Demand Analysis

1. Demand Analysis Demand in Economics is the desire to possess something and the willingness and ability to pay a certain price in order to possess it. Managerial Economics

2. Demand Analysis A complete statement of Demand must state ► market dimension – whose demand ► price dimension – at what price ► time dimension – for how long. Gopal demands 30 litres of milk, at Rs 20/- per litre, per month. Managerial Economics

3. Demand Analysis Determinants of Demand The price of commodity X. - higher the price less of it is demanded. - lower the price more of it is demanded. Managerial Economics

4. Demand Analysis Determinants of Demand The price of substitutes of X. while buying commodity X, consumer considers price of substitutes for X available in the market. Managerial Economics

5. Demand Analysis Determinants of Demand Income of the consumer. - disposable income of a consumer has direct influence on demand for X that consumer wants to buy. Managerial Economics

6. Demand Analysis Determinants of Demand Utility of the commodity. - demand arises because product X has utility for the consumer, Managerial Economics

7. Demand Analysis Determinants of Demand Quality of the commodity. - better the quality of product X more will be the demand for it. Managerial Economics

8. Demand Analysis Determinants of Demand Taste & Fashion. - if product X is favored over other products more of it will be demanded in the market. Managerial Economics

9. Demand Analysis Determinants of Demand Size of population - more the number of buyers for product X more of it will be demanded in the market. Managerial Economics

10. Demand Analysis Determinants of Demand Expectations about future prices. - if price of product X is expected to rise in near future, more of it will be demanded in the market. ( see deals on the Stock Exchange) Managerial Economics

11. Demand Analysis Determinants of Demand Climatic conditions - Demand for product X is influenced by changes in seasons. Managerial Economics

12. Demand Analysis Determinants of Demand Psychology of the consumers - if more and more are purchasing product X, others are influenced to buy more of X – a band wagon effect Managerial Economics

13. Demand Analysis Determinants of Demand Psychology of the consumers - if no one or a few are purchasing product X, others are influenced to buy more of X to feel different– a snob effect Managerial Economics

14. Demand Analysis Determinants of Demand Advertisements and salesmanship. - in modern markets demand for product X, can be created through advertisements and sales promotion Managerial Economics

15. Demand Analysis Demand Function We have seen that demand depends on or is a function of so many variables. Hence this function is expressed as Qxd = f(Px,P1, Yd, U,Q,T,A . . . . etc) As this is a very complicated relationship, we assume that all the other variables are constant, and study relation between price of X & quantity demanded; expressed as under. Qxd = f(Px) where P1 = P0; Yd = Yd0; U = U0; etc. Managerial Economics

16. Demand Analysis The Law of Demand Other things remaining the same , quantity demanded of a commodity is inversely related to its price. when the price rises the quantity demanded falls when the price falls the quantity demanded rises Managerial Economics

17. Demand Analysis The Law of Demand - demand curve. Managerial Economics

18. Demand Analysis The Law of Demand exceptions- (1) Expectations of further changes in price and speculation The law does not hold good when people expect prices to rise further. Even though prices have risen today, consumers buy more in anticipation of further price increases. A typical observation on Stock Exchanges. Managerial Economics

19. Demand Analysis The Law of Demand exceptions- (2) Giffen’s paradox Incase of low priced essentials like bread, when price falls consumers use money saved, increase in their real income, to buy other products, instead of buying more bread. Managerial Economics

20. Demand Analysis The Law of Demand exceptions- (3) Qualitative changes if the price is taken as yardstick for quality of commodity, mere rise in price may increase demand for it. Managerial Economics

21. Demand Analysis The Law of Demand exceptions- (4) Price illusions consumer in the modern world is governed more by the price illusions that higher the price, better the product. Managerial Economics

22. Demand Analysis The Law of Demand exceptions- (5) Display of standard of living consumer is governed by the demonstration effect.expensive jewellery, cars are purchased not because they are needed but to show consumer’s wealth. Managerial Economics

23. Demand Analysis The Law of Demand Movement along the demand curve vs. shift of curves. If we consider the price of the commodity the only factor influencing demand, demand moves along the curve. But when factors other than price are considered . Then we have either increase or decrease in demand at the same price. Managerial Economics

24. Demand Analysis Movement by shift of curves. More is demanded at the same price, or same quantity is demanded at higher price. original demand increased demand Managerial Economics

25. Demand Analysis Movement by shift of curves. Less is demanded at the same price, or same quantity is demanded at lower price. original demand decreased demand Managerial Economics

26. Demand Analysis Demand analysis - for durable & non-durable goods Durable goods – can be stored - used over a period of time - have maintenance & operating costs Demand depends on expected availability or shortages rate of obsolescence economy – in recession demand for durables is postponed Managerial Economics

27. Demand Analysis Demand analysis - for durable & non-durable goods Non- Durable goods – cannot be stored, are perishable Demand depends on prevailing conditions & style incomes convenience Managerial Economics

28. Demand Analysis Demand analysis - Long run & Short run demand Short run Demand exists at a point of time. With its immediate reaction to change in price and income. Long run Demand exists over a period of time as a result of price changes, competition, product improvement etc. Managerial Economics

29. Demand Analysis Demand analysis - Direct and Derived demand Direct Demand exists when the good is required for direct consumption to satisfy human want Derived Demand exists to meet demand for other product. Like demand for cement to meet demand for houses or roads Managerial Economics

30. Demand Analysis Demand analysis - Joint or Complimentary Demand Tea & sugar Tyre & Tube Houses & Cement These goods have to be consumed together to satisfy the want of the consumer. Hence they are demanded jointly. Managerial Economics

31. Demand Analysis Demand analysis - Cross Demand Demand for substitutes takes form of cross demand. Consumer may demand more of Coffee not as its price has fallen, but because price of Tea has increased. Managerial Economics

32. Demand Analysis Demand analysis - Composite Demand Composite demand implies that a commodity under consideration can be put to several uses. e.g. electricity ca be used for lighting, cooking, or ironing; computers or TV. same can be said of Steel or Coal. Managerial Economics

33. Demand Analysis Demand analysis - Industry Demand and Firm Demand demand for medicines of Glaxo is a firm demand but that for all medicines and drugs is industry demand. In a monopoly both are identical & in perfect competition both are absolutely different. In perfect competition, a firm is a price taker & not price maker. Managerial Economics

34. Demand Analysis Demand analysis - market demand and segment demand overall demand for a product in the total market is market demand. while demand for that product in villages, or through mail order, or for shopping complexes is market segment demand for these three segments. Managerial Economics