demand analysis
TRANSCRIPT
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MANAGERIAL ECONOMICS
FACULTY: Prof. Venugopal Naidu
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MODULE:1
DEMAND ANALYSIS
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Meaning of Demand
Demand implies 3 conditions :
Desire for a commodity or service Ability to pay the price of it Willingness to pay the price of it. Further demand has no meaning without
reference to time period such as a week, a month or a year.
The demand for a product can be defined as the “Number of units of an commodity that consumer will purchase at a given price during a specified period of time in the market.”
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Types of Demand
Demand can be broadly classified into 3 types :
They are,Price DemandIncome DemandCross Demand
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Law of Demand
The law of demand expresses the relationship between the price & quantity demanded .It says that demand varies inversely with price.
The Law can be stated in the following: “ Other things being equal, a fall in the price
leads to expansion in demand and a rise in price leads to contraction in demand.”
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Assumptions- Law Of Demand
Consumers Income remains Constant The Tastes & Preferences Of the
Consumers remain the same Prices of other related Commodities remain
Constant No new Substitutes are available for the
Commodity. Consumers do not expect further change in
the price of the commodity.
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Continued…
The Commodity is not of Prestigious value
Eg: DiamondThe size of population is constantThe rate of taxes remain the sameClimate & Weather Conditions do not
change.
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DEMAND SCHEDULE
Individual Demand Schedule Market Demand schedule
1. Individual Demand Schedule: It is a list of various quantities of a
commodity which an individual consumer purchases at different prices at one instant of time.
D= f (P) (or) D(x) = f(Px)
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Individual demand schedule(Hypothetical)
Price per unit (Rs) Quantity demanded for time period (a week)
5 4 3 2 1
10 apples 20 apples 30 apples 40 apples 50 apples
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2. Market Demand Schedule
The market demand Schedule can be obtained by adding all the individual Demand Schedules of Consumers in the market. Hypothetical market demand schedule is as follows:
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Hypothetical market demand schedule
Price per unit (Rs)
Quantity demanded by individuals
Market demand A + B + C
54321
6090120150180
A B C1020304050
2030405060
3040506070
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Market demand curve
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Exceptions to the law of demand
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Continued…
Giffen’s Paradox (Robert Giffen-Irish Economist)
Veblen’s Effect (Thorstein Veblen – USA )Price IllusionFear of Future Rise in PricesEmergencyNecessaries
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Continued…
Conspicious Necessaries (More Noticeable) Eg:- TV, Watch, Scooters, Car etc
Fear of Shortage IgnoranceSpeculation (Stock Market)
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Why does the demand curve slope downwards to right
OR Why does demand curve has a negative slope?
Operation of the Law of Diminishing Marginal Utility Income Effect Substitution Effect Different Uses New Buyers
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CHANGES IN DEMAND
A. Extension & contraction of demand:
When demand changes due to change in the price of the commodity, it is a case of either extension or contraction of demand. The Law of demand relates to the Extension & Contraction of Demand.
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Extension and Contraction of Demand
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2. Increase and decrease in demand:
When demand changes, not due to changes in the price of the commodity or service but due to other factors on which demand depends.
Eg:- Income, Population, Climate, Tastes & Habits etc.
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Increase and Decrease in Demand
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DEMAND DISTINCTIONS
“Demand distinctions may be defined as the difference in the forces acting on the demand for different goods.”
Demand for Producer goods and Consumer Goods
Demand for Durable goods and Non-Durable Goods.
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Continued…
Derived Demand and Autonomous Demand.
Industry Demand and Company DemandShort run Demand And Longrun demandTotal Market demand & Market Segment
Demand
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DETERMINANTS OF DEMAND (OR) FACTORS AFFECTING DEMAND (Refer: Lekhi & Agarwal- Business Economics)
Price of Commodity Price of Related Goods Income of the Consumer Distribution of Wealth Tastes & Habits Population growth
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Continued…
State of Business (Business Cycle) Government Policy Advertisement Level of Taxation