Demand Analysis

Presented By-
Ninad Jadhav (14014)
Bhaskar Kaule (14022)
Harshal Jadhav (14001)
Shubham Chaudhari (14005)
Demand
A relation between the price of a good and the
quantity that consumers are willing and able
to buy during a given period, other things
constant.

Demand = Desire + Ability to pay +

Willingness to spend.
 3 aspects of Demand

1. It is the Quantity desired at a given

price.
2. It is the demand at a Price during a
given time.
3. It is the quantity demanded per unit of
Time.
Demand Schedule and Curve

Demand curve:
A curve showing the
relation between the price
of a good and quantity
demanded during a given
period, other things
constant.
Suppose we are making
pizza.
Determinants of Demand
Price of the goods.
Income of the buyer.
Prices of related goods.
Tastes of the buyer.
Seasons prevailing at the time of purchase.
Fashion.
Advertisement and sales promotion.
Demonstration effect.
Law of Demand
A quantity of a good demanded during a given
period relates inversely to its price, other
things constant.
Price increases Quantity Demanded
decreases.
Price decreases Quantity demanded
increases.
Creates a downward sloping demand curve.
Reasons for the Law of
Demand
Substitution Effect
Unlimited wants/scarce resources
When the price of a good falls,
consumers substitute that good for
other goods, which become relatively
more expensive.
Reverse also holds true.
Reasons for the Law of
Demand
Income Effect
Money income: Is simply the number
of dollars received per period.
Real income: Your income measured in
terms of what it can buy.
A fall in the price of a good increases
consumers real income making
consumers more able to purchase
goods; for a normal good, the quantity
demanded increases.
Exceptions to the Law of
Demand
Giffen Goods Inferior Goods.
Conspicuous Goods- Esteem Goods.
Future expectations about prices.
Irrational Consumers.
Ignorance or Unawareness of Price.
Types of Demand
Price Demand
Income Demand
Cross Demand
Substitute Goods
Complementary Goods
Price Demand
It refers to the various quantities of the goods
which consumers will purchase at a given time
and at certain hypothetical prices assuming
that other conditions remains the same.
We are generally concerned with price
demand only.
Income Demand
Income demand refers to the various
quantities of a commodity that a consumer
would buy at a given time at a various levels of
income. Generally, when income increases,
demand increases and vice-a-versa.
Cross Demand
When the demand of one commodity is related
with the price of the other commodity is called
cross demand.
The commodity may be substitute or
complementary.
Substitute Goods
Substitute goods are those goods which can be
used in case of each other.
In such case demand and price are positively
related.
E.g. :- Tea or Coffee; McDonalds or Burger
king; Nirma or Tide.
Complementary Goods
Complementary goods are those goods which
are jointly used to satisfy a want.
Complementary goods are those which are
incomplete without each other.
These are things that go together, often used
simultaneously.
E.g. :- Car & Petrol; Chassis & Tyre ; Samosa &
Chutney.
Change in Demand
Expansion Contraction

Increase Decrease
Elasticity of demand
Elasticity of demand is the degree of responsiveness of
demand to the changes in its determinants.

A. Price Elasticity of Demand

The extent of response of demand for a commodity
to the changes in its prices, other determinants of the
demand remaining constant is called price elasticity of
demand.

%change in quality
%change in product
Types of Price Elasticity
of Demand
Perfectly elastic demand
Perfectly inelastic demand
Relatively elastic demand
Relatively inelastic demand
Unitary elastic demand
Perfectly Elastic Demand
Perfectly elastic demand is said to happen
when a little change in price leads to an
infinite change in quantity demanded.
Perfectly Inelastic Demand
Perfectly inelastic demand is opposite to
perfectly elastic demand.
Under the perfectly inelastic demand,
irrespective of any rise or fall in price of a
commodity, the quantity demanded remains
the same.
Unitary Elastic Demand
The demand is said to be unitary elastic when
a given proportionate change in the price level
brings about an equal proportionate change
in quantity demanded. The numerical value of
Unitary elastic demand is exactly one i.e. Ed=1
Marshall calls it unit elasticity.
Relative Elastic Demand
Relative elastic demand refers to a situation in
which a small change in price leads to a big
change in quantity demanded.
In such a case elasticity of demand is said to be
more than one
Ed>1
Relative Inelastic Demand
Under the relatively inelastic demand a given
percentage change in price produces.
A relatively less percentage change in quantity
demanded.
Ed<1
B . Income Elasticity of demand
The degree of responsiveness of demand for a
commodity to the changes in the consumers income is
known as income elasticity of demand.

% change in quality
% change in income

Types of Income elasticity:

o Negative income elasticity
o Positive income elasticity
o Zero income elasticity
C . Cross Elasticity of Demand

The degree of responsiveness of demand for a

commodity to a given change in the price of some other
related commodity is known as cross elasticity of
demand.

% change in quality x
% change in price y
Basis of Individual Demand
Utility
From the commodity point of view
From Consumer point of view

Approaches to Consumer Demand Analysis

Cardinal Utility approach

Total Utility
Marginal Utility
Law of Diminishing Marginal Utility
Assumptions underlying Cardinality Approach
Limited money income
Maximisation of satisfaction
Utility is Cardinal measurable
Diminishing Marginal Utility
Constant marginal utility of money

Consumer's equilibrium
One commodity model
Multiple commodity model-THE LAW OF
EQUIMARGINAL UTILITY.
Ordinal Utility Approach

Assumptions underlying Ordinal approach

Ordinal utility
Transitivity & consistency in choice
Diminishing marginal rate of substitution
Marginal rate of substitution-MRS is the rate at which
one commodity can be substituted for another , the level of
satisfaction remaining the same.
Diminishing MRS-The quantity of a commodity that a
consumer is willing to sacrifice for an additional unit of
another goes on decreasing when he goes on substituting
one commodity for another.
 Indifferent Curve Indifferent curve is a locus of points,
each representing a different combination of two substitute
goods ,which yields the same level of utility or satisfaction
to the consumer.

Properties of Indifferent curve

IC have a negative curve
IC are convex to origin
IC does not intersect with each other
IC are not tangent to one another
Upper IC always indicate a higher level of satisfaction
IC will not touch X-Y axis.
Thank You