1 / 47

Demand Analysis -2

Demand Analysis -2

nithya6
Download Presentation

Demand Analysis -2

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Demand Analysis

  2. Meaning of Demand • It is the quantity of the commodity which an individual or household is willing to purchase per unit of time at a particular price • Individual demand Vs Household demand • Market/Aggregate demand

  3. Determinants of demand • Explanatory Variables • Explained Variables • Factors General Factors Additional factors related to luxury goods & variables Additional factors related to market demand

  4. Demand Determinants • Price of the commodity • Income of the commodity • Price of related goods

  5. Price of the commodity • With all factors a constant the price of a commodity & its demand vary inversely • SUBSTITUTION EFFECT • INCOME EFFECT

  6. Income of the commodity Monthly income of the house hold Food Inferior Good Income demand relation Unit demanded of good X per day

  7. Engle’s Curve • Curve reflecting the relationship b/w income & demand

  8. Price of related goods • A change in price of one good influences the demand of other commodity • Types Substitutes Complementary

  9. Substitutes • Price of one commodity & the quantity demanded of other commodity move in the same direction • Eg. Apples & pears Tea & coffee

  10. SUBSTITUTES D Price of apples P2 p1 D Q1 Q2 Amount demanded of pears per week

  11. Complementary • When price of one commodity & the quantity demanded of other commodity move in opposite direction • Eg. Pen & ink Bread & butter

  12. Complementary Price of bread P2 P1 Q2 Q1 Amt. demanded of bottle per day

  13. Other factors influencing demand • Taste & preference • Advertisements • Expectations Related to future income Related to future price

  14. Demand Function • The mathematical expression of the relation b/w quantity demanded of the commodity & its determinants

  15. Individual demand function • It relates to the demand of individual Qdx = f(Px,Y,P1,…,Pn-1,T,A,Ey,Ep,U) Qdx Quantity Demanded Px Price of product Y Level of house hold income P1..-Pn-1 Price of related products T Taste of consumer A Advertisements Ey Expected future income Ep Expected future price U Determinants not included

  16. Lets derive market demand function • Population • Distribution of consumer

  17. The law of demand • All things remaining constant “The higher the price lower the quantity demanded & vice versa” • Qdx =f(p)

  18. Expressing demand curve as equation • Linear demand curve • Q=-bp • eg. q=2345-3p • Quadratic demand curve • Q=a-bp1/n • eg. Q=200000-5000√p

  19. Underlying Principles of the Law • Any change in price affects demand by • Substitution effect • Income effect

  20. When will the law of demand be violated • Inferior Goods • Positive income effects is greater than negative substitution effect

  21. Individual & market demand schedule • Demand Schedule At any particular time it refers to the series of quantities the consumer is prepared to buy at its different prices eg. Individual demand schedule for oranges

  22. Individual demand schedulefor oranges

  23. Market Demand Schedule • The quantity of the product demanded by the individual customer are summed up

  24. Example

  25. Individual & Market Demand Curve • Curve is the diagrammatic representation of the demand schedule • Lets work it out.

  26. Why do demand curve slope downwards • Law of diminishing utility • A commodity is frequently used if it is cheaper • A fall in price of superior good will lead to rise in real income • Substitution effect

  27. Forms of demand function

  28. Law 1 p=a-bq B P=A b A Q o Linear demand curve

  29. Law 2 p=[a/(a+b)]-c • a = (a+b) (p+c) • Hyper parabolic curve or rectangular hyperbola

  30. Law 3 p=a-bq2 • Hyperbolic curve restricted to 1st quadrant

  31. Law 4 • Q=ae-bp p=1/b log (a/q) Exponential demand curve

  32. Exceptions to the law of demand • Giffen Goods • Status Attributing Commodities • Expectation of change in price of commodity

  33. Change in demand Vs Change in quantity demanded • Shift in Demand Curve can be brought by • Change in own price of the commodity – EXTENTION & CONTRACTION • Change in factors other than “own price” – CHANGE IN DEMAND

  34. Revenue concepts • Revenue is closely related to demand • Revenue = Price * Quantity • 3 point of view • Total Revenue • Average Revenue • Marginal Revenue

  35. Total Revenue • The sum total of sale proceeds from the total number of units sold. • TR = Q*P = Quantity * Price

  36. Average Revenue • The total revenue divided by the quantity demanded • AR = TR/Q =P*Q/Q =P ie. AR=P

  37. Marginal Revenue • Change in total revenue when there is a change in the quantity of product sold • MR=TRn-TRn-1 ( Total revenue of nth & n-1th units respectively) • MRn =d(TR)/dq

  38. Nature of demand • Derived demand & Autonomous demand • Derived : I/P which are demanded to help in further production of commodity eg. R/M • Autonomous: Commodity demanded because it is needed for direct consumption. Eg. Pieces of furniture

  39. Producers’ Goods & Consumers Goods • Producers’ Goods : Steel • Consumers Goods: Milk Further classification • Durables : Shoes • Non Durables : Sweets

  40. Consumer Durables • Irregular interval demand • Depends on needs of family • Cooperating services is must sometimes

  41. Producers durables • Professional buyers • Not influenced by pressure selling • Derived demand -volatile

  42. Replacements are postponed/Stored Types Demand for replacement New demand Routine Demand Types Perishable Non Perishable Durables Non Durables

  43. Industry demand & Firm/Company demand • Company demand : The demand for a particular product of a particular firm • Industry Demand : The total demand for the product of a particular indusrty

  44. Market Structure • Monopoly • Homogeneous Oligopoly • Differentiated Oligopoly • Perfect Competition • Monopolistic Competition

  45. Types of market & demand curve • Monopoly : The company demand curve is same as the industry demand curve. • Pure perfect competition • Monopolistic Competition • Oligopoly : • Homogeneous • Differentiated

  46. Total demand & market segment demand Total A B Segments (A,B,C,D) C D

  47. Short Run Demand and Long Run Demand

More Related