Download VELS UNIVERSITY School of Management Studies

• Subject: Management Principles &
Organizational behavior
www.velsuniv.org
BIM
Executive
Placement 2003
School of Management
Studies – Striving towards Excellence
Introduction- Demand
• Demand means a desire or wish to buy and consume a
commodity or service.
• But in economics a mere desire or wish does not
constitute demand
Vels University
www.velsuniv.org
BIM
Executive
Placement 2003
School of Management
Studies – Striving towards Excellence
Introduction- Demand
• The growth rate of over 25 percent in IT/ITES sector of
India is leading to a tremendous demand of qualified IT
professional
• The demand supply gap of wheat in 2007 was 40 lakh
tonnes
• The India hydrocarbon Vision 2025 Report estimates
that the demand for natural gas is expected to show a
sharp rise in future.
Vels University
www.velsuniv.org
BIM
Executive
Placement 2003
School of Management
Studies – Striving towards Excellence
Demand
• Demand is defined as that want, need or desire which
is backed by willingness and ability to buy a particular,
commodity, in a given period of time
• Demand is effective desire, as it is backed by
willingness to pay and ability to pay.
Vels University
www.velsuniv.org
Executive
Placement 2003
School of Management
Studies – Striving towards Excellence
BIM
Demand Function
D= f ( t, y, P, N, F, D, C, B)
• D= Quantity of demand
• T= tastes and preference of the consumer
• P= price of substitute
• N= Number of consumers
• F= Expectation of future price rise
• D= Distribution of income
• C= Climate and weather
• B= State of business
Vels University
www.velsuniv.org
BIM
Executive
Placement 2003
School of Management
Studies – Striving towards Excellence
Determinants of Demand
 Price of demand(-)
 Income of the consumer(+) ( Normal Goods & Inferior Goods)
 Price of related goods or substitute ( Substitutes &
complements)
Substitutes are goods that satisfy a similar need and can be used
as replacement of each other. Complements are demanded
jointly.
 Tastes and preferences
 Advertising
Vels University
www.velsuniv.org
BIM
Executive
Placement 2003
School of Management
Studies – Striving towards Excellence
Advertising facts:
• A survey of rural consumers has shown an amazing
finding that for most of the product categories
surveyed, the consumers were not influenced by
advertisements or promotions
• 73% of respondent feel that promotion has not or
moderate effect on buying various products, which
included detergent powder, bathing soap, shampoo,
hair oil, watches, tea, edible and bicycle.
• 54% and 75%mof rural consumer give importance for
soft drink and edible oil
Vels University
www.velsuniv.org
BIM
Executive
Placement 2003
School of Management
Studies – Striving towards Excellence
Advertisement is a wasteful expenditure. Do you agree?
Vels University
www.velsuniv.org
BIM
Executive
Placement 2003
School of Management
Studies – Striving towards Excellence
Determinants of demand
 Consumer’s expectation of future income and price
 Population
 Climate and Weather
 Growth of Economy
Vels University
www.velsuniv.org
Executive
Placement 2003
School of Management
Studies – Striving towards Excellence
BIM
Types of Demand
o Direct and derived demand
Consumer goods: It is the commodity demanded for its
own sake by the final consumer is called direct demand
Capital goods: It is the commodity demanded for using as
a raw material or intermediary purpose then it is called
as derived demand
Ex: New building, mobile accessories
Vels University
www.velsuniv.org
BIM
Executive
Placement 2003
School of Management
Studies – Striving towards Excellence
Types of Demand
o Recurring and Replacement demand:
Consumable demand have recurring demand; durable
consumer goods are purchased to be used for a long
time but they need replacement
Vels University
www.velsuniv.org
BIM
Executive
Placement 2003
School of Management
Studies – Striving towards Excellence
Types of Demand
o Complementary and competing demand:
Complementary demand: When one commodity is
demanded to satisfy a single want, such demand is
called as joint or complementary demand.
Competing demand: Goods that compete with each other
to satisfy any particular want are called substitute
Vels University
www.velsuniv.org
Executive
Placement 2003
School of Management
Studies – Striving towards Excellence
BIM
Types of Demand
o Individual and market demand:
o Demand for an individual consumer is individual
demand.
o Industry demand is the demand for the product
produced by all the firms in the industry.
Vels University
www.velsuniv.org
BIM
Executive
Placement 2003
School of Management
Studies – Striving towards Excellence
Law of Demand
“The Law of demand states that people will buy more at
lower prices and buy less at higher prices”
Paul samuelson
Vels University
www.velsuniv.org
BIM
Executive
Placement 2003
School of Management
Studies – Striving towards Excellence
Law of Demand
Law of demand can be understood with the following
 Price effect
 Substitution effect
 Income effect
 Law of diminishing marginal utility
Vels University
www.velsuniv.org
BIM
Executive
Placement 2003
School of Management
Studies – Striving towards Excellence
Law of demand
Price effect: It explains why a fall in price results in rise
in demand and vice versa.
Example: Multiple use product like milk, electricity, coal
or steel
Vels University
www.velsuniv.org
BIM
Executive
Placement 2003
School of Management
Studies – Striving towards Excellence
Law of demand
Substitution effect: When price of a commodity falls, it
becomes more easily affordable and thus more
attractive to the consumer
Income effect: Fall or rise in income has the effect on
demand
Law of diminishing marginal utility: As per Law of
Diminishing Marginal utility, the utility derived from
every next unit of a commodity consumer goes on
falling.
Vels University
www.velsuniv.org
BIM
Executive
Placement 2003
School of Management
Studies – Striving towards Excellence
The Law of Demand
P
P1
P
A
B
P
D1
2
Q1
Q2
Q
CHANGE IN
PRICE=
change in quantity
Vels University
D2
Q
CHANGE IN OTHER=
change in demand
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BIM
Executive
Placement 2003
School of Management
Studies – Striving towards Excellence
The Law of Demand
P
D1
D2
Q
CHANGE IN OTHER=
change in demand
Vels University
www.velsuniv.org
BIM
Executive
Placement 2003
School of Management
Studies – Striving towards Excellence
Demand Schedule and Demand Curve
Demand Schedule: It is the list or tabular statement of
the different combinations of price and quantity
demanded of a commodity.
Demand Curve: The demand curve shows the relationship
between price of a good and the quantity demanded by
consumers.
Vels University
www.velsuniv.org
BIM
Executive
Placement 2003
School of Management
Studies – Striving towards Excellence
Exceptions to the Law of demand
 Giffen Paradox: ( Inferior goods)
 Sir Robert Giffen, an economist, was the first to give
an explanation to this situation.
 Ireland scenario
 Snob Appeal: (Veblen effect)
 In which consumer measures the satisfaction derived
from their utility value, but by social status.
Vels University
www.velsuniv.org
BIM
Executive
Placement 2003
School of Management
Studies – Striving towards Excellence
Exception of Law of Demand
 Demonstration effect:
 Demonstration effect is the influence on a person’s
behaviour
 Future expectation of prices: (Panic buying)
 People purchase goods with the expectation that prices
will rise more in the future.
 Goods with No substitutes:
 Insignificant use of the product
Vels University
www.velsuniv.org
Executive
Placement 2003
School of Management
Studies – Striving towards Excellence
BIM
That is all about Demand…………………………
Thank you
Vels University
www.velsuniv.org