Demand Analysis for MBA

1. DEMAND
ANALYSIS

2. DEMAND
Quantity demanded-
The amount of a good or
service consumers are willing
and able to purchase during a
given period of time.

3. Factors affecting demand/
Determinants of demand
1. The price of good or service
2. The income of consumers
3. The prices of related goods or service
4. The tastes or preference pattern of
consumers
5. The expected price of the product in
future periods
6. The number of consumers in the market

4. DEMAND
• Buyer side of market
• Demand is essential for creation,
survival and profitability of firm
• Two types of demand relation
Generalized
demand
functions
Ordinary
demand
Function/demand
Function

5. Generalized Demand Functions-
It shows how quantity demanded is
related to product price and five other
functions that affect demand.
Qd=ƒ (P,M,PR,T,Pe,N)
Where , ƒ means is a function of or depends on
Qd =quantity demanded of the good or service
P = price of good or service
M = income of consumers
PR = prices of related goods or service
T = tastes or preference pattern of consumers
Pe = expected price of the product in future periods
N = number of consumers in the market

6. Ordinary Demand Function-
It shows the relation between quantity
demanded and the price of the product
when all other variables affecting
demand are held constant.
Qd=ƒ (P)

7. Types Of Demand
• Individual Demand
• Market Demand
• Autonomous demand
• Derived demand
• Demand for Durable goods
• Demand for Non-Durable goods
• Short term Demand
• Long term Demand

8. Types Of Demand
•Individual Demand- A quantity of commodity which
an individual is willing to buy at a particular price at
a specific time.
•Market Demand- The market demand for a
commodity is simply the horizontal summation of
demand curve of all consumers in the market.
•Autonomous demand- The demand for commodity
which arises on its own.
•Derived demand-The demand for commodity which
arises on its parent product.

9. Types Of Demand
• Demand for Durable goods-The goods whose
total utility is not exhausted in one single use.
• Demand for Non-Durable goods- The goods
whose total utility is exhausted in one single
use.
• Short term Demand- The demand for goods that
are demanded over a short period.
• Long term Demand- The demand for goods that
are demanded over a long period.

10. Deviation from Market Demand
• Snob effect-
When consumer seek to be different and
exclusive but demanding less of a
commodity as more people consume it.
The demand curve is steeper.
• Bandwagon effect-
When consumer demand a commodity as
more people consume it and in order to
follow fashion.
The demand curve is flatter.

11. Demand for Firm’s Product
• Monopoly
• Perfect competition
• Imperfect competition
-Oligopoly
-Monopolistic competition

12. Concept of Elasticity
The quantitative relationship between price
and quantity purchased is elasticity.
Elastic demand
Inelastic demand

13. Types of Elasticity
• Price elasticity of demand
- Point Price elasticity of demand
- Arc Price elasticity of demand
• Income elasticity of demand
• Cross price elasticity of demand

14. Price elasticity of demand
It indicates the degree of responsiveness of
quantity demanded of a good to the change
in its price remaining other factors constant.
Price elasticity of demand is defined as the ratio
of the percentage change in quantity demanded
of a commodity to a percentage change in price.
ep = Percentage change in quantity demanded
Percentage change in price

15. Types of demand with respect to
elasticity
• When elasticity (ep)>1
• When elasticity (ep)<1
• When elasticity (ep)=1
Elastic
Inelastic
Unitary elastic

16. Types of demand with respect to
elasticity
o Perfectly inelastic-
0 Qd
px
o Perfectly elastic-
px
Qd
0

17. Price elasticity of demand
Point Price elasticity of demand-
The elasticity at a given point on the demand curve
Arc Price elasticity of demand-
The elasticity at a given range on the demand
curve.

18. Income Elasticity of Demand
It indicates the degree of responsiveness
of quantity demanded of a good to the
small change in the income of consumer.
Income = Percentage change in purchases of a good
Elasticity Percentage change in income

19. Relation between income
elasticity and types of goods
• Goods having income elasticity more than
one and which therefore bulks larger in
consumer’s budget as he becomes richer are
called normal goods or luxuries.
• Goods having income elasticity less than
one and which claims declining proportion of
consumer’s income as he becomes richer
are called inferior goods or necessities.

20. Cross Elasticity of Demand
• Degree of responsiveness of demand for
one good in response to the change in
price of another good represents the cross
elasticity of demand of one good for the
other.
Cross = Percentage change in quantity demanded of X
Elasticity Percentage change in price of good Y

21. Relation between cross elasticity
and types of goods
• Substitute goods-They are competing goods.
With the rise in price of one good X the quantity
demanded of other good Y increases. Eg- Tea
& Coffee. The Cross elasticity of demand is
positive
• Complementary Goods-With the rise in price of
one good X the quantity demanded of other
good Z decreases. Eg- Bread and Butter. The
Cross elasticity of demand is Negative.

22. Graphical representation of
Elasticity
• Elastic demand
PX
Qd
0
A
B
Quantity demanded is proportionately more than the
reduction in pricing.

23. Graphical representation of
Elasticity
• Unitary elastic demand-
A
B
Qd
PX
0
Quantity demanded is in absolute proportion with reduced
pricing.

24. • Inelastic demand-
A
B
PX
Qd
0
Graphical representation of Elasticity
Quantity demanded is proportionately less than the
reduction in pricing.

25. Price elasticity and the total
revenue
• Total revenue= Quantity X Price per unit
Qd
PX
0
e=0
e>1
e=1
e<1
e=∞