Demand Analysis
Demand Analysis
Demand Analysis
DEMAND
QdX = a + b PX + c M + d PY + e T + f Ep+ g N
Contd…
SUMMARY OF GENERALISED DEMAND FUNCTION
VARIABLE RELATION TO Qd SIGN OF SLOPE PARAMETER
P Inverse b = QdX/PX < 0
Contd…
Example
Qd = 1300 – 20P
DEMAND SCHEDULE: Tabular representation showing
different quantities of goods that are being demanded at different
price levels, cetirus peribus
PRICE
O X
QUANTITY DEMANDED
LAW OF DEMAND
Income Effect
MARKET DEMAND
A B C D
10 1 0 3 0 4
9 3 1 6 4 14
8 7 2 9 7 25
7 11 4 12 10 37
6 13 6 14 12 45
MARKET DEMAND CURVE: horizontal summation
of demand curves of individual consumers
DETERMINANTS OF MARKET DEMAND
Number of consumers
Consumer preferences
Income
1. Qm = Q1 + Q2 + Q3 = 90 - 3P
3. 60= 90 – 3P
P = Rs. 10
EXCEPTIONS TO LAW OF DEMAND
Giffen goods
Status goods
CHANGE IN QUANTITY DEMANDED
(MOVEMENT ALONG A CURVE) VERSUS
CHANGE IN DEMAND (SHIFT OF CURVE)
Price
An increase in price
causes a decrease in
quantity demanded.
P1
P0
DEMAND CURVE
Quantity
Q1 Q0
CHANGE IN QUANTITY DEMANDED-
MOVEMENT ALONG A CURVE- EXPANSION
OF DEMAND
Price
A decrease in price
causes an increase in
quantity demanded.
P0
P1 DEMAND CURVE
Quantity
Q0 Q1
REASONS FOR CHANGES IN DEMAND
Inferior Goods
Complementary Goods
CHANGE IN DEMAND- SHIFT OF DEMAND
CURVE- INCREASE IN DEMAND
An increase in demand
Price
D1 refers to a rightward shift
D
in the demand curve.
P0
Quantity
Q0 Q1
CHANGE IN DEMAND- SHIFT OF DEMAND
CURVE- DECREASE IN DEMAND
A decrease in demand
Price
D1 D
refers to a leftward shift
in the demand curve.
P0
Quantity
Q1 Q0
TOTAL AND MARGINAL REVENUE
25
20
15
10
0
0 2 4 6 8 10 12
10
5
Quantity Demanded
0
0 2 4 6 8 10 12 Quantity per
-5
period
Marginal Revenue
-10
MARGINAL REVENUE EQUATION
Demand Equation Q = B + ap P
P = -B/ap + Q/ap
TR = PQ = -B/ap*Q + Q2/ap
MR = 0 , Q = B/2
Write MR eq.
At what P & Q will MR be 0?
At what P & Q will TR be max?
If P is increased from Rs 6000 to 7000,
what will be the effect on TR?