Basics of Demand Analysis
The document discusses the concepts of demand, including the law of demand, joint demand, composite demand, and demand curves. It explains that according to the law of demand, as price increases, consumer demand decreases, and vice versa. Joint demand refers to goods demanded together to satisfy a want, like a car and gasoline. Composite demand is when a good has multiple uses, like milk for drinking, cooking, and making other products. A demand curve shows the relationship between price and quantity demanded over time. The document also discusses factors that can cause a shift in the demand curve, like changes in income, prices of substitutes, tastes, and future expectations. It concludes by defining elasticity of demand as the percentage change in quantity demanded
Basics of Demand Analysis
- 2. When a person has Willingness and ability to pay to create Demand The law of demand is a microeconomic law that states, all other factors being equal, as the price of a good or service increases, consumer demand for the good or service will decrease, and vice versa.
- 3. Joint Demand: When two or more goods are demanded to satisfy the same want, it is called joint demand. Eg: demand for car and petrol, Printer and Ink/Powder Composite Demand: When a particular product is demanded to be put to multiple uses, it is called composite demand. Eg: demand for milk as it is used to make tea, ice- cream, butter etc
- 4. Demand Curve: It shows the relationship between the price of an item and the quantity demanded over a period of time. For normal goods, more of a product will be demanded as the price falls. When more goods are bought at low price (Expansion of demand) When fewer goods are bought at high price (Contraction of Demand)
- 5. Income of the consumer remain same Price of the substitute’s goods does not change Consumer should be rational by his/her behavior Taste and Fashion remain the same Value of Money constant There is no future knowledge regarding Price
- 6. Income of the consumer changed Price of the substitute’s goods changes Consumer irrational by his/her behavior Taste and Fashion change Value of Money fluctuated There is future knowledge regarding Price
- 7. The amount of a good or service people will buy at a given price in a given time of period. (Occur due to change in price) It is a shift of the demand curve caused by a change in one of the demand determinants. A change in demand caused by any factor affecting demand except Price.
- 10. Elasticity of Demand Elasticity of Demand: It is the percentage change in quantity demanded as a result of the percentage change in demand price. Generally, a relative response of a change in quantity demanded to relative change in price.
- 11. More /High Elastic Demand Major change in quantity demanded and Minor change Price
- 12. Less Elastic Demand Major change in Price and Minor change quantity demanded
- 13. Unit Elastic Demand Equal change in Price and Equal change in Quantity demanded