UNIT-2

UTILITY AND DEMAND ANALYSIS

 UTILITY

Total
satisfaction
derived from
Value of goods
and service Utility
consumption
 MEASUREMENT OF UTILITY

Cardinal Utility

Ordinal Utility

Marginal Utility

Total Utility
 LAW OF DIMINISHING MARGINAL UTILITY

 The law of diminishing marginal utility holds that as we consume more of an

item, the amount of satisfaction produced by each additional unit of that good
declines.
 Law of Diminishing Marginal Uti lity
12

10

6
MU of the Good

0
0 1 2 3 4 5 6 7 8 9

-2

-4

-6

No of Units Goods Consumed

 DEMAND

Ability to Willingness
Desire Demand
pay to Pay
 LAW OF DEMAND
Law of demand states that other factors being constant, price and quantity demand of any good and
service are inversely related to each other. When the price of a product increases, the demand for the same
product will fall.
 6

5
5

4
4
Price of commodity

3
3

2
2

1
1

0
0.5 1 1.5 2 2.5 3 3.5 4 4.5 5 5.5

Quantity of a product
 TYPES OF DEMAND
Consumers’ Goods and Producers’ Goods

Perishable goods and Durable Goods

Superior Goods and Inferior Goods

Substitute of Goods and Complementary goods

Direct Demand and Indirect Demand

Firm Demand and Industry Demand

 Elasticity of
Demand

Price Income Cross

Elasticity Elasticity Elasticity
 LAW OF SUPPLY

All other factors being equal, as the price of a good or service increases, the quantity of goods or
services that suppliers offer will increase, and vice versa.
 Law of Supply
6
Price of Commodity
5
5

4
4

3
3

2
2

1
1

0
0.5 1 1.5 2 2.5 3 3.5 4 4.5 5 5.5

Quantity of Supply
CONSUMER EQULIBRIUM

State of Maximum satisfaction

A situation where consumer spends

his given income purchasing one or
more commodity

So that he gets maximum

satisfaction and has no urge to
change this level of consumption
BUDGET LINE
Different combination of two
commodities

It is based on two essential component

a. Purchasing Power
b. Market price of the two commodity

Two commodity are purchased by a

consumer by the given market price
with income allocation
 Budget Line
12

10

8
Ball Pen

0
0 1 2 3 4 5 6

Gel Pen
 INDIFFRENCE CURVE

The various combinations of two goods with which a

consumer is equally satisfied
 INDIFFRENCE CURVE
16
15

14

12
BANANA
10
10

6
6

4
3

2
1

0
0.5 1 1.5 2 2.5 3 3.5 4 4.5 5 5.5

APPLE
 DTERMINANTSTS OF DEMAND
Income
Consumers Preference
Price of Goods
Price of related goods
Expectation of Future : Future Price and Future Income
DEMAND FORECASTING

It is a technique for estimation of

probable  demand for a product or
services in the future.

It is based on the analysis of

past demand for that product or
service in the present market
condition.

Demand forecasting should be

done on a scientific basis and
facts and events related to
forecasting should be considered.
METHODS OF DEMAND FORECASTING

Survey of Buyer’s
Choice

Complete
Sample Survey End-use
Enumeration
Method Method
Method
METHODS OF DEMAND FORECASTING

Methods of Demand
Forecasting

Market Expert
Experiment Opinion
Method Method
THANK YOU