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.

1. Demand

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)

15. Demand Schedule and
Demand Curve for DVDs

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.

18. Why does demand curve slope
downwards
Law of diminishing marginal utility
Income effect
Substitution effect
New buyers
Different uses
Benham’s explanation.

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.

29. Tastes
A change in taste will change demand with no change in
price.

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.

33. From Individual Demands
to a Market Demand Curve
(1) (2) (3) (2) (3) $4.00
Price per Alice’s Bruce’s Cathy’s Market G
cassette demand demand demand demand 3.50
Price per cassette (in dollars)
3.00 F
A $.0.50 9 6 1 16 E
B 1.00 8 5 1 14 2.50
D
C 1.50 7 4 0 11 2.00
D 2.00 6 3 0 9 C
1.50
E 2.50 5 2 0 7 B
F 3.00 4 1 0 5 1.00
A
G 3.50 3 0 0 3 0.50
H 4.00 2 0 0 2 Cathy Bruce Alice Market demand
0
2 4 6 8 10 12 14 16
Quantity of cassettes demanded per week
McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved.

34. Aggregation of Demand (I)

35. Aggregation of Demand (II)

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)

39. Change in Demand vs. Change
in the Quantity Demanded