Demand AnalysisDemand Analysis

By:- Mithilesh Trivedi

The amount consumers desire to purchase at various prices

Demand does not necessarily mean a consumer WILL buy, but refers to a good or service they WOULD LIKE to buy

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DemandDemand

Consumers must be willing to buy AND be capable of paying the price set by the supplier

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Effective DemandEffective Demand

If Price rises – Quantity demanded falls

P Q

If Price falls – Quantity demanded rises

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Law of DemandLaw of Demand

Individual Demand Schedule

Lists the different quantities of a good that an

individual consumer is prepared to buy at each

price

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Individual DemandIndividual Demand

Market Demand Schedule

Lists the different quantities of a good that allconsumers in the market are prepared to buyat each price. It is derived by adding togetherall the individual demand schedules for thegood

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Market DemandMarket Demand

(Demand for The Wii Games monthly)(Demand for The Wii Games monthly)

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Demand Schedule

At higher prices, consumers generally willing to purchase less than at lower prices

Demand curve is said to have a negative slope - downward sloping from left to right

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Demand CurveDemand Curve

0

20

40

60

80

100

0 100 200 300 400 500 600 700 800

A

Demand

Point Price per game Market Demand

A € 20 700 games

Pric

e (p

er g

ame)

Quantity (games)04/10/23

0

20

40

60

80

100

0 100 200 300 400 500 600 700 800

Point Price per game Market Demand

A €20 700 games

B €40 500 games

A

B

Quantity (games)

Pric

e (

per

gam

e)

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0

20

40

60

80

100

0 100 200 300 400 500 600 700 800

A

B

C

Point Price per game Market Demand

A €20 700 games

B €40 500 games

C €60 350 games

Quantity (games)

Pric

e (

per

gam

e)

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0

20

40

60

80

100

0 100 200 300 400 500 600 700 800

A

B

C

D

Point Price per game Market Demand

A €20 700 games

B €40 500 games

C €60 350 games

D €80 200 games

Quantity (games)

Pric

e (

per

gam

e)

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0

20

40

60

80

100

0 100 200 300 400 500 600 700 800

A

B

C

D

EPoint Price per game Market Demand

A €20 700 games

B €40 500 games

C €60 350 games

D €80 200 games

E €100 100 games

Quantity (games)

Pric

e (

per

gam

e)

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D1

Pric

eP

Qx Q1

Quantity

Dx

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An Increase in DemandAn Increase in Demand

Dx

Pric

eP

Qx Q1

Quantity

D1

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A Decrease in demandA Decrease in demand

The Demand Function

Dx = f ( Px, Pc, Ps, Y, t, E)

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Factors affecting the demand for a goodFactors affecting the demand for a good

Dx = f ( Px, Pc, Ps, Y, t, E)

Px = Goods which obey and do not obey the Law of Demand

Pc = Price of Complimentary GoodsPs = Cost of Substitute GoodsY = Incomet = TastesE = Consumers Expectation

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The Demand FunctionThe Demand Function

P 2

P 1

Q 2 Q 1 Quantity Demanded

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If price rises quantity fallsIf price rises quantity fallsIf price falls quantity risesIf price falls quantity rises

Demand for a good depends on its own price

• Complimentary Goods

Goods which are used jointly. The use of one involves the use of the other

• Substitute Goods

Goods which satisfy the same needs and thus can be considered as alternatives to each other

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Demand for a good depends on its own priceDemand for a good depends on its own price

D 1

D 2

D 2

D 1

An increase in price of a complementary good causes the demand for good X to fall

An fall in price of a complementary good causes the demand for good X to rise

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Complimentary GoodsComplimentary Goods

D 2

D 1

D 1

D 2

An increase in price of a substitute good causes the demand for good X to rise

An fall in price of a substitute good causes the demand for good X to fall

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Substitute Goods Substitute Goods (The Substitute Effect)(The Substitute Effect)

• Normal Goods

A normal good is a good with a positive income effect. A rise in income causes more of it to be demanded, while a fall in income causes less of it to be demanded

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Demand for a good depends on level of Demand for a good depends on level of income (The Income Effect)income (The Income Effect)

D 2

D 1

D 1

D 2

A rise in income causes the demand for a normal good to increase from D1 to D2

An fall in income causes the demand for a normal good to fall from D1 to D2

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Normal GoodsNormal Goods

If the movement in taste is in favour of the good, it causes an increase in demand, which shifts the demand curve to the right

If the movement in taste is against the good, it causes a fall in demand, which shifts the demand curve to the left

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Demand Depends on TasteDemand Depends on Taste

D 2

D 1

D 1

D 2

A movement in taste in favour of a good causes demand to increase

A movement in taste against a good causes demand to fall

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Movement in TasteMovement in Taste

Demand for a good will shift to the right if consumers expect:

1. The price of good X to be higher in the future2. A scarcity of good X in the future3. Their incomes to be higher in the future

Demand for a good will shift to the left if consumers expect: 1. The price of good X to be lower in the future2. A plentiful supply of good X in the future3. Their incomes will be lower in the future

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Demand for a good depends on the Demand for a good depends on the expectations of consumersexpectations of consumers

D 2

D 1

D 1

D 2

Demand for Good X will rise if consumers expect higher future price, scarcity or higher future incomes

Demand for Good X will fall if consumers expect lower future price, abundance or lower future incomes

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Consumer ExpectationsConsumer Expectations