CHAPTER 2 – PART

DEMAND
ANALYSIS
DEMAND
 Demand refers to desire backed by willingness to pay &
ability to pay.

DEMAND = Desire + Ability to Pay Willingness to Pay

DEMAND SCHEDULE
 When the relationship between quantity demanded of a
commodity & prices are tabulate, it is called as a demand
schedule.

INDIVIDUAL DEMAND SCHEDULE

Price per litre of milk (Rs.) Quantity Demanded (in litres)
30 1
25 2
20 3
15 4
10 5
DEMAND SCHEDULE
MARKET DEMAND SCHEDULE
Price per litre DD of DD of DD of Total DD = (A
of milk (Rs.) Consumer A Consumer B Consumer C + B + C)
30 1 2 3 6
25 2 3 4 9
20 3 4 5 12
15 4 5 6 15
10 5 6 7 18
DEMAND CURVE
 Downward sloping curve
 Negative slope

 Inverse relationship between price & quantity demanded

PRICE

QUANTITY DEMANDED
LAW OF DEMAND

Other things being equal if the price of a commodity falls, the

quantity demand of it will rise & vice versa.
EXCEPTIONS TO DEMAND CURVE
 If people expect a shortage in future, they tend to buy more when the price
rises.

 Certain precious items are purchased more when their prices are high

 Due to ignorance, also people buy more when the prices are high

 Sometimes people think that higher the price, better the quality. Hence, they
buy more.

 Incase of necessary items, even if the price goes up, people buy more of
them by readjusting their expenditure.

 Giffen Paradox
DEMAND FUNCTION
Relationship between the demand for a commodity & its
determinants.

Qx = f {Px, Pr, Y, E, T, O}
Where,
Qx = Qty. demanded
Px = Price of the commodity
Pr = Price of related goods
Y = Income
E = Exceptions about future prices
T = Tastes & Preferences
O = Other factors
FACTORS DETERMINING DEMAND
Individual Demand:
 Income of the consumer

 Price of the commodity

 Taste & preferences

 Price of related goods

 Future expectations

 Effect of advertisements
FACTORS DETERMINING DEMAND
Market Demand:
 Changes in weather

 Changes in fashion

 Changes in money circulation

 Changes in size of the population

 Technological changes

 Discovery of cheap substitutes

 Advertisement effect
CLASSIFICATION OF DEMAND
 Direct demand and derived demand
 Company demand and industry demand

 Demand for durable goods and demand for non-durable goods

 Short run demand and long run demand

 Total market demand and market segment demand

 Individual demand and market demand

 Joint demand and composite demand