1. Demand analysis What is demand?
-demand is desire backed by the ability to pay & the willingness to pay at a certain time and a certain price

2. Determinants of demand
Price of the commodity
Price of related goods
Income of the consumer
Tastes & preferences of the consumer
Expectation of price changes in future
Size of population
Distribution of income

3. Demand function Dx={ Px,Pr,Y,T,E,P,Yd} Dx= demand for the commodity
Px= price of the commodity
Pr=price of related goods
Y= income of the consumer
T = tastes & preferences
E= expectations of future price changes
P= composition of population
Yd= distribution of income

4. i.e. Demand is inversely proportional to price
Law of demand
-other things being equal , the demand for a commodity goes up when the price goes down and goes down when the price goes up.
i.e. Demand is inversely proportional to price

5. Assumptions to the law of demand
No change in price of related goods
No change in income
No change in taste & preferences
No expectations of future change in prices

6. Demand schedule & demand curves
Individual demand schedule
Market demand schedule

7. Individual demand schedule
Price per unit
Quantity demanded 1 2 3 4 5 35 30 25 20 15

8. Market demand schedule
Price per unit
Qty. dem. A B C
Market demand 10 50 25
100
175 12 45 22 83
150 14 40 20 70
130 17 35 18 57
110 30 15 90

9. Why does demand curve slope downwards?
Law of diminishing marginal utility
Income effect
Substitution effect
Diverse uses of commodity
Size of consumer groups

10. Exceptions to the law of demand
Giffen goods
Distinct or conspicuous goods ( veblen effect)
Ignorance
Goods of low value
Speculative goods

11. Change in quantity demanded
Movement along the demand curve (extension & contraction of demand)
Shift of the demand curve
(increase & decrease in demand)

12. Elasticity of demand
The elasticity of demand measures the responsiveness of the quantity demanded of a good , to change in its price, price of other goods and changes in consumers income

13. Types of elasticity of demand
Price elasticity
Income elasticity
Cross elasticity of demand
Advertising elasticity of demand

14. Price elasticity of demand
Degrees of Price Ed
Unit elasticity of demand {Ed=1}
Perfectly elastic demand {Ed=∞}
Perfectly inelastic demand {Ed=0}
More than unit elastic {Ed>1}
Less than elastic {Ed<1}

15. Measurement of price elasticity of demand
Proportionate method
Point method

16. Factors determining price Ed
Nature of commodity
Availability of substitutes
Goods with multiple uses
Postponement of use
Income
Habits, tastes
Proportion of income spent
Price level
Joint demand

17. Income elasticity of demand
Degrees
Positive income elasticity
Negative income elasticity
Zero income elasticity

18. Cross elasticity of demand
Degrees
Positive
Negative
Zero
Advertising elasticity of demand