1. Subject: Managerial Economics MBA-Sem-I 2017-18 Unit-I

2. Demand Analysis What is Demand?
A product or service is said to have demand when three conditions are satisfied
Desire on the part of the buyers to buy
Willingness to pay for it
Ability to pay the specified price for it

3. Factors Determining Demand
Price of the product (P)
Income level of the consumer (I)
Tastes and preferences of the consumer (T)
Prices of related goods which may be substitutes / complementary (PR)
Expectations about the prices in future (EP)
Expectations about the incomes in future (EI)
Size of the population (SP)
Distributions of consumers over different regions(Dc)
Advertising efforts (A)
Any other factor capable of affecting demand (O)

4. Demand Function
Demand function is a function which describes a relationship between one variable and its determinants.
Mathematically, the demand function for a product A can be expressed as follows:
Qd = f (P,I,T,PR,EP,EI,SP,DC,A,O)

5. Law of Demand
The Law of Demand states: Other things remaining the same, the amount of quantity demanded rises with every fall in the price and vice versa.
Assumptions of Law of Demand
Operation of the Law of Demand

6. Exceptions of Law of Demand
Where there is shortage of necessities feared
Where the product is such that it confers distiction (Veblen goods)
Giffen’s paradox
Incase of ignorance of price changes

7. Changes in Demand Increase in Demand Decrease in Demand
Extension and Contraction in Demand
Significance of the Law of Demand

8. Elasticity of Demand
The term ‘elasticity’ is defined as the rate of responsiveness in the demand of a commodity for a given change in price or any other determinants of demand.

9. Types of Elasticity Price elasticity of demand
Income elasticity of demand
Cross elasticity demand
Advertising elasticity of demand

10. Price Elasticity of Demand
Price elasticity= Proportionate change in the qunatity demanded for product X / Proportionate change in the price of X
The same is expressed as Edp= (Q2-Q1)/Q1
(P2-P1)/P1
Where Q1 is the quantity demanded before price change,
Q2 is quantity demanded after price change,
P1 is the price before change and
P2 is the price after change.

11. Income Elasticity of Demand
Income elasticity= Proportionate change in the quantity demanded for product X / Proportionate change in income
The same is expressed as Edp= (Q2-Q1)/Q1
(I2-I1)/I1
Where, Q1 is the quantity demanded before price change,
Q2 is quantity demanded after price change,
I1 is the income before change and
I2 is the income after change.

12. Cross Elasticity of Demand
Cross elasticity of demand= Proportionate change in the quantity demanded for product X / Proportionate change in the price of Y
The same is expressed as Edp= (Q2-Q1)/Q1
(P2Y-P1Y)/P1Y
Where, Q1 is the quantity demanded before price change,
Q2 is quantity demanded after price change,
P1Y is the price before change and
P2Y is the price after change in case of product Y.
Cross elasticity is always positive for substitutes and negative for complements

13. Advertising Elasticity of Demand
Advertising elasticity= Proportionate change in the quantity demanded for product X / Proportionate change in advertising costs
The same is expressed as Edp= (Q2-Q1)/Q1
(A2-A1)/A1
Where, Q1 is the quantity demanded before price change,
Q2 is quantity demanded after price change,
A1 is the advertisement cost before change and
A2 is the advertisement cost after change.

14. Measurement of Elasticity
Perfectly elastic demand
Perfectly inelastic demand
Relatively elastic demand
Relatively inelastic demand
Unity elasticity

15. THANK YOU