-R.L. VARSHNEY K.L. MAHESHWARI DR. D. M. MITHANI M.GIRIJA R. MEENAKHI MANAGERIAL ECONOMICS -R.L. VARSHNEY K.L. MAHESHWARI DR. D. M. MITHANI M.GIRIJA R. MEENAKHI

Demand Analysis & Business Forecasting Demand Function:- Factors Influencing Demands Determinants of demand Demand Analysis for various products, situations and market structures :- Durable and non-durable goods Long run and Short run demand Autonomous and derived demand Industry and firm demand Elasticities & demand levels

Demand Analysis Demand Function Demand determinants Law of Demand Demand Schedule Demand Curve Demand Equation Factors affecting Demand

Demand Function Demand for a product is the amount of it that will be bought per unit of time at a particular price. Individual Demand -The quantity demanded by an individual purchaser at a given price Market Demand -Total quantity demanded by all the purchasers together at a given price Demand Function- Mathematical term expresses the functional relationship between demand for the product and its various determining variables

Demand Function Dx = f ( Px, Ps, Pc, yd, T, A, N , u ) Here we assume commodity X, so Dx = Amount demanded for the commodity X Px = Price of X Ps = Price of substitutes of good X Pc = Price of complimentary goods of X Yd = Level of disposable Income of buyers T = Change in buyer’s Taste & Preferences A = Advertisement expenditure N = Number of Buyers u = other unspecified determinant

Demand Schedule Demand for a product is the function of its own price, keeping all other factors constant Dx = f ( Px) Demand Schedule-A Tabular statement of price quantity relationship It shows the inverse relationship between price and quantity demanded Two types of demand schedule: Individual Demand Schedule Market Demand Schedule

Individual Demand Schedule Table showing the various quantity purchased by an individual purchaser at alternative price over a given time period (day, week, month or year) It shows the variation in demand at various prices. Price Qty Demanded 4 3 8 2 12 1 16

Market Demand Schedule Table narrating the quantities of a commodity purchased in aggregate by all the purchasers in the market at different prices over a given period of time It shows the total market demand at various prices. It serve as the basis for knowing the revenue consequences of alternative output and pricing policies of the firm Price A B C Mkt. Demand 4 1 3 5 2 10 7 15 9 24

Demand Equation A linear Demand function Dx = A – B(Px) Dx = Amount demanded for the commodity X Px = Price of X A = constant parameter signify initial demand irrespective of price B = implies negative relation between price and quantity demanded Eg. D = 20-2p At p = 5, quantity demanded will be 20-2x5=10

Demand Curve Graphical presentation of a demand schedule It relates the amount the consumer is willing to buy at each alternative price over a period of time. It has a negative slope It slopes downwards from left to right representing an inverse relation between price and demand Price

Determinants Of Demand Factor affecting Individual Demand Price of commodity Income of customer Taste, habit and Preference of Customer Relative price of Substitute and Complementary goods Customer expectation Advertisement Effect

Determinants Of Demand Factor affecting Market Demand Price of commodity Distribution of Income & Wealth of Community Community common habits & scale of Preference General Standard of living & Spending habits of people Number of buyers in market & Growth population Age, Structure, sex ratio of population

Determinants Of Demand Factor affecting Market Demand Future expectation about Price Level of taxation and tax structure Inventions and innovations Fashions Climate and weather conditions Advertisement and sales promotions Customs

Law of Demand It expresses the nature of functional relationship between two variables of demand relation i.e. Price and quantity demanded Ceteris paribus, the higher the price of the commodity, the smaller is the quantity demanded and lower the price, larger is the quantity demanded. The demand for the commodity extends as the price falls, and contracts as the price rises.

Chief characteristics of Law of Demand Inverse relationship Price an independent variable, and demand a dependent variable Assumption of other things remaining the same Reasons underlying the law of demand Income Effect Substitution Effect Exception to the law of demand Veblen Effect / Conspicuous consumption Giffen Goods Speculation

Types of Demand Consumers’ Goods Producers’ Goods Non Durable Goods Autonomous Demand Long run Demand Industry Demand Producers’ Goods Durable Goods Derived Demand Short run Demand Firm Demand

Demand Distinctions Used for the direct consumption Consumers’ Goods Used for the direct consumption Demand is direct and autonomous Depends on marginal utility Classified into non durable and durable Motivated by business profits Example: machines, equipment, raw materials,building Producers’ Goods Used for the production of other goods Demand is derived Depends on marginal productivity Classified into consumable and durable Motivated by buyer’s income Example: cloth, food . house

Demand Distinctions Used for adding stock of existing goods Durable Goods Used for adding stock of existing goods Can be stored for a long time Give repeated services Demand is postponable Demand is less elastic in short run Influenced by lifetime of product and obsolescence Example: furniture, cycle, house Non Durable Goods Used for the current demand of goods Can not be stored for a long time Give one time service Demand is immediate Demand is more elastic in short run Influenced by income and convenience Example: vegetable, fish . house

Demand Distinctions Autonomous Demand Demand is based on the urge of satisfy some wants directly more price elastic Facilitate demand analysis Demand for all consumers’ goods Influenced by taste, trends and preference Example: building, car, pen, television, tea Derived Demand Demand is tied to purchase of parent good Less price elastic Facilitate demand forecasting Demand for all producers’ goods Influenced by demand of parent good Example: cement, petrol ,ink, antenna, sugar

Demand Distinctions Long run Demand demand of goods in a period of one year to ten year Big threat of substitute and competitors Demand is permanent Demand is more elastic in long run Influenced by promotion, product change Example: building, cigarette Short run Demand demand of goods in a period of one year or less No threat of substitute and competitors Demand is immediate Demand is less elastic in short run Influenced by price and income Example: raw material, bidi

Demand Distinctions Industry Demand Total demand for the commodity produced by a particular industry Represent the relation of the price of the product to the quantity bought from all the firms Demand can be classified customer group-wise, like, steel demand for construction and manufacture, airline tickets for business and pleasure Demand is less elastic in short run Influenced by market structure like monopoly or oligopoly Example: total production of cement : 100 cr tons total production of steel industry Firm Demand Market demand for the commodity produced by a particular firm Represent the relation of the price of the product to the quantity bought from a single firm Demand is general and can not be classified. Demand is more elastic in short run Influenced by industry demand schedule Example: total production of Ambuja cement : 30 cr tons Demand os steel produced by TISCO

Elasticity of Demand Types of elasticities Change in quantity demanded due to change in price of the commodity Def: the elasticity of demand in the market is great or small according as the demanded increases much or little for a given fall in price and diminishes much or little for a given rise in price. Types of elasticities Price Elasticity of Demand Income Elasticity of Demand Cross Elasticity of Demand

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