demand anaysis

8/2/2019 DEmand Anaysis

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Demand

Demand means effective desire or wantfor a commodity, which is backed up by

the ability and willingness to pay for it.

Demand = Desire + Ability to pay + Will to spend


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Types of Demand

Demand for consumer goods & producer goods

Demand for perishable goods and durable goods

Autonomous demand and derived demand

Industry demand and company demand

Short run demand and long run demand

Joint or complimentary demand and compositedemand

Price Demand, Income demand, Cross demand


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Determinants of Demand Factors influencing individual demand :

Price of products

Income

Tastes, habits and preferences

Relative prices of other goods substitute and complimentary goods

Consumers Expectations

Advertisement Effect

Factors influencing Market demand : Price of the product

Distribution of income and wealth

General standards of living and spending habits of people

Number of buyers in the market and growth of population

Future expectations

Level of taxation & tax structure

Climate & weather conditions

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Demand Function A demand function in mathematical terms expresses the

functional relationship between the demand of the productand its various determining variables :

Dx = f (Px, Ps, Pc, Yd, T, A, N, u )

P = The price of the product

Ps = Price of substitutesPc = Price of Complementary goods

Yd = Level of disposable income with buyers

T = Change in buyers tastes and prefrences

A = Advertisement effect

N = No. of buyers

u= Other unknown determinants of demand for commodity X


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Law of Demand

A decrease in the price of a good, allother things held constant, will cause an

increase in the quantity demanded ofthe good.

An increase in the price of a good, all

other things held constant, will cause adecrease in the quantity demanded ofthe good.


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Change in Quantity

Demanded

Quantity

Price

P0

Q0

P1

Q1

An increase in price

causes a decrease in

quantity demanded.


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Change in Quantity

Demanded

Quantity

Price

P0

Q0

P1

Q1

A decrease in price

causes an increase in

quantity demanded.


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Exceptions to the law of Demand

Giffen Goods (named after Sir Robert Giffen)Articles of Snob AppealSpeculationConsumers Psychological Bias or Illusion


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Change in Demand

Quantity

Price

P0

Q0 Q1

An increase in demand

refers to a rightward shift

in the market demand

curve.


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Change in Demand

Quantity

Price

P0

Q1 Q0

A decrease in demand

refers to a leftward shift

in the market demand

curve.


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Law of Supply

A decrease in the price of a good, allother things held constant, will cause a

decrease in the quantity supplied of thegood.

An increase in the price of a good, all

other things held constant, will cause anincrease in the quantity supplied of thegood.


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Change in Quantity Supplied

Quantity

Price

P1

Q1

P0

Q0

A decrease in price

causes a decrease in

quantity supplied.


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Change in Quantity Supplied

Quantity

Price

P0

Q0

P1

Q1

An increase in price

causes an increase in

quantity supplied.


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Changes in Supply

Change in Production Technology

Change in Input Prices Change in the Number of Sellers


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Change in Supply

Quantity

Price

P0

Q1Q0

An increase in supply

refers to a rightward shift

in the market supply curve.


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Change in Supply

Quantity

Price

P0

Q1 Q0

A decrease in supply refers

to a leftward shift in the

market supply curve.


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Market Equilibrium

Market equilibrium is determined at theintersection of the market demand curve

and the market supply curve. The equilibrium price causes quantity

demanded to be equal to quantity

supplied.


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Market Equilibrium

Quantity

Price

P

Q

D S


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Market Equilibrium

Quantity

Price

P0

Q0

D0 S0

Q1

P1

D1

An increase in demand

will cause the market

equilibrium price and

quantity to increase.


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Market Equilibrium

Quantity

Price

P1

Q1

S0

Q0

P0

D0D1

A decrease in demand

will cause the market

equilibrium price and

quantity to decrease.


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Market Equilibrium

Quantity

Price

P0

Q0

D0 S0

Q1

P1

An increase

in supply

will cause

the marketequilibrium

price to

decrease and

quantity toincrease.

S1


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Market Equilibrium

Quantity

Price

P1

Q1

D0

Q0

P0

A decrease in

supply will

cause the

marketequilibrium

price to

increase and

quantity todecrease.

S1 S0

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