Demand

Demand is the quantity of good and services that customers are willing and able to purchase during a specified period under a given set of economic conditions. The conditions to be considered include the price of good, consumers income, the price of the related goods, consumers preferences, advertising expenditures and so on. The amount of the product that the costumers are willing to by, or the demand, depends on these factors. A firm could have the most efficient production techniques and the most efficient management, but without a demand for its product, it simply would not survive. Demand is thus essential for the creation, survival, and profitability of a firm.

Demand theory:
Relationship between consumer demand for goods and services & their prices.

Elasticity:
It measures the responsiveness in the quantity demanded of a commodity to changes in each of the forces that determine demand. The forces that determine consumers demand for a commodity are the price of the commodity, consumers income, the price of related commodities, and consumers taste.

An Individuals demand for a commodity:

Demand for a commodity faced by the firm depends on the size of the total market or industry demand for the commodity, which in turn is the sum of the demand for the commodity of the individual consumers in the market.

Consumer demand theory:

Consumer demand theory postulates that the quantity demanded of a commodity is a function of, or depends on, the price of the commodity, the consumers income, the price of related commodities, and the tastes of the consumer. Qdx = f(Px, I, Py, T)

When the price rises, the quantity purchased declines, and when the price falls, the quantity sold increases. On the other hand, when a consumers income rises, he or she usually purchases more of most commodities. These are known as normal goods. However, there are some goods and services of which the consumer purchases less as income rises. These are known as inferior goods. For example, when a consumer incomes rises, the consumer usually consumes less potatoes or flour, and will move to high quality food items like pizzas, hamburgers etc The quantity demanded of a commodity by an individual also depends on the price of related commodities. The individual will purchase more of a commodity if the price of a substitute commodity increases or if the price of a complementary commodity falls. For example, a consumer will purchase more coffee if the price of tea (a substitute for coffee) increases or if the price of sugar (a complement of coffee) falls. Furthermore, the quantity of a commodity that is purchased also depends on individuals taste. In short, demand theory postulates that the quantity demanded of a commodity per time period increases with: Reduction in its price Increase in consumers income Increase in price of subs commodities and reduction in price of complementary products With an increased taste for the commodity

Law of Demand:
The inverse relationship b/w the price of commodity and the quantity demanded per time period.

Income effect:
When the price of a commodity falls, a consumer can purchase more of the commodity with the given money income. The individuals demand curve shifts upward to the right if the consumers income increases, if the price of a substitute commodity increases or the price of a complementary commodity falls, and if the consumers taste for the commodity increases.