Law of demand

Demand Analysis & ForecastingDemand Analysis & Forecasting

TOPICSTOPICS
 Demand
 Law of demand
 Factors affecting increase & decrease in demand
 Types of demand
 Change in demand
 Demand forecasting
 Elasticity of demand & its types

DemandDemand
– An economic principle that describes
A consumer’s desire and willingness to pay a
price for a specific good or service.
Three elements of demand
1. Desire to acquire a commodity.
2. Willingness to pay price for it.
3. Ability to pay for it.

Law Of DemandLaw Of Demand
When price decreases demand increases,
& When price increases the demand
decreases.

Exception of law of demandException of law of demand
 Status symbol commodity
 Fear of storage
 Ignorance
 Speculation
 Giffin goods

 Status Symbol Commodity
There are certain commodity which has
prestige value i.e., car, jewelries, diamonds,
luxury product.
 Fear of shortage
If people feel that in future there will be the
shortage of the commodity they would like to
store more commodity at any price.
Eg: Food grain, Transport.

 Ignorance
Sometimes consumers may be ignore about
the price prevailing in the market due to
ignorance it may not be possible for him to
purchase more units at a lower price.
Eg: Vegetables Shopping.
 Speculation
The law of demand doesn’t apply in case of
speculation. Normally speculation occurs in the
stock exchange market.

 Giffin Goods
Sometimes people buy less goods at a lower
price & more of it at higher price.
Eg: Street vendor.

Factors affecting increase &Factors affecting increase &
decrease in demanddecrease in demand
 Change in fashion
 Change in taste
 Change in population
 Income of people
 Availability of substitutes
 Availability if complimentary goods
 Advertisement
 Technical Progress
 Change in Real Income

Change in FashionChange in Fashion
 Demand for a goods or a commodity is highly dependent
upon the existing fashion. When certain goods go out of
fashion people don’t like to purchase them, demand for
such goods decreases.
Bell bottom To Pencil cut

Change in TasteChange in Taste
 An important factor which determines demand
for a goods in taste & preferences of consumers
a goods for which consumer taste & preferences
are greater. Its demand could be large.

Change in PopulationChange in Population
 Increase in the size of population naturally leads
to increase in demand for goods & services,
Decrease in size of population leads to decrease
in demand.

Income of PeoplesIncome of Peoples
 The demand for goods depend upon the income
level of the people creates the income greater
will be the demand lesser the income less will be
the demand

Availability of SubstitutesAvailability of Substitutes
 If the substitutes are available in large number
than the demand for the commodity falls when
its substitutes become cheap. If there are more
substitutes for a commodity then the demand
for it does not fall even if its price increase.

Availability of ComplimentaryAvailability of Complimentary
GoodsGoods
 Complimentary goods are the goods which
are demanded together.

 Advertisement
Advertisement are made by a firm to increase
the sale of that particular product. Advertisement are
repeated several times so that consumer are convince
about superior quality which helps to increase the
demand for product.

 Technical Progress
The introduction of new product in the
market as a result of invention &
discovering also effects the demand.
Demand for old goods will be go down &
demand for new product will increase.

Change in Real IncomeChange in Real Income
 An increase in real income leads to a greater
demand for the commodities. It means people
purchase more commodities with large real
income similarly a decrease in real income leads
to decrease in demand.

Types of DemandTypes of Demand
 Joint Demand
 Direct & Derived Demand
 Composite Demand
 Competitive Demand

Joint DemandJoint Demand
 When a product jointly demanded with some
other product we call it joint demand. It exists
when two or more goods are require at the same
time.

Direct & Derived DemandDirect & Derived Demand
 Demand for the final product or the ultimate objectives is
called derived demand. Were as there is a derived
demand for one commodity or services when it is wanted
as the result of the demand for another commodity or
services is called direct & derived Demand.

Composite DemandComposite Demand
 It is a total demand for a commodity which
arise when it is required for different purpose
& will be the sum of the different demand.

Competitive DemandCompetitive Demand
 When two commodities are fairly close
substitutes for one another & increase in the
quantity demanded of one of them will reduce
the demand for the other is called competitive
demand.
Eg: CHETANACollege is more demanded
than DARBAR College.

Demand DistinctionDemand Distinction
 Consumer goods & producer Goods
 Durable goods & Perishable Goods
 Derived & Autonomous Demand
 Industry demand & Company Demand

 Consumer Goods & Producer Goods
Consumer goods are those goods which are meant
for direct purchase by the consumer & are used for final
consumption.
Producer goods are those commodities which are
producers & used for future production of goods.

 Durable & perishable Goods
Durable goods are those goods that can be used
more than one’s over a period of time.
Perishable goods are those goods which can be used
only one’s.

 Industry Demand & Company Demand
Industry demand represent the total demand for the
product of the particular industry shows the quantity of
a certain product demand by all the firms in the
industry.
The company demand on the other hand is the
demand for the product of particular company.

Change in demandChange in demand
• Extension in Demand
It refers to a situation where more units
are demanded at a lower price.
When the price falls the
Demand increases

 Contraction in Demand
It means less units of the commodity are demanded
at a higher price.
It means with the rise in the price
of the commodity then less is
demand.

Increase in DemandIncrease in Demand
 When more unit are demanded at the same price or the
same quantity is demanded at a higher the price It is
increase in demand with an increase in demand The
demand curve gets shifted upwards or to the right.

Decrease in DemandDecrease in Demand
The Decrease in demand means that less unit of the
commodity are demanded at the same price or the same
quantity is demand at a lower price.
When the demand curve increases the demand curve
shifted.

Demand ForecastingDemand Forecasting
Forecasting means predicting about the future
event most lightly to happen under certain given
conditions. Or Trying to know the trends taking place
in future i.e., 1week, 1 months or a year.

Elasticity of DemandElasticity of Demand
It is a concept which is used to describe the affect
of the change in price on quantity demand it
shows the extent to which quantity demanded
stretcher when price changes.
FORMULA:
Elasticity = % Change In Quantity
% Change In Price.

Types Of Elasticity Of DemandTypes Of Elasticity Of Demand
 Perfectly Elasticity Demand.
 Perfectly Inelasticity Demand.
 More Elastic Demand (Relatively Elastic).
 Less Elastic Demand (Relatively Inelastic).
 Unitary Elastic Demand.

 Perfectly Elasticity Demand
It refers to a situation were the slightest
change in the price of commodity leads to
infinite or rapid changing quantity demand.
 Perfectly Inelastic Demand
Demand is said to be perfectly inelastic when
a substantial change in price not leads to any
change in demand

More Elastic DemandMore Elastic Demand
 Demand for a commodity relatively elastic when
a change in a price leads to more than the
propornate change in the quantity demand.

Less Elastic DemandLess Elastic Demand
 Demand for a commodity inelastic when a
change in price causes a less than a propornate
change in quantity demanded.

Unitary Elastic DemandUnitary Elastic Demand
 Price elasticity of demand is unitary when the
change of demand is exactly propornate to
change in the price.

SUPPLY
 Supply means a quantity of commodity that
the seller are willing and able to offer for sale
at a particular price at any given time. It is
naturally that more goods will be offer for sale
at a higher price and less goods at lower price.

Supply & Stock
 Stock is the total volume of the commodity that
can be brought into the market for sell in a
short period of time.
Supply is the quantity actually brought in the
market.

Law Of Supply
 As the price of a good or service Increases, the
quantity of goods or services offered by
suppliers Increases and If the price Decreases,
the quantity of goods or services offered by
suppliers also Decreases. Therefore the Law Of
Supply is opposite to the Law Of Demand.

Law of demand

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Law of demand