Demand Analysis
What is Demand?
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Quantity of a particular good or service that consumers are willing or able to purchase at a given price, during a given period of time
Characteristics of Demand
Demand has three main characteristics.
1. 2. 3.
Willingness to pay Ability to purchase Demand is always at a price
Quantity Demanded vs. Demand
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Quantity Demanded The quantities of a good or service that people will purchase at a specific price over a given period of time. Demand Demand for product is the amount that consumers are willing and able to purchasers good or service at different prices at a given time
Types of Demand
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Individual Demand The quantity of a good that an individual or firm stands ready to buy at various prices at a given time. Market Demand The sum of the individual demands in the marketplace.
Determinants of Demand
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Changes in income
Price Level
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Changing Prices of a Substitute Good Changing Price of a Complement Change in Tastes and Preferences Consumer Expectations.
Determinants of Demand
Changes in income ? Higher incomes ? increase in demand ? Lower incomes ? decrease in demand When an individual’s income goes up, their ability to purchase goods and services increases, and this causes an outward shift in the demand curve. When incomes fall there will be a decrease in the demand for most goods.
Price Level
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Higher Price ? lower Demand for Product. Lower price ? Higher demand for product
Changing Prices of a Substitute Good
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Substitutes ? Increase in the price of substitutes ? increase in demand another product.
.
Changing Price of a Complement
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Complements ? Increase in the price of complements ? decrease in demand Examples: Pen & Ink
Change in Tastes and Preferences
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?
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Changing tastes and preferences can have a huge effect on demand. Example Persuasive advertising is designed to cause a change in tastes and preferences and thereby create an outward shift in demand. A good example of this is the recent surge in sales of fruit juice drinks.
LAW OF DEMAND
Inverse relationship Downward sloping DD curve Reasons
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? ? ?
Income Effect Substitution Effect
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Exception
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Giffen Paradox – in case of inferior goods
Demand Schedule and Demand Curve
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Demand schedule The Demand Schedule is a table of numbers that shows the relationship between price and quantity demanded by a consumer, ceteris paribus (everything else held fixed). Demand curve ? A curve that indicates the number of units of a good or service that consumers will buy at various prices at a given time
Individual Demand Schedule for CD
Price per CD Rs. 25 20 15 10 8 Quantity of CD Demanded per Year 20 30 35 40 45
Individual Demand Curve
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The Individual Demand Curve shows the relationship between the price of a good and the quantity that a single consumer is willing to buy, or quantity demanded.
Individual Demand Curve
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When price increases, demand for CD falls, when prices falls, demand for CD 25 increases. 2 0 Prices per CD1 . Rs 5 10 8 20 3 35 . Demand for 0 CD 4 0 4 5
Market Demand
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We can get Market Demand from Individual Demand, by adding the quantities demanded by all consumers at each of the various possible prices. The Market Demand can be described as the horizontal summation of the individuals demand for a commodity at various possible prices in market. Market Demand Curve is a curve showing the relationship between price and quantity demanded by all consumers together, ceteris
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Market Demand Schedule
Price per CDConsumer A Rs. 25 20 15 10 8 20 30 35 40 45 Consumer B 18 26 30 35 40 Consumer C 22 31 37 41 46 Total Market Demand 50 87 102 116 131
Movement along the Demand Curve
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If other all factors remains constant and only there is change in the price of the commodity, then we move along the same demand curve.
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Shift of the Demand Curve
ELASTICITY OF DEMAND
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It measures the responsiveness of quantity demanded of good or service to changes in its own price
Example
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Price 25 ,Qd = 20 Price 20 ,Qd = 30
Types of price elasticity
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Arc Elasticity of Demand
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Point Elasticity of Demand
Total Expenditure Method
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Perfectly Inelastic – Ed = 0 Perfectly Elastic – Ed = infinity Unitary Elastic – Ed = 1
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Cross Price Elasticity of Demand
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Income Elasticity of Demand
Supply
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Supply
Quantity supplied of any good or service is the amount that the sellers are willing and able to sell for a price Individual supply ? Quantities offered for sale at various prices at a given time by an individual seller
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Market supply ? Sum of the individual supply schedules in the marketplace
Determinants of Supply
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Changes in the cost of resources
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Increase in the cost of resources ? decrease in supply Improvements ? increase in supply
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Technology
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Expectations of future prices Prices of related products
Law of Supply
Direct Relation Producers are more willing to sell greater amounts of a good at a higher price , because this good has become relatively more profitable to produce, compared to other gds
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?
Supply schedule ? A table showing the various quantities of a good or service that sellers will offer at various prices at a given time Supply curve ? A line showing the number of units of a good or service that will be offered for sale at different prices at a given time
CHANGES IN THE SUPPLY CURVE
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Movement along the Supply Curve Shift in Supply Curve
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ELASTICITY OF SUPPLY
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The price elasticity of supply measures how much the quantity supplied responds to changes in price Price elasticity of supply = % change in quantity supplied / % change in price
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MARKET EQUILIBRIUM
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EQUILIBRIUM POSITION CHANGES IN DEMAND AND SUPPLY
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doc_484468708.ppt
What is Demand?
?
Quantity of a particular good or service that consumers are willing or able to purchase at a given price, during a given period of time
Characteristics of Demand
Demand has three main characteristics.
1. 2. 3.
Willingness to pay Ability to purchase Demand is always at a price
Quantity Demanded vs. Demand
?
?
Quantity Demanded The quantities of a good or service that people will purchase at a specific price over a given period of time. Demand Demand for product is the amount that consumers are willing and able to purchasers good or service at different prices at a given time
Types of Demand
?
?
Individual Demand The quantity of a good that an individual or firm stands ready to buy at various prices at a given time. Market Demand The sum of the individual demands in the marketplace.
Determinants of Demand
?
?
Changes in income
Price Level
? ? ? ?
Changing Prices of a Substitute Good Changing Price of a Complement Change in Tastes and Preferences Consumer Expectations.
Determinants of Demand
Changes in income ? Higher incomes ? increase in demand ? Lower incomes ? decrease in demand When an individual’s income goes up, their ability to purchase goods and services increases, and this causes an outward shift in the demand curve. When incomes fall there will be a decrease in the demand for most goods.
Price Level
?
?
Higher Price ? lower Demand for Product. Lower price ? Higher demand for product
Changing Prices of a Substitute Good
?
Substitutes ? Increase in the price of substitutes ? increase in demand another product.
.
Changing Price of a Complement
?
Complements ? Increase in the price of complements ? decrease in demand Examples: Pen & Ink
Change in Tastes and Preferences
?
?
?
Changing tastes and preferences can have a huge effect on demand. Example Persuasive advertising is designed to cause a change in tastes and preferences and thereby create an outward shift in demand. A good example of this is the recent surge in sales of fruit juice drinks.
LAW OF DEMAND
Inverse relationship Downward sloping DD curve Reasons
? ?
? ? ?
Income Effect Substitution Effect
?
Exception
?
Giffen Paradox – in case of inferior goods
Demand Schedule and Demand Curve
?
?
Demand schedule The Demand Schedule is a table of numbers that shows the relationship between price and quantity demanded by a consumer, ceteris paribus (everything else held fixed). Demand curve ? A curve that indicates the number of units of a good or service that consumers will buy at various prices at a given time
Individual Demand Schedule for CD
Price per CD Rs. 25 20 15 10 8 Quantity of CD Demanded per Year 20 30 35 40 45
Individual Demand Curve
?
The Individual Demand Curve shows the relationship between the price of a good and the quantity that a single consumer is willing to buy, or quantity demanded.
Individual Demand Curve
?
When price increases, demand for CD falls, when prices falls, demand for CD 25 increases. 2 0 Prices per CD1 . Rs 5 10 8 20 3 35 . Demand for 0 CD 4 0 4 5
Market Demand
?
We can get Market Demand from Individual Demand, by adding the quantities demanded by all consumers at each of the various possible prices. The Market Demand can be described as the horizontal summation of the individuals demand for a commodity at various possible prices in market. Market Demand Curve is a curve showing the relationship between price and quantity demanded by all consumers together, ceteris
?
?
Market Demand Schedule
Price per CDConsumer A Rs. 25 20 15 10 8 20 30 35 40 45 Consumer B 18 26 30 35 40 Consumer C 22 31 37 41 46 Total Market Demand 50 87 102 116 131
Movement along the Demand Curve
?
If other all factors remains constant and only there is change in the price of the commodity, then we move along the same demand curve.
?
Shift of the Demand Curve
ELASTICITY OF DEMAND
?
It measures the responsiveness of quantity demanded of good or service to changes in its own price
Example
? ?
Price 25 ,Qd = 20 Price 20 ,Qd = 30
Types of price elasticity
?
Arc Elasticity of Demand
?
Point Elasticity of Demand
Total Expenditure Method
?
Perfectly Inelastic – Ed = 0 Perfectly Elastic – Ed = infinity Unitary Elastic – Ed = 1
?
?
?
Cross Price Elasticity of Demand
?
Income Elasticity of Demand
Supply
?
Supply
Quantity supplied of any good or service is the amount that the sellers are willing and able to sell for a price Individual supply ? Quantities offered for sale at various prices at a given time by an individual seller
?
Market supply ? Sum of the individual supply schedules in the marketplace
Determinants of Supply
?
Changes in the cost of resources
?
Increase in the cost of resources ? decrease in supply Improvements ? increase in supply
?
Technology
?
? ?
Expectations of future prices Prices of related products
Law of Supply
Direct Relation Producers are more willing to sell greater amounts of a good at a higher price , because this good has become relatively more profitable to produce, compared to other gds
?
?
Supply schedule ? A table showing the various quantities of a good or service that sellers will offer at various prices at a given time Supply curve ? A line showing the number of units of a good or service that will be offered for sale at different prices at a given time
CHANGES IN THE SUPPLY CURVE
?
Movement along the Supply Curve Shift in Supply Curve
?
ELASTICITY OF SUPPLY
?
The price elasticity of supply measures how much the quantity supplied responds to changes in price Price elasticity of supply = % change in quantity supplied / % change in price
?
MARKET EQUILIBRIUM
?
EQUILIBRIUM POSITION CHANGES IN DEMAND AND SUPPLY
?
doc_484468708.ppt