demand analysis - copy
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Meaning of Demand :
Demand for a
commodity refers to the quantity of acommodity which a consumer is willing to
buy at a given price in a given period of
time.
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Thus demand involves three essential
elements namely :1. Quantity of a commodity ;
2. Price of the commodity ;
3. The period of time .
According to Benhem,The demand
for anything at a given price is the amountof it, which will be brought per unit of time
at that price.
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For instance,statement like ahouseholds demand for milk is twoliters at Rs. 17 per lit. is not correct and
complete. The meaningful statementwould be that at Rs. 17 per lit. a
household demand for milk is 2 lit.
today because it contains all the three
essential elements of demand.
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TYPES OF DEMAND
1- Individual and Market Demand ;
2- Industry Demand and Company
Demand ;
3- Autonomous Demand and Derived
Demand ;
4- Joint Demand and Rival Demand
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.
Income Demand : It refers to various
quantities of a commodity demanded by aconsumer at various levels of his income,
other things being equal.
The relationship between the incomeand the demand for the commodity is
generally positive, i.e, when income of
consumer rises, demand also rises and
when income falls, demand also falls.
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DIAGRAM
Y
D
y1
INCOME
y
DO Q Q1 X
DEMAND
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PRICE INCOME AND CROSSDEMANDPrice Demand :
It refers to variousquantites of a commodity that an
individual household is willing to buy at agiven market price in a given period oftime. Factors other than the priceaffecting demand for commodity are
presumed to remain unchanged. Therelationship between price and thedemand for commodity is generallyinverse, i.e. when price rises, demand
falls and when price falls, demand rises
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DIAGRAM
Y
D
p
PRICE
p1
DO Q Q1 X
DEMAND
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.
Cross demand :It refers to various quantities
of commodity that a consumer is willing tobuy when price of other related commoditychanges. In other words, it indicatesfunctional relationship between demand for
a particular commodity and the prices ofother related commodities such as:
SUBSTITUTE-When the price for one
commodity falls the demand for an othercommodity, called substitute, also falls.
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DIAGRAM
Y
D
y1
PRICE
OF y
Y
DO Q Q1 X
DEMAND FOR X
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COMPLEMENTARY GOODS :
If the fall
in price of one commodity, raises the
demand for another commodity, the two
goods are called complementaries. Car
and petrol, pen and ink, tea and milk are
some examples of complementary goods.
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DIAGRAM
Y
D
p
PRICE OF
Y p1
DO Q Q1 X
DEMAND FOR X
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FREE GOODS :Change in
price of one commodity has no
effect on the demand of anotherone are considered as free goods
such as clothes and books.
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DIAGRAM
Y
D
PRICE
DO X
DEMAND
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DETERMINANTS OF DEMAND ORFACTORS AFFECTING DEMAND
Price of Commodity, Level of Income,
Tastes and Preferences of
Consumers, Distribution of Wealth,
Government Policy,
Size of Population, of related commodities,
Substitute goods.
Complementary goods.
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The Demand Function
Demand function explains the relationshipbetween the demand for a commodity andthe factors determining demand. The aboveanalysis is presented as demand function inthe form of the following equation:
Dx =f (PX, Pr, Y, T)The equation shows that Demand forcommodity X (DX), is the function(f) of Priceof commodity X(P
X
);Price of relatedgoods(Pr); Income of consumer(Y) andtastes of consumer(T).
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