Demand analysis identifies the forces that determine sales and is the basis for understanding a firm's competitive position. Demand is defined as the quantity of a commodity consumers are willing and able to purchase at a given price during a specific time period. There are seven essentials that determine demand: desire, ability to pay, willingness to pay, quantity bought and sold, at a given price, time, and place. A demand curve graphically shows the inverse relationship between price and quantity demanded - as price increases, quantity demanded decreases. Shifts in the demand curve occur due to changes in its determinants, while movements along the curve result from price changes.
2. Essentials of Demand Analysis
Identify and measures the forces that determine sales
Extent of production and cost allocation
Pricing and inventory holding
Profit planning
New product policy and advertisement policy
Research and development policy
Demand analysis is basis of tracing the trends of firm’s
competitive position in the market
3. Demand
Demand be defined as the quantity of a commodity which a
consumer is willing and able to purchase at any given price,
during some specific period of time .
There are seven essentials of demand
Desire for a commodity
Capacity to pay for it
Willingness to pay for it
Quantity bought and sold
At a given price
At a given time
At a given place
4. Definition of Demand
The demand for a particular good is the
amount that will be purchased at a given
price and a given time.
Veera Anatey
Demand is defined as the quantity of a commodity or
service bought per unit of time at a given price.
Edward
5. Types of Demand
Price demand
Income demand
Cross demand
Joint or complementary demand
Composite demand
Direct or derived demand
Competitive demand
Consumer’s good and producer’s good
Perishable and durable goods
Company and industary demand
6. Determinants of demand
Price of a commodity
Price expectations
Price of related goods
Income of the consumer
Population
Tastes and preferences
Distribution of income
Discoveries
Trade activity
Climate and weather
Money supply
Savings
Reduction in taxes
7. The Law of Demand
Law of demand – there is an inverse relationship between
price and quantity demanded.
Quantity demanded rises as price falls, other things constant.
Quantity demanded falls as prices rise, other things constant.
8. The Demand Curve
The demand curve is the graphic representation of the law
of demand.
The demand curve slopes downward and to the right.
As the price goes up, the quantity demanded goes down.
9. The Demand Table
The demand table assumes all the following:
As price rises, quantity demanded declines.
Quantity demanded has a specific time dimension to it.
All the products involved are identical in shape, size, quality,
etc.
10. The Demand Table
The demand table assumes all the following:
The schedule assumes that everything else is held constant.
11. From a Demand Table to a Demand
Curve
You plot each point in the demand table on a graph and
connect the points to derive the demand curve.
12. From a Demand Table to a Demand
Curve
The demand curve graphically conveys the same information
that is on the demand table.
13. From a Demand Table to a Demand
Curve
A Demand Table $6.00
A Demand Curve
Price per DVD rentals 5.00
Price per DVDs (in dollars)
cassette demanded per
week 4.00 E
A $0.50 9 3.50 G
3.00 D
B 1.00 8 Demand for
2.00 C
C 2.00 6 DVDs
D 3.00 4 1.00
F B
A
E 4.00 2 .50
0
1 2 3 4 5 6 7 8 9 10 11 12 13
Quantity of DVDs demanded (per week)
14. A Sample Demand Curve
Price (per unit)
PA A
D
0
QA
Quantity demanded (per unit of time)
16. Other Things Constant
Other things constant places a limitation on the application
of the law of demand.
All other factors that affect quantity demanded are assumed to
remain constant, whether they actually remain constant or not.
17. Other Things Constant
Other things constant places a limitation on the application
of the law of demand.
These factors may include changing tastes, prices of other
goods, income, even the weather.
19. Exceptions to law of demand
Ignorance
Speculative effect
The giffen’s paradox
Fear of shortage
Prestigious goods
Conspicuous necessities.
20. Shifts in Demand Versus
Movements Along a Demand
Curve
Demand refers to a schedule of quantities of a good that
will be bought per unit of time at various prices, other
things constant.
Graphically, it refers to the entire demand curve.
21. Shifts in Demand Versus
Movements Along a
Demand Curve
Quantity demanded refers to a specific amount that will be
demand per unit of time at a specific price.
• Graphically, it refers to a specific point
on the demand curve.
22. Shifts in Demand Versus
Movements Along a
Demand Curve
A movement along a demand curve is the graphical
representation of the effect of a change in price on the quantity
demanded.
23. Shifts in Demand Versus
Movements Along a
Demand Curve
A shift in demand is the graphical representation of the effect of
anything other than price on demand.
24. Change in Quantity Demanded
$2 B
Price (per unit)
Change in quantity demanded
(a movement along the curve)
A
$1
D1
0
100 200
Quantity demanded (per unit of time)
25. Shift in Demand
Change in demand
(a shift of the curve)
$2
Price (per unit)
B A
$1
D0
D1
100 200 250
Quantity demanded (per unit of time)
26. Shift Factors of Demand
Shift factors of demand are factors that cause shifts in the
demand curve:
Society's income.
The prices of other goods.
Tastes.
Expectations.
Number of Buyers
Taxes on subsidies to consumers.
27. Income
An increase in income will increase demand for normal
goods.
An increase in income will decrease demand for inferior
goods.
28. Price of Other Goods
When the price of a substitute good falls, demand falls for
the good whose price has not changed.
When the price of a complement good falls, demand rises for
the good whose price has not changed.
30. Expectations
If you expect your income to rise, you may consume more
now.
If you expect prices to fall in the future, you may put off
purchases today.
31. Individual and Market Demand Curves
A market demand curve is the horizontal sum of all
individual demand curves.
This is determined by adding the individual demand curves of
all the demanders.
32. Individual and Market Demand Curves
Sellers estimate total market demand for their product which
becomes smooth and downward sloping curve.
36. Factors that Shift Demand
Number
Of
Buyers
Consumer Price of
Income Related Goods
Demand
Tastes
And Expectations
Preferences
Demographics
37. Taxes and Subsidies
Taxes levied on consumers increase the cost of goods to
consumers, thereby reducing demand.
Subsidies have an opposite effect.
38. Changes in Demand
and Quantity Demanded
Change in Quantity Demanded - movement along the
same demand curve in response to a price change.
Change in Demand - shift in entire demand curve in
response to a change
in a determinant of demand (a ceteris paribus variable)