This document discusses key concepts related to demand analysis in economics including definitions of demand, determinants of demand, types of demand, elasticity of demand, and demand forecasting. It provides definitions of demand from Adam Smith and Alfred Marshall. It describes the law of demand, demand schedules, individual demand, market demand, derived demand, and cross demand. It discusses factors that influence elasticity of demand and different degrees of price elasticity. Finally, it outlines various methods that can be used for demand forecasting.
2. • UNIT – II
Demand analysis - Demand determinants – Demand
distinctions – Elasticity of demand–Types, methods –
Applications – Demand forecasting for industrial
goods – Consumer goods – Consumer durables –
Factor influencing elasticity of demand.
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3. Definition
• Economics is an enquiry into the nature and
causes of wealth of nations."- Adam Smith.
• Economics is a study of mankind in the ordinary
business of life. It examines that part of individual
and social action which is most closely connected
with the attainment and with the use of the
material requisites of well-being. Thus, it is on the
one side a study of wealth and on the other and
more important side a part of the study of the
man", Alfred Marshall
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4. Demand :
the desire or want of something.
Economics meaning:-
“The amount of goods the buyer is willing to purchase at a given price”
Demand for product implies:
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Demand = Desire to acquire + Willingness to pay + Ability to pay
6. • Characteristics of law of demand
• There is Inverse relationship between price of
commodity and its demand.
• Price is independent variable
• Demand is dependent variable on price of goods.
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7. • DEMAND SCHEDULE
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Prices of Oranges Quantity of oranges demanded at specific
prices
10 5
8 8
6 6
5 5
8. • The demand schedule is presented in the graphical form, wherein
the quantity demanded for oranges is shown on X axis and the
price of the oranges are shown on Y axis.
• The demand for oranges is at 10 when the price of the orange is
at 5/-, but the demand for oranges is decreased from 2 to 10
when the price of orange is increased from 5 to 10/- each. As the
price of the orange is increased the demand for the oranges
decreased and the price is decreased the demand for oranges
increased, which is because of Law of Demand effect on goods
and services, as there is inverse relation in between price of the
goods and services and demand for the goods and services. The
demand curve is sloping downwards from left to right.
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9. • Assumptions
• Every law will have limitation or exceptions.This law
operates when the commodity’s price changes and
all other prices and conditions do not change. The
main assumptions are
• Habits, tastes and fashions remain constant
• Money, income of the consumer does not change.
• Prices of other goods remain constant
• The commodity in question has no substitute
• The commodity is a normal good and has no
prestige or status value.
• People do not expect changes in the prices.
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10. • Exceptions to law of demand
1. Giffen goods
2. Commodities which are used as status symbols
3. Expectations regarding future prices
4. Emergency
5. Quality-price relationship
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12. • 2. Market Demand
• A demand for a particular product by all customers and added, is called market
demand. (Total all individual demand is called as the market demand)
• Table is the market demand schedule. This schedule, from the angle of
simplification, is based on the assumption that there are two buyers, A and B
for X commodity. By adding up their individual demand, the market demand
schedule has been estimated:
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Price of
Commodity X
(Rs.)
Demand of
person ‘
(A)
Demand of
person
(B)
Market Demand
Person (A+B+……= market
demand)
1 4 5 4 + 5= 9
2 3 4 3 + 4 = 7
3 2 3 2 + 3 = 5
4 1 2 1 + 2 = 3
13. • 3. Derived demand
• The increase in demand for one particular good
causes increase in the demand for other good is
called derived demand. Complementary goods
are those goods which are jointly used to satisfy
a want. In other words, complementary goods
are those which are incomplete without each
other.
• These are things that go together, often used
simultaneously. For example, pen and ink, Tennis
rackets and tennis balls, cameras and film, etc.
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14. • 4. Cross Demand:
• When the demand of one commodity is related
with the price of other commodity is called cross
demand. The commodity may be substitute or
complementary. Substitute goods are those
goods which can be used in case of each other.
• For example, tea and coffee, Coca-cola and Pepsi.
In such case demand and price are positively
related. This means if the price of one increased
then the demand for other also increases and
vise versa.
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15. • DEMAND FUNCTION
• Demand function is what describes a relationship between
one variable and its determinants. It describes how much
quantity of goods is purchased at alternative prices of
good and related goods, alternative income levels, and
alternative values of other variables affecting demand.
The principal variables that influence the quantity
demanded of a good or service are
• (1) the price of the good or service,
• (2) the incomes of consumers,
• (3) the prices of related goods and services,
• (4) the tastes or preference patterns of consumers,
• (5) the expected price of the product in future periods,
and
• (6) the number of consumers in the market.
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17. • DETERMINANTS OF DEMAND
1. Prices of related commodities
2. Income of the individual
3. Tastes and preferences
4. Tastes of the consumers
5. Wealth
6. Expectations regarding the future
7. Climate and weather
8. State of business
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18. • TYPES OF DEMAND
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19. • WHY DOES THE DEMAND CURVE SLOPE DOWNWARD?
• 1. Law of diminishing the marginal utility
• 2. Substitution effect
• 3. Income effect
• 4. New buyers
• 5. Old buyers
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21. • Elasticity concept
As developed by Alfred Marshall, the concept of
elasticity was applied to elasticity of price. But
later on, the concept was made more broader.
Elasticity of demand is a concept of showing the
responsiveness of demand. As we well-known
earlier, changes in demand can be caused by
several factors which determine demand for a
good or commodity. Obviously, demand is
responsive to each of these factors i.e. But all the
factors are not equally important from the point
of view of either theoretical analysis or practical
means
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22. • DEGREES OF PRICE ELASTICITY
Different commodities have different price elasticity. Some
commodities have more elastic demand while others have
relative elastic demand. Basically, the price elasticity of demand
ranges from zero to infinity. It can be equal to zero, less than one,
greater than one and equal to unity.
According to Dr. Marshall : "The elasticity or responsiveness of
demand in a market is great or small according as the amount
demanded increases much or little for a given fall in price and
diminishes much or little for a given rise in price."
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23. • Types of Elasticity of demand
• Price Elasticity of demand
• Income Elasticity of demand
• Cross elasticity of demand
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24. • TYPES OF ELASTICITY OF DEMAND
• Perfectly elastic demand means when the percentage of change in
quantity demanded is infinite even if the percentage of change in price
is zero, the demand is said to be perfectly elastic. Increasing of demand
at given price. According to law of demand, the demand for goods and
services changes when there is change in its price. But the relationship
between demand and price may not be the equal and same in all the
case, it may vary from product to product or time to time or market to
conditions. So as to understand extent of the effect of price on the
demand, one should know about the price elasticity of demand
concepts.
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25. • Perfectly inelastic demand
• Perfectly inelastic demand is the situation where there no change in
quantity demanded even there is change in price of the goods, the
demand is said to be perfectly inelastic. Simply mean no change in
demand for change in price. In accordance to the law of demand, the
demand for goods and services changes when there is change in its
price. But the relationship between demand and price may not be the
equal in all the market conditions; it may be different from product to
product or time to time or market to conditions. So as to understand
extent of the effect of price on the demand, one should know about the
price elasticity of demand concepts
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26. • Unitary Elastic Demand
• In case of unitary elastic demand, the proportion of change in
demand for goods and services is equal to proportion of change
in its price. which means the change in the ratio of the price of
the goods and services is equal to the change in demand of the
goods and services
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27. • Relatively Elastic Demand
• When the percentage change in quantity demanded is greater
than the percentage change in price, the demand is said to be
elastic.
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28. • Relatively Inelastic Demand
• More change in the price of the goods but less change in demand
for the goods.
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29. • Income Elasticity of demand
The relationship between changes in income of
the consumer and consequent Change in the
quantity demanded is expressed through the
concept of Income Elasticity of demand
• Cross elasticity of demand
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30. • Measurement /Applications of elasticity of demand
Total Expenditure Method
Percentage or Proportionate demand
Geometric/Point Method
Arc Elasticity of demand
Revenue Method
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31. • Factors Determining Elasticity of demand
Nature of the commodity
Availability of substitutes
Variety of uses
Postponement of demand
Amount of money spent
Time
Range of prices
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32. • Demand forecasting
Demand forecasting is a combination of two words; the first one is Demand
and another forecasting. Demand means outside requirements of
a product or service. In general, forecasting means making an estimation in the
present for a future occurring event.
Demand Forecast refers to the predicition or estimation of a future situation
under given constraints .A forecast may be Passive or active
Types of Forecasting
• Based on Economy
• Based on the time period
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33. • Based on Economy:-
• Macro-level forecasting
• Industry level forecasting
• Firm-level forecasting
• Based on the time period:-
• Short-term forecasting
• Long-term forecasting
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34. • METHODS OF FORECASTING
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Forecasting Methods
Survey Method
Opinion
Method
Expert
Opinion
Delphi
Method
Consumer
Interview
Method
Statistical
Method
Time
Serious
Barom
etric
Regression
&
Correlatio
n
35. • Forecasting Demand For a New Product
• Evolutionary approach
• Substitute approach
• Growth curve approach
• Opinion Polling Approach
• Sales experience approach
• Vicarious approach
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36. • Criteria of Good Forecasting Method:
1. Simplicity and Ease of Comprehension
2. Durability
3. Accuracy
4. Availability
5. Economy
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