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• Subject: Management Principles & Subject: Management Principles & Organizational behavior Organizational behavior

Executive Placement 2003 BIMSchool of Management Studies – Striving towards Excellence

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• Demand means a desire or wish to buy and Demand means a desire or wish to buy and consume a commodity or service.consume a commodity or service.

• But in economics a mere desire or wish does not But in economics a mere desire or wish does not constitute demandconstitute demand

Introduction- DemandIntroduction- Demand



• The growth rate of over 25 percent in IT/ITES The growth rate of over 25 percent in IT/ITES sector of India is leading to a tremendous sector of India is leading to a tremendous demand of qualified IT professionaldemand of qualified IT professional

• The demand supply gap of wheat in 2007 was 40 The demand supply gap of wheat in 2007 was 40 lakh tonneslakh tonnes

• The India hydrocarbon Vision 2025 Report The India hydrocarbon Vision 2025 Report estimates that the demand for natural gas is estimates that the demand for natural gas is expected to show a sharp rise in future.expected to show a sharp rise in future.

Introduction- DemandIntroduction- Demand



• Demand is defined as that want, need or desire Demand is defined as that want, need or desire which is backed by willingness and ability to buy which is backed by willingness and ability to buy a particular, commodity, in a given period of timea particular, commodity, in a given period of time

• Demand is effective desire, as it is backed by Demand is effective desire, as it is backed by willingness to pay and ability to pay.willingness to pay and ability to pay.

DemandDemand



D= f ( t, y, P, N, F, D, C, B)D= f ( t, y, P, N, F, D, C, B)• D= Quantity of demandD= Quantity of demand• T= tastes and preference of the consumerT= tastes and preference of the consumer• P= price of substituteP= price of substitute• N= Number of consumersN= Number of consumers• F= Expectation of future price riseF= Expectation of future price rise• D= Distribution of incomeD= Distribution of income• C= Climate and weatherC= Climate and weather• B= State of businessB= State of business

Demand FunctionDemand Function



Determinants of DemandDeterminants of Demand

Price of demand(-)Price of demand(-) Income of the consumer(+) ( Normal Goods & Inferior Income of the consumer(+) ( Normal Goods & Inferior

Goods)Goods) Price of related goods or substitute ( Substitutes & Price of related goods or substitute ( Substitutes &

complements)complements)

Substitutes are goods that satisfy a similar need and can Substitutes are goods that satisfy a similar need and can be used as replacement of each other. Complements are be used as replacement of each other. Complements are demanded jointly.demanded jointly.

Tastes and preferencesTastes and preferences AdvertisingAdvertising



• A survey of rural consumers has shown an A survey of rural consumers has shown an amazing finding that for most of the product amazing finding that for most of the product categories surveyed, the consumers were not categories surveyed, the consumers were not influenced by advertisements or promotionsinfluenced by advertisements or promotions

• 73% of respondent feel that promotion has not or 73% of respondent feel that promotion has not or moderate effect on buying various products, moderate effect on buying various products, which included detergent powder, bathing soap, which included detergent powder, bathing soap, shampoo, hair oil, watches, tea, edible and shampoo, hair oil, watches, tea, edible and bicycle.bicycle.

• 54% and 75%mof rural consumer give 54% and 75%mof rural consumer give importance for soft drink and edible oilimportance for soft drink and edible oil

Advertising facts:Advertising facts:



Advertisement is a wasteful expenditure. Do you Advertisement is a wasteful expenditure. Do you agree?agree?



Consumer’s expectation of future income and Consumer’s expectation of future income and priceprice

PopulationPopulation Climate and WeatherClimate and Weather Growth of EconomyGrowth of Economy

Determinants of demandDeterminants of demand



o Direct and derived demandDirect and derived demand

Consumer goods: Consumer goods: It is the commodity demanded for It is the commodity demanded for its own sake by the final consumer is called direct its own sake by the final consumer is called direct demanddemand

Capital goods: Capital goods: It is the commodity demanded for It is the commodity demanded for using as a raw material or intermediary purpose using as a raw material or intermediary purpose then it is called as derived demandthen it is called as derived demand

Ex: New building, mobile accessoriesEx: New building, mobile accessories

Types of DemandTypes of Demand



o Recurring and Replacement demand:Recurring and Replacement demand:

Consumable demand have recurring demand; Consumable demand have recurring demand; durable consumer goods are purchased to be durable consumer goods are purchased to be used for a long time but they need replacementused for a long time but they need replacement




o Complementary and competing demand:Complementary and competing demand:

Complementary demandComplementary demand: When one commodity is : When one commodity is demanded to satisfy a single want, such demand demanded to satisfy a single want, such demand is called as joint or complementary demand.is called as joint or complementary demand.

Competing demand: Competing demand: Goods that compete with each Goods that compete with each other to satisfy any particular want are called other to satisfy any particular want are called substitutesubstitute




o Individual and market demand:Individual and market demand:o Demand for an individual consumer is individual Demand for an individual consumer is individual

demand.demand.o Industry demand is the demand for the product Industry demand is the demand for the product

produced by all the firms in the industry.produced by all the firms in the industry.




Law of DemandLaw of Demand

““The Law of demand states that people will buy more The Law of demand states that people will buy more at lower prices and buy less at higher prices”at lower prices and buy less at higher prices”

Paul samuelsonPaul samuelson



Law of demand can be understood with the Law of demand can be understood with the followingfollowing

Price effectPrice effect Substitution effectSubstitution effect Income effectIncome effect Law of diminishing marginal utilityLaw of diminishing marginal utility

Law of DemandLaw of Demand



Law of demandLaw of demand

Price effectPrice effect: It explains why a fall in price results in : It explains why a fall in price results in rise in demand and vice versa.rise in demand and vice versa.

Example: Multiple use product like milk, electricity, Example: Multiple use product like milk, electricity, coal or steelcoal or steel



Law of demandLaw of demand

Substitution effectSubstitution effect: When price of a commodity falls, : When price of a commodity falls, it becomes more easily affordable and thus more it becomes more easily affordable and thus more attractive to the consumerattractive to the consumer

Income effectIncome effect: Fall or rise in income has the effect : Fall or rise in income has the effect on demandon demand

Law of diminishing marginal utility: Law of diminishing marginal utility: As per Law of As per Law of Diminishing Marginal utility, the utility derived Diminishing Marginal utility, the utility derived from every next unit of a commodity consumer from every next unit of a commodity consumer goes on falling.goes on falling.



The Law of DemandThe Law of Demand

P

Q

A

B

P

Q

D1D2

CHANGE IN PRICE=

change in quantity demanded

CHANGE IN OTHER=change in demand

P1

P2

Q1 Q2



The Law of DemandThe Law of Demand

P

Q

D1D2

CHANGE IN OTHER=change in demand



Demand Schedule and Demand CurveDemand Schedule and Demand Curve

Demand ScheduleDemand Schedule: It is the list or tabular statement : It is the list or tabular statement of the different combinations of price and of the different combinations of price and quantity demanded of a commodity.quantity demanded of a commodity.

Demand CurveDemand Curve: The demand curve shows the : The demand curve shows the relationship between price of a good and the relationship between price of a good and the quantity demanded by consumers.quantity demanded by consumers.



Exceptions to the Law of demandExceptions to the Law of demand

Giffen Paradox: ( Inferior goodsGiffen Paradox: ( Inferior goods)) Sir Robert Giffen, an economist, was the Sir Robert Giffen, an economist, was the

first to give an explanation to this situation.first to give an explanation to this situation. Ireland scenario Ireland scenario

Snob Appeal: (Veblen effect)Snob Appeal: (Veblen effect) In which consumer measures the In which consumer measures the

satisfaction derived from their utility value, satisfaction derived from their utility value, but by social status.but by social status.



Exception of Law of DemandException of Law of Demand

Demonstration effect:Demonstration effect: Demonstration effect is the influence on a Demonstration effect is the influence on a

person’s behaviourperson’s behaviour

Future expectation of prices: (Panic buying)Future expectation of prices: (Panic buying) People purchase goods with the expectation that People purchase goods with the expectation that

prices will rise more in the future.prices will rise more in the future. Goods with No substitutes:Goods with No substitutes: Insignificant use of the productInsignificant use of the product



That is all about Demand…………………………That is all about Demand…………………………

Thank youThank you

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