supplied is directly proportional
    to the price of the commodity.

    Qsx= ƒ(P)
    Law of Supply
    • Supply schedule- The Price Quantity
    tabular representation of (Rs) Supplied
    relationship between 500 100
    price and quantity
    supplied. 510 150
    • supply curve- The 520 200
    graphical representation 530 225
    of quantity supplied at
    540 250
    different price levels.
    550 275
    Law of Supply
    Price

    0 100 150 200 225 250 275


    Quantity
    Supply
    Supply is dependent on six factors-
    • Production technology
    • Prices of factors- such as wages
    • Future price expectations
    • Taxes and subsidies
    • Number of producers
    • Objectives of the firm
    • Prices of other products
    Concept of Elasticity
    Elasticity of demand is the degree of
    responsiveness of quantity demanded
    of a good to a change in its price,
    consumer’s income and prices of
    related goods.
    Types of elasticity
    •Price elasticity of demand
    - Point Price elasticity of demand
    - Arc Price elasticity of demand

    •Income elasticity of demand

    •Cross price elasticity of demand


    Price elasticity of demand
    It indicates the degree of responsiveness of
    quantity demanded of a good to the change
    in its price remaining other factors constant.

    Price elasticity of demand is defined as the ratio


    of the percentage change in quantity demanded
    of a commodity to a percentage change in price.

    ep = Percentage change in quantity demanded


    Percentage change in price
    Price elasticity of demand

    Point Price elasticity of demand-

    The elasticity at a given point on the demand curve

    Arc Price elasticity of demand-

    The elasticity at a given range on the demand

    curve.
    Degree of Elasticity
    • Elastic demand -When the percentage change in quantity demanded is greater than the
    change in price.

    • InElastic demand -When the percentage change in


    quantity demanded is lesser than the change in price.

    • Unitary Elastic demand -When the percentage change in


    quantity demanded is equal to the change in price.

    • Perfectly inelastic demand -When the change in price does not affect the quantity
    demanded.

    • Perfectly elastic demand -When the smallest change in price affect the quantity
    demanded either to zero or to the level of infinity.
    Degree of Elasticity

    • When elasticity (ep)>1 Elastic


    • When elasticity (ep)<1 Inelastic
    • When elasticity (ep)=1 Unitary elastic

    • When elasticity (ep)=0 Perfectly inelastic


    demand

    • When elasticity (ep)=∞ Perfectly elastic


    demand
    Graphical representation of
    Elasticity
    • Elastic demand

    PX
    A

    0
    Qd

    Quantity demanded is proportionately more than the


    reduction in pricing.
    Graphical representation of Elasticity

    • Inelastic demand-

    PX

    0 Qd

    Quantity demanded is proportionately less than the


    reduction in pricing.
    Graphical representation of
    Elasticity
    • Unitary elastic demand-

    PX
    A

    0
    Qd

    Quantity demanded is in absolute proportion with reduced


    pricing.
    Types of demand with respect to
    elasticity
    o Perfectly inelastic-
    px

    0 Qd

    o Perfectly elastic-
    px

    0 Qd
    Income Elasticity of Demand
    It indicates the degree of responsiveness
    of quantity demanded of a good to the
    small change in the income of consumer.

    Income = Percentage change in purchases of a good


    Elasticity Percentage change in income
    Relation between income
    elasticity and types of goods
    • Goods having income elasticity more than one
    and which therefore bulks larger in consumer’s
    budget as he becomes richer are called normal
    goods or luxuries.

    • Goods having income elasticity less than one


    and which claims declining proportion of
    consumer’s income as he becomes richer are
    called inferior goods or necessities.
    Cross Elasticity of Demand
    • Degree of responsiveness of demand for
    one good in response to the change in
    price of another good represents the cross
    elasticity of demand of one good for the
    other.

    Cross = Percentage change in quantity demanded of X


    Elasticity Percentage change in price of good Y
    Relation between cross elasticity
    and types of goods
    • Substitute goods-They are competing goods.
    With the rise in price of one good X the quantity
    demanded of other good Y increases. Eg- Tea
    & Coffee. The Cross elasticity of demand is
    positive
    • Complementary Goods-With the rise in price of
    one good X the quantity demanded of other
    good Z decreases. Eg- Bread and Butter. The
    Cross elasticity of demand is Negative.

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