You are on page 1of 26

mPresented by:-

Susmita Jha
m ÷he demand for anything, at a given price, is the amount of it,
which will be bought per unit of time, at that price.´
m By demand we mean the various quantities of a given
commodity or service which consumers would buy in one market
in a given period of time at various prices.´

m Requisites:
a. Desire for specific commodity.
b. Sufficient resources to purchase the desired commodity.
c. Willingness to spend the resources.
d. Availability of the commodity at
m (i) Certain price (ii) Certain place (iii) Certain time.
m ÷he law of demand states that ³higher the price,
lower the demand, and vice versa, other things
remaining the same´.
m Its an inverse relationship between price and
commodity.
Exceptions to the law of demand are
¦ ½iffen goods.
¦ Conspicuous consumption.
m An increase in

demand shifts
 the demand


curve to the right.
 



m Equilibrium price
 increases.
 m Quantity
     



   demanded
increases.

 
 
m A decrease in

demand shifts
 the demand
 curve to the

left.
 




m Equilibrium
price falls.

        
m Quantity


demanded falls.

 
 
. Individual demand
2. Market demand

3. Income demand

- Demand for normal goods (price ±ve, income +ve)

- Demand for inferior goods (eg., coarse grain)

4. Cross demand
- Demand for substitutes or competitive goods (eg. tea & coffee, bread and rice)

- Demand for complementary goods (eg., pen & ink)

5. Joint demand (same as complementary, eg., pen & ink)


6. Composite demand (eg., coal & electricity)
7. Direct demand (eg., ice-creams)
8. Derived demand (eg., ÷ & ÷ mechanics)
9. Competitive demand (eg., desi ghee and vegetable oils)
. Demand of unrelated goods


 6 


6 


   






 
 
  
 
m Price of the commodity ± Normally there is an inverse relationship
between the price of the commodity and the quantity demanded. (Px)
m Income of the Consumer ± Determines the purchasing power of the
consumer. ½enerally, there is a direct relationship between the income
of the consumer and demand. (Y)
m Consumer¶s taste and preference (÷)
m Price of related commodities (Pr)
m Consumer Expectation (expected change in price)
m Distribution of income
m Size and composition of population
m Other Factors e.g., natural calamities
Qdx = f (Px, Pr ,Y , ÷, D)
m Demand Schedule: a tabular presentation
showing different quantities of a commodity
that would be demanded at different prices.
÷ypes of Demand Schedules

 
  
= 
  
  

 
      


       


        

=
     
  
 
    
    


m Availability of substitutes
m Postponement of consumption
m Proportion of expenditure (needles: inelastic; ÷ : elastic)
m Nature of the commodity (necessity vs. luxury)
m Different uses of the commodity (paper vs. ink)
m ÷ime period (elastic in the long term)
m Change in income (necessaries: inelastic)
m Habits
m Joint demand
m Distribution of income
m Price level (very costly & very cheap goods: inelastic)
m Price elasticity of demand
m Income elasticity
m Cross price elasticity
m Advertising elasticity
D Elastic Demand or more than  ± When quantity demanded
responds greatly to price changes
D Inelastic Demand or less than  ± When quantity demanded
responds little to price changes.
D nitary Elastic ± When quantity demanded responds equally to
the price changes.
D Perfectly inelastic or  elastic demand
D Perfectly elastic or infinite elastic demand

Economic factors determine the size of price elasticity for


individual goods. Elasticity tends to be higher when the goods
are luxuries, when substitutes are available and when
consumer have more time to adjust their behavior.
m Income elasticity may be defined as the degree of
responsiveness of quantities demanded to a given
change in income.
m Properties
X luxury goods eI > 
X necessity  < eI < 
X inferior goods eI < 
m Aero income elasticity
m Negative income elasticity
m Positive income elasticity
m Cross price elasticity is responsiveness of demand
of a good to changes in another good¶s price
m Cross elasticity of demand measures the
proportionate change in the quantity demanded of
a particular commodity in response to a change in
the price of another related commodity.
m Properties
X ec > : substitute
X ec = : independent
X ec < : complement
m ÷he expansion of demand by means of
advertisement and other promotional efforts may
be measured by advertising elasticity of demand,
also called promotional elasticity.
m ÷ype of commodity
m Market share
m Rival¶s
m State of economy
m Price elasticity of demand varies with the amount
of time consumers have in response to a price
change.
X short-run elasticity
X long-run elasticity
m Durable and non-durable goods
m Most goods and services:
X Short-run elasticity is less than long-run elasticity. (e.g.
gasoline)

m Durables goods:
X Short-run elasticity is greater than long-run elasticity (e.g.
automobiles)
6  O 

6   

   
     
    

   O

  
6  O
6   
  
   

   
     

   O 

  
m Where can we find data?

m How to estimate the value of elasticity?

m How can we use the elasticity estimates?


m Data type
X ÷ime series data
X Cross-sectional data
m Data generating methods
X variables measured
ï actual purchases (scanner data) versus purchase
intentions (survey)
X conditions of data gathering
ï uncontrolled (store data) versus controlled experiments
conjoint analysis
 
   

˜ 




 
 

 



 

 


 
 





     
 
 


  
 

  


r