MANAGERIAL ECONOMICS

FACULTY: Prof. Venugopal Naidu

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MODULE:1

DEMAND ANALYSIS

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Meaning of Demand
Demand implies 3 conditions :

 Desire for a commodity or service

 Ability to pay the price of it
 Willingness to pay the price of it.

Further demand has no meaning without

reference to time period such as a week, a month or a
year.
The demand for a product can be defined as the
“Number of units of an commodity that consumer will
purchase at a given price during a specified period of
time in the market.”

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Types of Demand

Demand can be broadly classified into

3 types :
They are,
 Price Demand
 Income Demand
 Cross Demand

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Law of Demand
The law of demand expresses the
relationship between the price & quantity
demanded .It says that demand varies inversely
with price.

The Law can be stated in the following:

“ Other things being equal, a fall in the price
leads to expansion in demand and a rise in
price leads to contraction in demand.”

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Assumptions- Law Of Demand
 Consumers Income remains Constant
 The Tastes & Preferences Of the
Consumers remain the same
 Prices of other related Commodities remain
Constant
 No new Substitutes are available for the
Commodity.
 Consumers do not expect further change in
the price of the commodity.

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Continued…

 The Commodity is not of Prestigious

value
Eg: Diamond
 The size of population is constant
 The rate of taxes remain the same
 Climate & Weather Conditions do not
change.

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DEMAND SCHEDULE
 Individual Demand Schedule
 Market Demand schedule

1. Individual Demand Schedule:

It is a list of various quantities of a
commodity which an individual consumer
purchases at different prices at one instant of
time.
D= f (P) (or) D(x) = f(Px)

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Individual demand schedule
(Hypothetical)

Price per unit (Rs) Quantity demanded

for time period
(a week)
5 10 apples
4 20 apples
3 30 apples
2 40 apples
1 50 apples
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2. Market Demand Schedule

The market demand Schedule can

be obtained by adding all the individual
Demand Schedules of Consumers in the
market.
Hypothetical market demand
schedule is as follows:

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Hypothetical market demand
schedule

Price per Quantity demanded by Market

unit (Rs) individuals demand
A B C A+B+C
5 10 20 30 60
4 20 30 40 90
3 30 40 50 120
2 40 50 60 150
1 50 60 70 180
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Market demand curve

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Exceptions to the law of demand

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Continued…
 Giffen’s Paradox (Robert Giffen-Irish
Economist)
 Veblen’s Effect (Thorstein Veblen – USA )

 Price Illusion

 Fear of Future Rise in Prices

 Emergency

 Necessaries

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Continued…
 Conspicious Necessaries (More Noticeable)
Eg:- TV, Watch, Scooters, Car etc
 Fear of Shortage
 Ignorance

 Speculation (Stock Market)

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Why does the demand curve slope
downwards to right

OR
Why does demand curve has a negative
slope?

 Operation of the Law of Diminishing Marginal Utility

 Income Effect
 Substitution Effect
 Different Uses
 New Buyers

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CHANGES IN DEMAND

A. Extension & contraction of

demand:

When demand changes due to

change in the price of the commodity, it
is a case of either extension or
contraction of demand. The Law of
demand relates to the Extension &
Contraction of Demand.
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Extension and Contraction of
Demand

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2. Increase and decrease in demand:

When demand changes, not due to

changes in the price of the commodity or
service but due to other factors on which
demand depends.

Eg:- Income, Population, Climate, Tastes

& Habits etc.

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Increase and Decrease in Demand

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DEMAND DISTINCTIONS

“Demand distinctions may be defined as

the difference in the forces acting on the
demand for different goods.”

 Demand for Producer goods and

Consumer Goods
 Demand for Durable goods and Non-
Durable Goods.

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Continued…
 Derived Demand and Autonomous
Demand.
 Industry Demand and Company Demand

 Short run Demand And Longrun demand

 Total Market demand & Market Segment

Demand

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DETERMINANTS OF DEMAND (OR) FACTORS
AFFECTING DEMAND
(Refer: Lekhi & Agarwal- Business Economics)

 Price of Commodity
 Price of Related Goods
 Income of the Consumer
 Distribution of Wealth
 Tastes & Habits
 Population growth

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Continued…

 State of Business (Business Cycle)

 Government Policy
 Advertisement
 Level of Taxation

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