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MANAGERIAL ECONOMICS

-R.L. VARSHNEY
K.L. MAHESHWARI
-DR. D. M. MITHANI
- M.GIRIJA
R. MEENAKHI
Demand Analysis &
Business Forecasting

 Demand Function:-
– Factors Influencing Demands
 Determinants of demand
 Demand Analysis for various products, situations
and market structures :-
– Durable and non-durable goods
– Long run and Short run demand
– Autonomous and derived demand
– Industry and firm demand
 Elasticities & demand levels
Demand Analysis

 Demand Function
 Demand determinants
 Law of Demand
 Demand Schedule
 Demand Curve
 Demand Equation
 Factors affecting Demand
Demand Function

 Demand for a product is the amount of it that


will be bought per unit of time at a particular
price.
 Individual Demand -The quantity demanded
by an individual purchaser at a given price
 Market Demand -Total quantity demanded by
all the purchasers together at a given price
 Demand Function- Mathematical term
expresses the functional relationship between
demand for the product and its various
determining variables
Demand Function
Dx = f ( Px, Ps, Pc, yd, T, A, N , u )
Here we assume commodity X, so
Dx = Amount demanded for the commodity X
Px = Price of X
Ps = Price of substitutes of good X
Pc = Price of complimentary goods of X
Yd = Level of disposable Income of buyers
T = Change in buyer’s Taste & Preferences
A = Advertisement expenditure
N = Number of Buyers
u = other unspecified determinant
Demand Schedule

 Demand for a product is the function of its own


price, keeping all other factors constant
Dx = f ( Px)
 Demand Schedule-A Tabular statement of price
quantity relationship
 It shows the inverse relationship between price
and quantity demanded
 Two types of demand schedule:
– Individual Demand Schedule
– Market Demand Schedule
Individual Demand Schedule

•Table showing the various quantity purchased by


an individual purchaser at alternative price over a
given time period (day, week, month or year)
•It shows the variation in demand at various prices.
Price Qty Demanded
4 4
3 8
2 12
1 16
Market Demand Schedule
•Table narrating the quantities of a commodity
purchased in aggregate by all the purchasers in the
market at different prices over a given period of time
•It shows the total market demand at various prices.
•It serve as the basis for knowing the revenue
consequences of alternative output and pricing policies
of the firm
Price A B C Mkt. Demand
4 1 1 3 5
3 2 3 5 10
2 3 5 7 15
1 5 9 10 24
Demand Equation
A linear Demand function
Dx = A – B(Px)
Dx = Amount demanded for the commodity X
Px = Price of X
A = constant parameter signify initial demand
irrespective of price
B = implies negative relation between price and
quantity demanded
Eg. D = 20-2p
At p = 5, quantity demanded will be 20-2x5=10
Demand Curve

 Graphical presentation of a demand schedule


 It relates the amount the consumer is willing to buy at
each alternative price over a period of time.
 It has a negative slope
 It slopes downwards from left to right representing an
inverse relation between price and demand

Price
Determinants Of Demand

Factor affecting Individual Demand


 Price of commodity
 Income of customer
 Taste, habit and Preference of Customer
 Relative price of Substitute and Complementary goods
 Customer expectation
 Advertisement Effect
Determinants Of Demand

Factor affecting Market Demand


 Price of commodity
 Distribution of Income & Wealth of Community
 Community common habits & scale of Preference
 General Standard of living & Spending habits of
people
 Number of buyers in market & Growth population
 Age, Structure, sex ratio of population
Determinants Of Demand

Factor affecting Market Demand


 Future expectation about Price
 Level of taxation and tax structure
 Inventions and innovations
 Fashions
 Climate and weather conditions
 Advertisement and sales promotions
 Customs
Law of Demand

 Itexpresses the nature of functional relationship


between two variables of demand relation i.e.
Price and quantity demanded
 Ceteris paribus, the higher the price of the
commodity, the smaller is the quantity
demanded and lower the price, larger is the
quantity demanded.
 The demand for the commodity extends as the
price falls, and contracts as the price rises.
Chief characteristics of
Law of Demand

 Inverse relationship
 Price an independent variable, and
demand a dependent variable
 Assumption of other things remaining the
same
 Reasons underlying the law of demand
– Income Effect
– Substitution Effect
 Exception to the law of demand
• Veblen Effect / Conspicuous consumption
• Giffen Goods
• Speculation
Types of Demand

1. Producers’ Goods 1. Consumers’ Goods


2. Durable Goods 2. Non Durable Goods
3. Derived Demand 3. Autonomous Demand
4. Short run Demand 4. Long run Demand
5. Firm Demand 5. Industry Demand
Demand Distinctions
Producers’ Goods Consumers’ Goods
1. Used for the production 1. Used for the direct
consumption
of other goods
2. Demand is direct and
2. Demand is derived autonomous
3. Depends on marginal 3. Depends on marginal utility
productivity 4. Classified into non durable
4. Classified into and durable
consumable and 5. Motivated by business profits
durable 6. Example: machines,
5. Motivated by buyer’s equipment, raw
income materials,building
6. Example: cloth, food .
house
Demand Distinctions
Non Durable Goods Durable Goods
1. Used for the current 1. Used for adding stock of
demand of goods existing goods
2. Can not be stored for a 2. Can be stored for a long
long time time
3. Give one time service 3. Give repeated services
4. Demand is immediate 4. Demand is postponable
5. Demand is more elastic 5. Demand is less elastic in
in short run short run
6. Influenced by income 6. Influenced by lifetime of
and convenience product and obsolescence
7. Example: vegetable, 7. Example: furniture, cycle,
fish . house house
Demand Distinctions
Derived Demand Autonomous Demand
1. Demand is tied to 1. Demand is based on the
purchase of parent good urge of satisfy some wants
directly
2. Less price elastic
2. more price elastic
3. Facilitate demand
forecasting 3. Facilitate demand analysis
4. Demand for all 4. Demand for all consumers’
producers’ goods goods
5. Influenced by demand of 5. Influenced by taste, trends
parent good and preference
6. Example: cement, 6. Example: building, car,
petrol ,ink, antenna, pen, television, tea
sugar
Demand Distinctions
Short run Demand Long run Demand
1. demand of goods in a 1. demand of goods in a
period of one year or period of one year to ten
less year
2. No threat of substitute 2. Big threat of substitute and
and competitors competitors
3. Demand is immediate 3. Demand is permanent
4. Demand is less elastic 4. Demand is more elastic in
in short run long run
5. Influenced by price and 5. Influenced by promotion,
income product change
6. Example: raw material, 6. Example: building,
bidi cigarette
Demand Distinctions
Firm Demand Industry Demand
1. Market demand for the 1. Total demand for the commodity
commodity produced by a produced by a particular industry
particular firm 2. Represent the relation of the price of
2. Represent the relation of the the product to the quantity bought
price of the product to the from all the firms
quantity bought from a single 3. Demand can be classified customer
firm group-wise, like, steel demand for
3. Demand is general and can not construction and manufacture,
be classified. airline tickets for business and
pleasure
4. Demand is more elastic in short
run 4. Demand is less elastic in short run
5. Influenced by industry demand 5. Influenced by market structure like
schedule monopoly or oligopoly
6. Example: total production of 6. Example: total production of
Ambuja cement : 30 cr tons cement : 100 cr tons
7. Demand os steel produced by 7. total production of steel industry
TISCO
Elasticity of Demand

 Change in quantity demanded due to change


in price of the commodity
 Def: the elasticity of demand in the market is
great or small according as the demanded
increases much or little for a given fall in price
and diminishes much or little for a given rise in
price.
 Types of elasticities
 PriceElasticity of Demand
 Income Elasticity of Demand
 Cross Elasticity of Demand
THANK YOU

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