Phenomena of Demand Extremely useful for management students

2. Market Scenario
 Building block of an economy are :
 Taste : What and for whom ?
 Technology : Influence Cost, price and availability of a new product/ services
 Markets are like weather
 Sometimes stormy, sometimes calm : but always changing
 To forecast prices and output in market , as a manager
 You must first master the analysis of demand and supply.
 Depending on factors like : government regulations, new technology and competition
etc.
E.g. Demonetization, GST, E- commerce companies etc.
Subsidy of LPG (DBT) had opened a new market for induction plates

3. Definition- Demand
 Total Number of Goods or services required by customers at a given point of
time indicates demand. E.g. : Demand of Nokia/Samsung phones, Maruti cars
in October 2018.
 It is an economic principle that describe a consumer’s willingness/desire to pay
a price for specific goods/ services.
 Holding all other factors constant increase in price leads to decrease in demand
and vice-versa.
 Phenomena of Demand : Need → Necessity → Demand

4. Demand curve/ Schedule
 The relationship between price
and quantity bought (of a
product/ Service) is called
demand curve. It depicts the
graphical representation between
price and quantity of a product.
 Law of Demand :
 State that demand is inversely
proportional to the price, i.e.
demand for a product/ service
will increase with decrease in
price and vice – versa.

5. Law of downward sloping demand curve
 It states that when the price of a commodity is increased (all
other factors held constant), buyers tend to buy less of
commodity and vice – versa.
 Reasons for downward sloping demand curve
 Spread Effect
 Substitution effect
 Income Effect
 Psychological effect
Flipkart sold 1 million smart phones, surpassed benchmark of 4300 crores in just
two days i.e. October 12-13,2018.

6. Spread Effect and Substitution Effect
 A Consumer will increase the usage of a product as its price goes down,
due to its multiple uses.
 e.g. Milk
 Labourer : Newborn baby (P ↑), wife, himself, curd , butter (P ↓)
 Internet connection of mobile phone
 Substitution Effect :
 States that consumer will tend to shift their preferences/ taste towards
other goods available as substitute of a product whose price has been
increased.
E.g. 3G vs 4G,
bus fair vs room at rent,
Maggi vs yapee,
Petrol cars vs electric cars

7. Income Effect
 When the price change, the consumer real income or purchasing power of
his money income changes, leading to a change in quantity demanded.
 Income effect can be the change in quantity demanded that arise because
of price change. Higher price generally reduce quantity demanded and
vice – versa through income effect.
 Which means a consumer will buy less of a product as prices goes up to
keep him financially stable.
 E.g. Decreased consumption of petroleum with increase in its prices

8. Factors on which Demand Depends
D = f (P, PR, I, T, N, O)
 P = Price of product
 PR = Price of related goods
 I = Income of customers/ Consumers
 T = Taste and Preferences
 N = Number of buyers
 O = Other factors
Future price expectations
Environmental factors
Culture / festival - Kasol
Religion

9. Difference between shift of demand curve and
Slope (movement along) of Demand Curve
 Slope : technological
advancement
 Shift : other factors

10. Exceptions to the law of demand
Veblen Effect :
Different from the crowd
High priced goods are purchased more
Hair styles, Luxury cars, diamond jewelry
Bandwagon Effect
Like the crowd
 psychological phenomenon in which people do something primarily
because other people are doing it
Conspicuous Necessity
Giffen goods :
Generally inferior goods

11. The different types of demand
 Individual and Market Demands
 Direct and Derived Demands
 Domestic and Industrial Demands
 Autonomous and Induced Demand
 Perishable and Durable Goods’ Demands
 New and Replacement Demands
 Total Market and Segmented Market Demands
 Company and Industry Demands