DEMAND ANALYSIS

DEMAND

◉ Desire to buy backed by adequate purchasing power

◉ Desire to possess
◉ Willingness to pay
◉ Ability to pay
◉ Various quantities that consumer will take off the market
during a time unit at different prices

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 INDIVIDUAL DEMAND & MARKET DEMAND

◉ Indivdual demand – quantity of product which an

individual consumer is willing to buy at each price of that
product during a particular period of time given this
money income, taste, preference and prices of other
products
◉ Market demand – horizontal summation of all the
demands of the individual consumers of the product at
the given price

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INDIVIDUAL DEMAND & MARKET DEMAND

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 DEMAND DISTINCTIONS

◉ Demand is further classified as

◉ Consumer’s & Producer’s goods demand
◉ Durable & Non durable goods demand
◉ Derived & Autonomous demand
◉ Company & Industry demand
◉ Short run & Long run demand

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 PRODUCER GOODS DEMAND
◉ Goods used for the production of other goods
◉ Example – machines, tools, looms etc
◉ Further classifed into - Consumable – coal, oil etc
■ Durable – machines & equipment
■ Producer Goods demand determinants –
● Vary from Consumer goods
●Vary considerably among products eg. Demand for cement depends on
construction activity
• Reason for distinctive demand behaviour –
• Buyers are professional , hence more discriminating price wise, quality
wise, sensitive to substitutes
• Motives are purely economic, purchases are less susceptible to pressure
advertising, more sensitive to small price difference
• demand derived from consumption or from production – fluctuates
differently & generally more violently 6
 CONSUMER GOODS DEMAND

◉ Goods used for final consumption

◉ Satisfy consumer wants directly
◉ Example – ready made clothes, residential houses
• Furhter classified into
■ durable goods – go on being used over a period of time – eg. Car, refrigerator,
umbrella etc.
■ period of durability varies –
● shirt – a year or two
● car -10 to 15 years
■ non durable goods – cannot be consumed more than once – eg. Milk, bread,
sweets etc.
■ all non durable goods are not perishable – eg. coal

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CONSUMER DURABLE GOODS - CHARACTERISTICS

◉ Requires existence of special facilities for their use

◉ Car & truck requires petrol pump stations
◉ Television set requires telecasting stations
◉ Often consumed by more than one person – eg. Car,
radio, fridge
◉ Purchases are made at irregular intervals
Classification is arbitrary – eg. Sugar producer good for a
confectioner, for a householder it is consumer goods

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 DURABLE GOODS DEMAND

◉ Used more than once over a period of time

◉ Consumer durables – Ceiling fan, Scooter
◉ Derived demand – Expected price, consumers income,
change in technology
◉ Maintenance & Operating cost in relation to future
income
◉ Current demand
■ Replacement demand – Determinant – Obsolescence
due to technological innovation
■ Expansion of stock
■ Producer Durables – machines, office equipments

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 NON DURABLE GOODS DEMAND

◉ Perishable
◉ Can be consumed only once
◉ Non durable consumer goods – food items, medicines
◉ Non durable producer goods – Packing item, fuel, power
etc
◉ Demand depends on – current prices, consumer tastes
& preferences

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 DERIVED DEMAND

◉ Demand is directly related to purchase of some parent product

◉ Eg. TV & Set top box – Television –parent product
◉ All producer’s goods – derived demand only
◉ Facilitates forecasting – proportions of the two products are fairly
fixed - Eg. TV & Set top box –one to one proportion
◉ Some cases – derived demand may not provide reliable basis –
eg. Demand for looms & cotton textiles
◉ Generally have less price elasticity

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 AUTONOMOUS DEMAND

◉ Direct demand
◉ Demand for the product is independent of demand for
other products
◉ Eg. Soap, food items, textiles etc

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 COMPANY & INDUSTRY DEMAND
◉ Industry demand – total demand for the products of a particular industry.
Eg. Total demand for steel in the country
◉ Company demand – demand for the products of a particular company.
Eg. Demand for steel produced by TISCO
◉ Projection of industry demand is first step in forecasting company’s
sales
◉ Industry demand schedule – relation of the price of the product to the
quantity that will be bought by all firms
◉ Industry demand – can be classified customer group wise – eg airline
tickets for business & pleasure trips
◉ The degree of relationship between industry demand and company
depends on the competititve structure of the industry
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 SHORT RUN & LONG RUN DEMAND

◉ Short run demand – existing demand based on immediate

reaction to price changes
◉ Long run demand – demand which exists as a result of changes
in prices, product improvement after enough time is allowed for
market adjustment in the new situation
◉ Eg. Cut in the price of electricity

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