Demand and Supply Analysis

Topics: Supply and demand, Consumer theory, Goods Pages: 7 (1391 words) Published: November 24, 2011
Demand and Supply Analysis
1. Demand indicates how much of a good consumers are willing and able to buy at each possible price during a given time period, other things constant. 2. The process to satisfy human wants/ needs/desires.

* Want: having a strong desire for something
* Need: lack of means of subsistence
* Desire: an aspiration to acquire something
3. Demand: effective desire
4. Demand is that desire which backed by willingness and ability to buy a particular commodity. 5. Amount of the commodity which consumers are willing to buy per unit of time, at that price. 6. Things necessary for demand:

* Time
* Price of the commodity
* Amount (or quantity) of the commodity consumers are willing to purchase at the price

Demand Analysis
Demand for a particular commodity implies:
1. Desire of the customer to buy the product;
2. The customers willingness to buy the product;
3. Sufficient purchasing power in the customers possession to buy the product.

The analysis of market demand enables business executives know: 1. The factors determining the size of consumer demand for their products; 2. The degree of responsiveness of demand to changes in its determinants; 3. The possibility of sales promotion through manipulation of prices; 4. Responsiveness of demand to advertisement expenditures; and, 5. Optimum levels of sales, inventories, and advertisement expenditures.

Demand & Supply
1. Supply and Demand analysis is in many ways the cornerstone of economics. 2. The relationship between demand and supply underlie the forces behind the allocation of resources. In market economy theories, demand and supply theory will allocate resources in the most efficient way possible.

Demand Curves and Schedules
1. Demand curves isolate the relationship between quantity demanded and the price of the product, while holding all other influences constant (in latin: ceteris paribus) 2. Demand Schedule: A table that illustrates the alternative quantities of a commodity demanded at different prices.

Demand Schedule:
1. A demand schedule is a numerical tabulation that shows the quantity of demeaned commodity at different prices. 2. The demand schedule may be of 2 types :
3. Individual demand Schedule
4. Market demand Schedule.

Demand Schedule & Demand Curve for Pizza
(a) Demand Schedule
(a) Demand Schedule

Price per Quantity Demanded
Pizza per Week (millions)
a) $15 8
b) 12 14
c) 9 20
d) 6 26
e) 3 32

(b) Demand Curve
Millions of Pizzas per week
Price per Pizza

The demand schedule lists possible prices, along with quantity demanded at each price. The demand curve at the right shows each price / quantity combination listed in the demand schedule as a point on the demand curve.

* Interdependence between demand for a product and its determinants can be shown in a mathematical functional form * Dx = f(Px, Y, Py, T, A, N)
* Independent variables: Px, Y, Py, T, A, N
* Dependent variable: Dx
* Px: Price of x
* Y: Income of consumer
* Py: Price of other commodity
* T: Taste and preference of consumer
* A: Advertisement
* N: Macro variable like inflation, population growth, economic growth

Law of demand Says that quantity demanded varies inversely with price, other things constant. The higher the price, the smaller the quantity demanded.
The lower the price, the larger the quantity demanded.

Types of Goods
A. Related to Income
1. Inferior good
2. Normal good
3. Superior good
4. Luxury good

2. Related to Price
1. Ordinary good
2. Giffen good
3. Veblen good (or ostentatious goods)

Types of Demand
1. Direct and Derived Demands
2. Domestic and Industrial Demands
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