CONCEPT OF DEMAND

By
KUSUMASARI SURYADI M.Si

Introduction of Economics

19/09/16

DEMAND
Desire backed by willingness and ability

to pay for a commodity.

It implies:
Desire to acquire it
Willingness to pay for it
Ability to pay for it.

Managerial Economics Unit-I CONCEPT OF

DEMAND (Batch 2012-14)

19/09/16

Demand by Market Segment and

Total Market.
Geographical spread
Product uses
Distribution channel
Customer size
Product variety

Managerial Economics Unit-I CONCEPT OF

DEMAND (Batch 2012-14)

19/09/16

TYPES OF DEMAND
1. Consumer goods and Producer goods

Consumer goods- Goods & services used for final

consumption.
Producer goods- Goods used for production of other
goods.

2. Perishable and Durable goods.

3. Autonomous and Derived demand

Autonomous- Goods whose demand is not tied up with the

demand for some other goods.

4. Individuals demand & Market demand

Mkt dd is the summation of dd for a good by all individual.

Price of X and dd by buyer1,2,3 and all buyers market dd.

Managerial Economics Unit-I CONCEPT OF

DEMAND (Batch 2012-14)

19/09/16

5. Firm & Industry demand

All firms producing a particular good.

Eg.- DD for Hyundai car and all types of car.

6. Demand by market segment and total

market.

Geographical spread
Product uses
Distribution channel
Customer size
Product variety

Managerial Economics Unit-I CONCEPT OF

DEMAND (Batch 2012-14)

19/09/16

DEMAND FUNCTION
The DD function is an algebraic expression of the relation

between the demand for a commodity and its various

determinants.
Dx = f(PX , PS, PC, Y, T,E,U )

Dx = Demand for X item

PX = Price of X item
PS = Price of substitute goods
PC = Price of complimentary goods
Y= Income of consumer
T= Taste or preference of consumer
E= Price expectation of the user
U= All other factors

Managerial Economics Unit-I CONCEPT OF

DEMAND (Batch 2012-14)

19/09/16

DETERMINANTS OF DEMAND
Price of the commodity
Price of the related commodities
Substitute goods.
Complimentary goods.

Income of the consumer d y

Normal goods.
Necessites.
Inferior goods.

Tastes & preferences of consumer.

Expectations about future price.
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Managerial Economics Unit-I CONCEPT OF

DEMAND (Batch 2012-14)

19/09/16

DETERMINANTS OF DEMAND

Size and regional distribution of

population.

Composition of population.

Distribution of income.

Managerial Economics Unit-I CONCEPT OF

DEMAND (Batch 2012-14)

19/09/16

CAUSES OF CHANGE IN DEMAND

INCREASE IN DEMAND:

In income & wealth of the people.

In the population.
In the prices of substitute goods.
In the prices of complementary goods.
Expectations of rise in prices in future.
Changes in tastes, preferences, habit,

customs in favor of a commodity.

Managerial Economics Unit-I CONCEPT OF

DEMAND (Batch 2012-14)

19/09/16

CAUSES OF CHANGE IN DEMAND

DECREASE IN DEMAND:

In income & wealth of the people.

In the population.

In the prices of substitute goods.

In the prices of complimentary goods.

Expectations of fall in prices in future.

Changes in tastes, preferences, habit,

customs, against a commodity

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Managerial Economics Unit-I CONCEPT OF

DEMAND (Batch 2012-14)

19/09/16

CHARACTERISTICS
CONCEPT
OF
DD
FOLLOWING:

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DEMONSTRATES

THE

Demand is always with reference to a

price.
Demand is referred to in a given period
of time.
Consumer must have the necessary
purchasing power to back his desire for
the commodity.
Consumer must also be ready to
exchange his money for the commodity
in question.
Managerial Economics Unit-I CONCEPT OF
DEMAND (Batch 2012-14)

19/09/16

LAW OF DEMAND
The inverse relationship between the price

and quantity demanded of a commodity,

other things remaining the same (ceteris
paribus).
In other words, when the (price of goods)

s, dd s and when p , dd , provided

factors other than the price do not
changed.

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Managerial Economics Unit-I CONCEPT OF

DEMAND (Batch 2012-14)

19/09/16

Downward sloping in
DD curve

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Managerial Economics Unit-I CONCEPT OF

DEMAND (Batch 2012-14)

19/09/16

Reason for downward

sloping Curve
1.

Law of diminishing marginal utility.

2.
3.
4.
5.

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As a consumer keeps on consuming successive units

of the same commodity, consumption of other
commodities remaining constant, MU diminishes.

Income effect.
Substitution effect.
Changes in the number of consumers.
Diverse uses of commodity.

Managerial Economics Unit-I CONCEPT OF

DEMAND (Batch 2012-14)

19/09/16

EXCEPTIONS TO LAW OF
DEMAND
1. Prestige is directly associated with
price of goods.

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2.

Giffen paradox

3.

Emergency

4.

Expectations about future price

Managerial Economics Unit-I CONCEPT OF

DEMAND (Batch 2012-14)

19/09/16

CHANGE IN DEMAND & CHANGE

IN QUANTITY DEMANDED
CHANGE IN DEMAND
Change in demand
essentially happens due to
a change in the factors
affecting demand.

CHANGE IN QUANTITY
DEMANDED

Change in quantity

demanded happens
essentially due to a
change in the price of
Change in demand causes
that commodity.
a shift in the Demand Curve
,i.e., an increase in demand Change in quantity
causes the demand curve
demanded causes a
to shift outwards
movement along the
whereas a decrease causes
demand curve.
an inward shift.

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Managerial Economics Unit-I CONCEPT OF

DEMAND (Batch 2012-14)

19/09/16

MOVEMENT ALONG DD
CURVE

A movement along a demand curve occurs

when the ONLY factor that changes

.

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Managerial Economics Unit-I CONCEPT OF

DEMAND (Batch 2012-14)

19/09/16

It is just an arrow along the demand curve

in the correct direction. As price increases

the movement would be to the left, as price
decreases the movement would be to the
right.
If the quantity decreases it is known as
contraction.
If the quantity increases it is known as
expansion

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Managerial Economics Unit-I CONCEPT OF

DEMAND (Batch 2012-14)

19/09/16

SHIFT IN DD CURVE

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Managerial Economics Unit-I CONCEPT OF

DEMAND (Batch 2012-14)

19/09/16

In this diagram the shift from demand

curve D1 to demand curve D2 is

represented by an actual translation across
the plane. This particular diagram features
an inward shift to the left, or a shrink in
demand. An outward shift would be an
increase in demand.
This shift is caused by any actual changes
in the determinants of demand.

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Managerial Economics Unit-I CONCEPT OF

DEMAND (Batch 2012-14)

19/09/16

CONCEPT OF
SUPPLY

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Managerial Economics Unit-I CONCEPT OF

DEMAND (Batch 2012-14)

19/09/16

SUPPLY
It is the willingness and ability of producers to

make a specific quantity of output available to

consumers at a particular price over a given
period of time.
Supply is the mirror image of demand.

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Managerial Economics Unit-I CONCEPT OF

DEMAND (Batch 2012-14)

19/09/16

LAW OF SUPPLY
There is positive relation between price and

quantity supplied other things remaining

constant.
Variables other than price:
Money cost of production
Inter-related supply

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Managerial Economics Unit-I CONCEPT OF

DEMAND (Batch 2012-14)

19/09/16

TYPES OF SUPPLY
CURVE
The supply curve is upward sloping.
There are TWO types of change in supply;
1. Movement ALONG the supply curve

2. SHIFTS in the supply curve

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Managerial Economics Unit-I CONCEPT OF

DEMAND (Batch 2012-14)

19/09/16

A movement ALONG the

supply curve

A movement along the supply curve is caused

by a change in PRICE of the good or service.

For instance, an increase in the price of the
good results in an EXTENSION of supply
(quantity supplied will increase), whilst a
decrease in price causes a CONTRACTION of
supply (quantity supplied will decrease).

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Managerial Economics Unit-I CONCEPT OF

DEMAND (Batch 2012-14)

19/09/16

A SHIFT in the supply curve

A shift in the supply

curve is caused by a
change in any non-price
determinant of supply.
The curve can shift to
the right or left.
A rightward shift
represents an increase
in the quantity supplied
(at all prices) S1 to S2,
whilst a leftward shift
represents a decrease in
the quantity supplied (at
all prices). S1 to S3.
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Managerial Economics Unit-I CONCEPT OF

DEMAND (Batch 2012-14)

19/09/16

THINGS TO REMEMBER
The supply curve follows the law f supply when

price and quantity supplied increases and vice

versa.
The horizontal axis-quantity-has time
dimension.
The quantities are of the same quality.
The vertical axis-price-is a relative price.
The curve assumes everything else is constant.
Effects of price is shown by movement and shift
in supply curve.
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Managerial Economics Unit-I CONCEPT OF

DEMAND (Batch 2012-14)

19/09/16

MARKET EQUILIBRIUM PRICE

A price that can be maintained
Price

SURPLU
S

Supply

E
P

SHORTAG
E
Q

Demand

Quantity

E is the state of balance,

from which there is no
tendency to change.

THANK
YOU
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Managerial Economics Unit-I CONCEPT OF

DEMAND (Batch 2012-14)

19/09/16