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‡ The amount of good that a consumer is willing to buy and
able to purchase over a period of time, at a certain price is
known as the quantity demanded of that good.
‡ The quantity desired to be purchased may be different from
the quantity of good actually bought by the consumer.
‡ Quantity demanded is a flow concept, so the relevant time
dimension has to be mentioned which will indicate the
quantity demanded per unit of time.
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‡ Demand is a relationship between the price and the quantity
demanded, other things remaining the same.
‡ If X1 denotes the quantity demanded and P1 its price per
unit of the good, then other things remaining constant, the
demand function is; X1 = f (P1). ·
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‡ Which shows that quantity demanded depends on the price.
This means that any change in price will result in a
corresponding change in the quantity demanded.
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‡ The determinants of demand for a product and the nature of
relationship between demand and its determinants are very
important factors for analyzing and estimating demand for
the product.
‡ The most important determinants are as follows:
‡ Price of the product.
‡ Price of the related goods Complements and Supplements.
‡ Level of consumers' income.
‡ Customers' taste and preference.
‡ Advertisement of the product. *
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‡ Consumers' expectations about future price and Supply
position.
‡ Demonstration effect and 'Band-Wagon' effect.
‡ Consumer-credit facility.
‡ Population of the country (Goods for mass consumption).
‡ Distribution pattern of the National Income.
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‡ The law of demand states that other things being constant,
price and quantity demanded have an inverse relationship;
i.e. as price of a product increases quantity demanded
decreases and vice versa.
‡ This law states that there is an inverse relationship between
price and quantity demanded, as price increases, quantity
demanded will decrease. o
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‡ The law of demand can be explained in terms of substitution
and income effects resulting from price changes.
‡ The substitution effect reflects changing opportunity costs.
When price of good increases, its opportunity cost in terms
of other goods is also increases.
‡ Consequently, consumers may substitute other goods for the
good that has become more expensive.
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‡ Though normally law of demand applies to all situations,
but there are few cases where the law does not hold goods,
therefore these are regarded as exceptions to the law.
‡ These are the goods which are demanded less at low price
and more at high price. Let us discuss some such exceptions
here. †
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‡ The case of Giffen Goods needs a little bit of story telling!
‡ In early Ireland it was observed that the poor population
consumed two goods: meat (which was costly) and bread
(which was cheap).
‡ A very strange phenomenon was observed when the price of
the bread was increased, it made a large drain on the
resources of the poor people and raised their marginal utility
of money to such an extent that they were forced to curtail
there consumption of meat and buy more of bread, which
was still the cheapest food.
‡ This implied that quantity demand of bread (an inferior
good) increased with the increase in its price.
‡ Sir Robert Giffin, an economist, was the first to give an
explanation to this situation. 
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‡ Hence such goods which display direct price demand
relationship are called Giffin Goods.
‡ These goods are considered inferior by the consumer, but
they occupy a significant place in the individual¶s
consumption basket.
‡ It so happens that people in this case, with the rise of price
of this good (say rice are forced to reduce their purchase of
other expensive goods (say, chicken) and increase the
purchase of that good (rice) in larger quantity to supplement
the reduction in luxury food item (chicken).
‡ These goods categorically are those on which major portion
of consumer¶s income is spent, hence they are termed as
inferior. w
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‡   
‡ Opposite to Giffen Goods, there are certain goods which
have snob value, for which the consumer measures the
satisfaction derived from there commodities not by their
utility value, but by their social status.
‡ The consumer of this particular commodity wants to show it
off to others, and as a result they buy less of it at lower
prices and more at higher prices.
‡ Thus in this case, price and quantity move in the same
direction.
‡ Diamond or antique works of art, latest model of mobile
phones, sports cars, and designer clothes are example of
such goods.
‡ Higher is the price of diamond, higher is the snob value
attached to it and higher is its demand.
‡ These goods are sometimes also known as Vevlen Goods
after the economist Thorstein Vevlen. Õ
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‡ Demand curve shows the relationship between price
of a commodity and demand at that price, ceteris
paribus.
‡ If the price changes, the demand will also change
along the same demand curve.
‡ Thus movement along the same demand curve is
known as a contraction or expansion in quantity
demanded, which occurs due to rise or fall in price
of the commodity.

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‡ When price of a good remain the same but any one of the
other determinants changed then we will get a new demand
curve.
‡ So, when demand increases without any change in price of
that good, the demand curve will shift to the right and with a
reduction in demand, the demand curve will shift to the left.


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‡ Law of demand gives us the direction of change in demand
if the price of the product changes.
‡ But this information is not of much practical use since we
know only the direction of change in the demand for a given
change in the price.
‡ For decision making, we need the magnitude of this demand
and elasticity of demand can gives this changes.
‡ The elasticity of demand helps to understand the extent to
which the quantity demanded will rise (fall) due to fall (rise)
in the price of the same good or a related good or due to rise
(fall) in the income of the consumer.
‡ This involves an analysis of demand sensitivity with respect
to prices of goods and income which helps the business to
forecast market trends for the future. *
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‡    
‡ There are many types of elasticity but the main and
important types are as follows.
‡ i) Price elasticity of demand
‡ ii) Income Elasticity of Demand
‡ iii) The Cross-price Elasticity of demand
‡ iv) Advertising Elasticity of Demand

o
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‡    |
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‡ ep = percentage change in quantity demanded resulting
from one percent change in the price of the good, other
things remaining constant.
‡ ep = Percentage change in quantity demanded / Percentage
change in price
‡ Percentage change in quantity demanded = [change in
quantity demanded / original quantity demanded] * 100
‡ Percentage change in price = [change in price / original
price] *100
‡ Combining the two, we have, ep = [˜Q / ˜P] * [P / Q],
‡ Where, ˜Q = Infinitesimal change in quantity,
‡ ˜P = Infinitesimal change in price,
‡ P = original price and
‡ Q = original quantity demanded of the good. †
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‡ 

  
‡ #("# 
# &#$%&) A very small amount of change in
the price will result in a change in the quantity demanded to the
extent of infinity. Ep = ’.
‡ #("# 
%# &#$%&) A change in price, however large
it may be, causes no change in quantity demanded. Ep = 0.
‡ % # 
!" &#$%&) When a given change in the price
causes an equally proportionate change in the quantity demanded
the value of price elasticity of demand id unitary. Ep = 1.
‡ #*#
# &#$%&) Here a change in the price results
in more than proportionate change in the quantity demanded. Ep
> 1.
‡ #*#
%# &#$%&) Here a change in the price
results in less than proportionate change in the quantity

demanded. Ep < 1.
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Perfectly Elastic % ǻP = 0 Ep = ’.

Relatively Elastic % ǻQ > % ǻP Ep > 1.

Unitary Elastic % ǻQ = % ǻP Ep = 1.

Relatively InElastic % ǻQ < % ǻP Ep < 1.

Perfectly Inelastic % ǻQ = 0 Ep = 0.

w
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‡ 
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‡ It is defined as the proportionate change in the quantity demanded
resulting from a proportionate change in income.
‡ Ey = [˜Q / Q] / [˜Y / Y] = [˜Q / ˜Y] * [Y / Q]
‡ It is clear that the sign of the elasticity depends on the sign of the
derivative ˜Q / ˜Y as both of the expressions Q and Y are positive,
i.e., Q>0 & Y>0.
‡ The income elasticity is positive for normal goods. A commodity is
considered to be a 'luxury' if its income elasticity is greater than unity.
A commodity is considered to be a 'necessity' if its income elasticity is
less than unity.
‡ +# $% &##($%% !" % !$# # 
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‡ The nature of the need that the commodity covers: the percentage of
income spent on food declines as income increases.
‡ The initial level of income of a country: for example, a TV set is a
'luxury' in an underdeveloped and poor country, while it is a
'necessity' in a country with per-capita income.
‡ The time period: consumption patterns adjust with a time lag to
changes in income. Õ
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‡ The cross-price elasticity of demand is defined as the proportionate
change in the quantity demanded of product i resulting from a
proportionate change in the price of the product j. Symbolically the
cross-price elasticity is:
‡ Ecij - .Percentage change in the quantity demanded of the ith good /
Percentage change in the price of the jth good]
‡ = [(˜Qi / Qi)*100] / [(˜Pj / Pj)*100] = [˜Qi / ˜Pj] * [Pj / Qi],
‡ As price and quantity values cannot be negative terms, the sign of the
cross price elasticity is determined by the sign of the derivative ˜Qi /
˜Pj.
‡ The sign of cross price elasticity is negative if i and j are
complementary goods, and is positive if i and j are substitute goods.
‡ The higher the value of the cross-price elasticity the stronger will be
the degree of substitutability or complementarities of i and j.
‡ The main determinant of the cross elasticity is the nature of the
commodities relative to their uses. If two commodities can satisfy
equally well the same need, the cross elasticity is high and vice versa.

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‡ It is defined as the rate of change in the quantity demanded
of a good due to change in the advertisement expenditure of
the product.
‡ Ey = [˜Q / Q] / [˜ADexp / ADexp] = [˜Q / ˜ADexp] *
[ADexp / Q]
‡ It measures the response of quantity demanded to change in
the expenditure on advertisement.
‡ It has been seen that some goods are more responsive to
advertising, i.e., cosmetics.

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‡ There are so many methods for forecasting demand. Here we will
discuss the main methods. Broadly they are divided into two
groups:
‡ 1. Survey Methods.
‡ 2. Statistical Methods.
‡ / 0(*#

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‡ Survey methods are generally used where the purpose is to make
short-run forecast of demand. Under the survey methods there are
two types of survey: i) Consumer Survey Methods ± Direct
Interviews, and ii) Opinion Poll Methods
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‡ The customer survey method of demand forecasting involves of
the potential consumers. It may be in the form of:
‡ Complete enumeration,
‡ Sample survey,
·
‡ End-use method.
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‡  !$3## #%0$#(!% $#+!&
‡ By this method, almost all potential users of the product are contacted
and are asked about their plan of purchasing the product in question.
‡ The quantities indicated by the consumers are added together to obtain
the probable demand for the product.
‡ The main limitation of this method is that it can be used successfully
only in case of those products whose consumers are concentrated in a
certain region or locality.
‡ 4 $3# 0(*#

‡ In this method, only a few potential consumers and users selected

from the relevant market through a sampling method are surveyed.
‡ Method of survey may be direct interview or mailed questionnaire to
the sample-consumers.
‡ This method is generally used to estimate short-term demand from
business firm, government department and agencies and also by the
households who plan their future purchases. ··
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‡  %&,0# $#+!&
‡ This method of demand forecasting has a considerable
theoretical and practical value, especially in forecasting
demand for inputs.
‡ This method requires building up a schedule of probable
aggregate future demand for inputs by consuming industries
and various other sectors.
‡ This method has two exclusive advantages.
‡ First, it is possible to work out the future demand for an
industrial product in considerable details by types and size.
‡ Second, in forecasting demand by this method, it is possible
to trace and pinpoint at any time in future as to where and
why the actual consumption has deviated from the estimated
demand.
·*
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#+!&
‡ The opinion poll methods aim at collecting opinions of those
who are suppose to possess knowledge of the market, i.e., sales
representatives, professional marketing experts and consultants.
This method includes;
‡ Expert-opinion method.
‡ Delphi Method.
‡ Market studies and experiments.
‡  53#(,!3%!% $#+!&
‡ The estimates of demand can obtain from different regions are
added up to get the overall probable demand for a product.
‡ The firms are not having this facility; gather similar
information about the demand for their products through the
professional markets experts or consultants, who can, through
their experience and expertise, predict the future demand. This
is called opinion poll method. ·o
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‡ 4 |#3+
#+!&
‡ This method of demand forecasting is an extension of the
simple expert opinion poll method.
‡ Under this method, the experts are provided information on
estimates of forecasts of their experts along with the
underlying assumptions.
‡ The experts may revise their own estimates in the light of
forecasts constitutes the final forecast.
‡ 
(6# 0&# %& #53#($#%
‡ It is an alternative method of collecting necessary
information regarding demand is to carry out market studies
and experiments on consumer's behavior under actual,
though controlled, market conditions.
‡ This method is known in common parlance as market
experiment method. ·†
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‡ 7  
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‡ This method is utilizes historical (time-series) and data for
estimating long-term demand. This method is considered
superior techniques of demand forecasting for the following
reasons:
‡ ÷
 

 

   

   
‡ 
  

  

‡ 

  


  


‡ ÷
 
 

 

‡ Statistical methods of demand projection include the
following techniques;
± Trend Projection Methods.
± Barometric Methods.
± Econometric Method. ·
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‡    
‡ Supply of a good refers to the various quantities of the good which a
seller is willing and able to sell at different prices in a given market, at
a particular point of time, other things remaining the same.
‡ Supply is related to scarcity.
‡ It is only the scarce goods which have a supply price.
‡ On the other hand, goods which are available freely have no supply
price, i.e., air is available freely and hence does not have supply price.
‡ The law of supply states that other things remaining the same, more of
a good are supplied at a higher price and less of it is supplied at a
lower price.
‡ The law of supply takes into account only the most important
determinant of supply, viz., the price of the good.
‡ So, the supply function is; Sx = f(Px), other things remaining the
same,
‡ where, Sx = Amount of good X supplied, Px = Price of good X. ·w
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‡     
‡ The followings are the major factors affecting the supply
of the good;
‡ i) Price of the Good.
‡ ii) Prices of other goods.
‡ iii) Prices of factors of Production.
‡ iv) State of Technology.

·Õ
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‡    
‡ Price Elasticity of Supply refers to the percentage change in
quantity supplied due to one percentage change in the price
of that good.
‡ Es = [Percentage change in quantity supplied / Percentage
change in the price]
‡ = [˜Qs/Qs] / [˜P/P] = [˜Qs/˜P] * [P/Qs]
‡ Where,
‡ Qs = Original quantity supplied,
P = Original price,
‡ ˜Qs = Change in quantity supplied,
‡ ˜P = Change in price.
·