# Demand analysis(determinants,change and law).pptx

29. Oct 2022
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### Demand analysis(determinants,change and law).pptx

• 1. Demand Analysis GROUP NO. 15 ❏ Demand Analysis ❏ Concept of demand ❏ Change in demand ❏ Law of demand
• 2. Team Member ❏ Kriti Raj 2101066CS ❏ Vivek Kumar 2101240ME ❏ Rittik Raj 2101199EC ❏ Shrijal 2101097 ME ❏ Manish Kumar 2101163EC ❏ Omkar Omar 2101084CS ❏ Govind Kumar 2101057EC ❏ Priyanshu Raj 2101065EC ❏ Punit Yadav 2101012CS ❏ Vishal Kumar Pankaj 2101129CS
• 3. What is Demand? Demand is an economic concept that relates to a consumer's desire to purchase goods and services and willingness to pay a specific price for them. An effective demand has three characteristics namely, desire, willingness, and ability of an individual to pay for a product. Demand is relative concept Demand means a desire backed up by willingness to pay & the capacity to pay. Demand for a commodity cannot be shown absolutely. It is always shown with the Time factor & Price factor.
• 4. Let us take an example… It will be clear from the following three sentences. 1. Demand for milk is 10 liters. 2. Demand for milk is 10 liters per day. 3. Demand for milk is 10 liters per day at a price of Rs. 15/- per liter. Out of these 3 sentences, the first 2 sentences are meaningless. In the first sentence only the quantity demanded is given without the Time & Price factor. In the 2nd sentence the quantity demanded is given with time factor only. In the 3rd sentence quantity demanded (10 liters) is given with the time factor (per day) & price factor (Rs. 15 per liters) So, we can conclude that demand means………. ”Quantity demanded by a consumer at a given time at a given price.” Demand Schedule In economics, a demand schedule is a table that shows the quantity demanded of a good or service at different price levels. A demand schedule can be graphed as a continuous demand curve on a chart where the Y-axis represents price, and the X-axis represents quantity.
• 6. Types of Demand Demand is generally classified on the basis of various factors, such as nature of a product, usage of a product, number of consumers of a product, and suppliers of a product. The different types of demand are as follows: I. Individual and Market Demand: It refers to the classification of demand of a product based on the number of consumers in the market. Individual demand can be defined as a quantity demanded by an individual for a product at a particular price and within the specific period of time. Market demand is the aggregate of individual demands of all the consumers of a product over a period of time at a specific price, while other factors are constant.
• 7. Individual Demand Market Demand It refers to the quantity demanded of a commodity by a single firm or consumer. It refers to the quantity demanded of a commodity by all the consumers or the firms in the market. Individual demand is a component of Market demand. It is the aggregation of individual demands. The individual demand curve is relatively steeper. The market demand curve is relatively flatter. It has a narrower scope as it is related to the tastes and preferences of a consumer only. It has a broader scope as it is related to the tastes and preferences of all the consumers. It represents different quantities of a commodity preferred by an individual at different prices in the market. It represents different quantities of a commodity preferred by all consumers at different prices in the market.
• 8. II. Organization and Industry Demand: This refers to the classification of demand on the basis of market. The demand for the products of an organization at given price over a point of time is known as organization demand. The sum total of demand for products of all organizations in a particular industry is known as industry demand. III. Autonomous and Derived Demand: This refers to the classification of demand on the basis of dependency on other products. The demand for a product that is not associated with the demand of other products is known as autonomous or direct demand. The autonomous demand arises due to the natural desire of an individual to consume the product. On the other hand, derived demand refers to the demand for a product that arises due to the demand for other products. Moreover, the demand for substitutes and complementary goods is also derived demand.
• 9. IV. Demand for Perishable and Durable Goods: This refers to the classification of demand on the basis of usage of goods. The goods are divided into two categories, perishable goods and durable goods. Perishable or non-durable goods refer to the goods that have a single use. On the other hand, durable goods refer to goods that can be used repeatedly. V. Short-term and Long-term Demand: This refers to the classification of demand on the basis of time period. Short-term demand refers to the demand for products that are used for a shorter duration of time or for a current period. This demand depends on the current tastes and preferences of consumers. On the other hand, long-term demand refers to the demand for products over a longer period of time. Generally, durable goods have long-term demand.
• 10. Determinants of Demand Price of a Product The price of a product or service is generally inversely proportional to the quantity demanded while other factors are constant. As per the law of demand, it implies that when the price of the commodity or service rises, its demand falls and vice versa. Price of related goods Two items are said to be related to each other if the change in price of one item affects the demand for the other item. Related goods can be categorized as follows: i. Substitute or competitive goods: These goods can be used interchangeably as they serve the same purpose; thus, are the competitors of each other. For example, tea and coffee, cold drinks and juice, etc. The demand for a good or service is directly proportional to the price of its substitute. ii. Complementary goods: Complementary goods are used jointly; for example, car and petrol. For example, an increase in the price of mobile phones not only would lead to a fall in the quantity demanded but also lower the demand for mobile cover or scratch guards.
• 11. Consumer income level The level of income of individuals determines their purchasing power. Income and demand are directly proportional to each other. This implies that a rise in the consumer's’ income results in a rise in the demand for a commodity. Consumer preferences and tastes The demand for products changes with changes in the tastes and preferences of consumers (which depend on customers’ customs, traditions, beliefs, habits, and lifestyles). For example, the demand for burqas is high in gulf countries. In such countries, there may be less or no demand for short skirts.
• 12. Consumer expectation Demand for commodities also depends on the consumers’ expectations regarding the future price of a commodity, availability of the commodity, changes in income, etc. Such expectations usually cause a rise in demand for a product. For example, if a consumer expects a rise in the price of a commodity in the future, he/she may purchase larger quantities of the commodity in order to stock it. Similarly, if a consumer expects a rise in his/her income, he/she may purchase a commodity that was relatively unaffordable earlier. Consumer credit facility It refers to terms and conditions for supplying various commodities on credit. Favorable credit facilities generally increase the demand for expensive durable goods such as cars and houses. For example, easy home and car loans offered by banks have led to a steep rise in the demand for homes and cars respectively.
• 13. Size and growth of population Population size refers to the actual number of individuals in a population. A growth in the size of a population increases the demand for commodities as the number of consumers would increase. For example, a population with more youngsters will have higher demand for commodities like t-shirts, jeans, guitars, bikes, etc. compared to the population with more elderly people. Distribution pattern of national income Distribution pattern of national income shows how the national income is divided among groups of individuals, households, social classes, or factors of production. For example, nations having evenly distributed income would have higher demand for essential goods.
• 14. Climatic and weather conditions The demand for commodities depends on the climatic and weather conditions of a region such as cold, hot, humid, and dry. For example, the demand for air coolers and air conditioners is higher during summer while the demand for umbrellas tends to rise during monsoon. Government policy This includes the actions taken by the government to determine the fiscal policy and monetary policy such as taxation levels, budgets, money supply, and interest rates. Government policies have a direct impact on the demand for various commodities. For example, if the government imposes high taxes (sales tax, VAT, etc.) on commodities, their prices would increase, which would lead to a fall in their demand.
• 15. Demonstration effect or, Bandwagon effect The demand of certain goods is determined by the bandwagon effect or demonstration effect. It means a buyer wants to have a product because others have it. It means that an individual consumer's demand is conditioned by the consumption of others. Advertisement of a product Product advertising attempts to create a demand for a product. This includes promoting consumer awareness that a specific product exists and fostering their interest in the product. Product advertising also strives to encourage consumers to make purchase decisions quickly based on seeing a product.
• 16. Change of Demand ● A change in demand describes a shift in consumer desire to purchase a particular good or service, irrespective of a variation in its price. The change could be triggered by a shift in income levels, consumer tastes, or a different price being charged for a related product. ● A change in demand represents a shift in consumer desire to purchase a particular good or service, irrespective of a variation in its price. ● The change could be triggered by a shift in income levels, consumer tastes, or a different price being charged for a related product. ● An increase and decrease in total market demand is represented graphically in the demand curve. ● Income: How much consumers have to spend. ● Consumer preferences: What types of products are popular at any given moment. ● Buyer expectations: Does the consumer expect the price to rise in the future, perhaps due to limited supply? ● Price: How much does the good or service cost? ● Prices of related items: Are there any substitute goods or services of similar value that cost a lot less? Factors that affect market demand
• 17. An increase and decrease in total market demand is illustrated in the demand curve, a graphical representation of the relationship between the price of a good or service and the quantity demanded for a given period of time. Typically, the price will appear on the left vertical y-axis, while the quantity demanded is shown on the horizontal x-axis. The supply and demand curves form an X on the graph, with supply pointing upward and demand pointing downward. Drawing straight lines from the intersection of these two curves to the x- and y-axes yields price and quantity levels based on current supply and demand. Consequently, a positive change in demand amid constant supply shifts the demand curve to the right, the result being an increase in price and quantity. Alternatively, a negative change in demand shifts the curve left, leading price and quantity to both fall. Recording Change in Demand
• 18. Example of Change of Demand When an item becomes fashionable, perhaps due to smart advertising, consumers clamor to buy it. For instance, Apple Inc.'s iPhone sales have remained fairly constant, despite undergoing various price increases over the years, as many consumers view it as the number one smartphone in the market and are locked into Apple’s ecosystem. In various parts of the world, the Apple iPhone has also become a status symbol, illustrating inelastic demand just as Nokia Corp.'s cellphones did in the early 2000s. Technological advancements and fashion trends aren't the only factors that can trigger a change in demand. For example, during the mad cow disease scare, consumers started buying chicken rather than beef, even though the latter's price had not changed. Chicken could also find itself in favor if the price of another competing poultry products rises significantly. In such a scenario, demand for chicken rockets, despite still costing the same at the supermarket. Alternatively, if there is a perceived increase in the price of gasoline, then there could feasibly be a decrease in the demand for gas-guzzling SUVs, ceteris paribus.
• 19. Law of Demand Statement of law “Other things being equal, the higher the price of a commodity, smaller is the quantity demanded and lower the price, larger the quantity demanded”. Or, The law of demand explains that when other factors remain constant, the quantity demand and price of any product or service show an inverse equation. It also means that whenever the value of a specific product increases, demand for the same declines; the exact opposite can also be observed
• 20. Substitution effect: When prices decrease for a related or comparable product, consumers may find that product more desirable which can increase its demand. Example: The cost of coffee increases but the cost of tea remains the same. Due to the rising cost of coffee, consumers may decide to switch to tea to save money, an action that increases the demand for tea. Income effect: When incomes rise, people are typically willing to spend more and so, the demand for economic goods may increase. Income increases mean the consumer has more buying power and might purchase more of a product because they will spend the same amount of money but receive more in return. Varied Use: When goods are used for various purposes, demand may increase or decrease and may depend on how the consumer uses the product. When prices go up, consumers may find alternatives such as cooking dinner at home instead of eating out. Example: If the cost of a gallon of gas goes up, demand goes down and consumers respond by choosing to limit travel or seeking alternate transportation. Since customers can find other ways to have their needs met, the purchase of gasoline is relegated to a lesser need and demand decreases. However, if the cost of gasoline goes down, consumers may drive more often and purchase more gas to increase demand. Factors behind Law of demand
• 21. Exceptions to Law of demand Expectations regarding future prices: The issue of price change in the market is another exception to the law of Demand. There might be a situation when the Price of a product or service increases and is subjected to future growth. So, the customers may buy more of it to avoid further cost increment. Eventually, there are times when the Price of a product is about to decrease. Consumers may temporarily stop the purchase to avail of the future benefits of price decrement Example: Recently, there has been a massive rise in the price of onions. People were buying it more due to the worry of the further cost increase. Giffen Goods :- These goods are goods that are inferior in comparison to luxury goods. However, the unique characteristic of Giffen goods is that as its price increases, the demand also increases. And this feature is what makes it an exception to the law of demand. Articles of snob appeal / Veblen effect :- According to Veblen, there are certain goods that become more valuable as their price increases. If a product is expensive, then its value and utility are perceived to be more, and hence the demand for that product increases. Example: this happens mostly with precious metals and stones such as gold and diamonds and luxury cars such as Rolls-Royce. As the price of these goods increases, their demand also increases because these products then become a status symbol.