Analysis of demand
I] Individual demand
Individual demand is “the alternative amounts of a commodity purchased by a buyer at an alternative price at a point of time or a given period of time.”
A consumer tends to buy more at a lower price and less at a higher price. This can be explained with the help of the individual demand schedule ie “a list of alternative amounts of a commodity purchased by a buyer at alternative or various prices at a given point of time.” E.g. when the price is Re 1/- a consumer buys 5 chocolates and if the price falls to Rs 4/- a consumer buys 2 chocolates,
Individual demand schedule | Individual demand curve | |
Price (Rs) | Quantity demanded |
|
1 | 5 | |
2 | 4 | |
3 | 3 | |
4 | 2 | |
5 | 1 | |
The diagrammatic representation of the individual demand schedule is the individual demand curve. ie “the diagrammatic representation of the alternative amounts of a commodity purchased by a buyer at alternative or various prices at a point of time or a given period of time.”
The individual demand curve slopes downward from left to right indicating an inverse relation between price and quantity demanded.
Features of the individual demand curve
1] All points on the demand curve are alternative not successive.
2] All points on the demand curve except one are imaginary.
3] Any single point on the demand curve shows a single price – quantity relationship. It shows that when price rises demand falls and when price falls demand rises.
F actors affecting individual demand
1] Price – Price is the basic and the most important determinant of the demand for a good. A large quantity is demanded at a lower price and a smaller quantity at a higher price.
2] Utility – Demand for a commodity is determined by its utility. Greater the utility perceived greater will be the demand.
3] Income of the consumer – The consumers demand is directly related to his disposable income. Higher the income greater will be his demand.
4] Quality of i.e. commodity – Better the quality of the product greater will be the demand for it.
5] Availability and price of substitutes – If less and more expensive substitutes are available demand for the commodity will be more.
6] Availability and price of complements – If the supply of complements is adequate and their prices are lower, demand for the commodity would be greater.
7] Consumers expectations – When a consumer expects the price of the commodity o rise in future he will demand more in the present.
8] Tastes habits and fashion – If a consumer likes a particular commodity or is in a habit of consuming a particular commodity, demand for it will be more. A New fashion will increase the demand for the good.
9] Advertisement – In modern days the consumers demand is influenced by advertisement, sales promotion schemes, publicity propaganda etc.
10] Consumers psychology -
a) Snob effect –When a consumer buys a commodity in order to be different from the rest it is known as snob effect.
b) Bandwagon effect - When a consumer buys what others buy and imitates them, it is known as bandwagon effect.
c) Veblen effect – When a consumer purchases higher priced goods when similar low priced substitutes (though not identical substitute) are available. This may be due to a belief in “high price therefore better quality” or desire for “conspicuous consumption”.
II] Market demand
Market demand is - “the alternative amounts of a commodity purchased by all buyers at an alternative price at a point of time or a given period of time.”
Consumers tend to buy more at a lower price and less at a higher price. This can be explained with the help of the market demand schedule i.e. “a list of alternative amounts of a commodity purchased by all buyer at alternative or various prices at a given point of time.”
E.g. when the price of the commodity rises from Rs 3 to Rs 5/-some existing consumers buy less than before i.e. A, B, and D buy 1 instead of 3, 2 instead of and 1 instead of 4. Some consumers eg “C” will leave the market. And, vice versa.
Market demand schedule | ||||||
Price (Rs) | Quantity demanded by consumer | Market demand | Market demand curve | |||
A | B | C | D | A + B + C | ||
1 | 5 | 6 | 4 | 7 | 22 | |
2 | 4 | 5 | 3 | 6 | 18 | |
3 | 3 | 4 | 2 | 4 | 13 | |
4 | 2 | 3 | 1 | 2 | 8 | |
5 | 1 | 2 | 0 | 1 | 4 | |
The diagrammatic representation of the market demand schedule is the market demand curve. ie “the diagrammatic representation of the alternative amounts of a commodity purchased by all buyers at alternative or various prices at a point of time or a given period of time.”
The market demand curve slopes downward from left to right indicating an inverse relation between price and quantity demanded.
Features of the market demand curve
1] All pints on the demand curve are alternative.
2] All points on the demand curve except one are imaginary.
3] Any single point on the demand curve shows a single price – quantity relationship. It shows that when price rises demand falls and when price falls demand rises.
4] If the demand curve derived is a straight line it is known as a linear demand curve. If it has a curvature it is known as a non – linear demand curve.
F actors affecting market demand
1] Price is the basic and the most important determinant of the demand for a good. A larger quantity is demanded at a lower price and a smaller quantity at a higher price.
2] Distribution of income and wealth – If the distribution of income and wealth is equal, the market demand for many commodities of common or mass consumption tends to be greater than in case of unequal distribution’
3] Population – Greater the size and higher the rate of growth of population, larger will be the demand because the number of buyers will increase. This is specially so for essential goods and services.
4] Age structure and sex ratio – Determines the demand for a product in a relative sense.eg children, young, old, female and male population would demand toys, gadgets, walking sticks, cosmetics, aftershave respectively.
5] Standard of living – Higher the standard of living greater will be the demand for goods and services.
6] Level of tax, tax structure and subsidy – A higher tax and a progressive tax structure will reduce the disposable income and therefore the demand. Similarly a subsidy will increase demand.
7] Inventions and Innovation – Inventions and innovation will introduce new products in the market. This will increase the demand for new products and demand for existing or old products will reduce.
8] Advertisement and salesmanship – Largely influences/manipulates the market preference in favour of the advertised product and thereby creates a greater demand for it.
9] Consumers expectations – When future prices are expected to rise, the consumers prefer to hoard goods in the present and therefore demand rises.
10] Social customs and festivals – All festivals and customs require certain types of goods to be consumed, .e.g. lamps, crackers, sweets etc. Therefore demand for these goods will rise.
11] Common habits, passion and scale of preference – also influences the market demand eg fast food in cities, vegetarian / non-vegetarian diet by majority will increase demand for those good. Also when many consumers change their preference in favor of a particular product the market for it will increase.
12] Propensity to consume – If propensity to consume is high people spend a larger proportion of their income on consumption and therefore demand increases
13] Season or climate – Certain products have a seasonal demand eg woolens, raincoats, seasonal fruits vegetables, demand for ice-cream, soft drinks in summer etc.