Demand and Demand Determinent

Demand Concept, Business Economics-MBA,M.Com

BEDADURI RAMAMURTHY, Associate Professor, GVIC-Madanapalli, [email protected]. Page 1

Demand

The concept of demand is a critical factor to success of the business and development.

Products and/ or services are purchased and consumed by the desire and wants to the human

beings. This fulfilling we consumed different Products/ services in different price or quantity or

Time. This are changing from one to others, time period and Places. Some of them prefers to

engineering and some them prefers non engineering coerces it is effected to the person desires.

Some preferred to travel in air-condition train and some of them avoiding air- condition train it is

rerating to the person wants. Generally human being tolled demand is a scarcity of consumption

variables; it is not acceptable present economists. Demand for product implies below concepts:

A). desires to buy it,

b). willing to Pay for it,

c). Ability to pay for it, and

d). Given Particular Time and Price.

The Above first three of them Expressing Consumer Desire and Last concept Expressing

Consumer want. In Economic terms desire and want are broad concepts it implies demand of the

product

Demand definition

The demand for anything at a given price is that amount of it, which will be bought at

time at the price. Benham

The demand for a thing is a schedule of the amount that would be willing to purchase at

all possible price at any one instant of time. Prof Meyers

By demand we mean the quantity of a commodity that will be purchased a particular

price and not purely the desire of a thing. Hansen



“Demand we mean that various quantities of given commodity or services which

consumers would buy in one market in a given period of time at various price or at various

income or various prices of related goods”. Bober

Demand means an assortment of quantities of goods that would be purchased particular

time period at a choice of price in a given market. Hibdon

X, y and z were Purchased a cars but x is not traveled and utilized it, he is holding in his

home only for social states. Hear x don’t have a desire to travel in to the car. Y is using a car

regularly with help of fuel. Y utilization of car is supporting to the fuel demand, sometimes fuel

price is rising more than 50% in the actual cost. Y is not paid fuel cost willingly, in this type of

fuel or product or services demand is sufficient. Z is purchased a car through EMI facility in

hypothecation, but he fail to pay the EMI. Z doesn’t have a Purchasing capability for car. In z

case demand is not supporting to the car. The above three factors identified and fulfilling then

only we called Product demand.

Demand function

Demand function is expressing mathematical relation the relation between the quantities

of demand at their determinants factors. The demand function is expressed two ways; there are

individual demand function and market demand function.

Individual demand function is a function of mathematical expression of the Product and/

or services demanded at different price levels, remaining same.

The individual demand function D = F (p)

Hear

D is quantity of demand and

P is Product Price

Market demand function is a mathematical expression of the product and/ or services

demanded at different demand determinants affected in same time and same market.



Demand function is D = f (p),(F p), (Sp), (Cp), (Cp), (C i), (Ch)……..Ext…..

Hear

Quantity of demand is D

Product Price is (p)

Future price Expectation (F p)

Substitution Product Price is (Sp)

Complimentary Product Price is (Cp)

Change in income is (C i)

Change in habit is (Ch)

Demand Determinants Classification

The demand determinants are classified based on the Product/ services demand. This

demand determinants are is classified different categories like Product/ Services Utilization,

customer status, Product Price, Producers Promotion tools and Producer Consumption. Each

classification is effected from different factors in their circumstance.

1. Demand in the Market

Generally we are observing product/services in the market at different places and time

differently. This differentiation is effected from the different factors individually or two or more

Classificationof Demand

Determinants

Demand in theMarket

Product/services

utilization

Consumerstatus

ProducerConsumption

SalesPromotion

toolsProduct Price



at a time. Generally demand in the market is identified some factors like Socio Economic Status

of the market, Population of the market, Sex ratio of the population and Availability of credit.

Socio Economic Status of the market

The customers are living to the society; it is differing from developed, developing and

Un-developed nations. The developed nation’s customer’s perching poverty is high comparing t

o the other. Customer purchasing power is depending on the economy of the market.

Population

Nation product demand is depending on the nation population. Homogeneous and need

and wants quantity demand is depending on the population. Garments are requiring to the people,

if market have huge population quantity consumption is high. India and china consumption of

quantity is high comparing to the Vatican City.

Sex ratio of the population

General consumption of the products/ services is differed from men and women like

cosmetics. The population is comparing to the men and women are different to the one market to

other market. Ultimately quantity of demand is different one market to other market. If women

are less in the market some quantity of consumption is low. It is affected to the market demand.

Availability of credit

Most of the people are living to the more desires but their income standard is low, this

people are having some despairs like own house, car, jewelers and homogeneous products. This

people are required to financial assistance to fulfilling their despairs. This people are purchased

quantity/ services through credit basis. Present most of the peoples are purchased a car or/ and

house through financing (EMI).

2. Product/ services utilization

Product demand crated through Product and/ or services utilization. This product is

demand is determined by the nature of product consumption, like Durable Demand, Perishable

demand, Autonomous Demand, Derived Demand, Short run demand and Long run demand.



Durable products utilization

Durable product or/ and services are consumed demand is depending on the quantity

performance. Education institution services are taken once in a life, it is helpful for endeavors no

need to required same course again in the life. This type of services demand is depending on the

consumers’ priority or availability.

Perishable product utilization

The perishable goods are regular usages products like food related products; this type of

product is mostly preferred to the fresh products because of unpreserved products like milk,

vegetable ext... Perishable goods consumption is reputedly using to the customers, this product

demand is available regularly in the market capability.

Autonomous product utilization

Autonomous demand is product demand, this products are consuming directly without

help of other product. This Product is functioning to the independently to fulfilling consumer

needs. Regular usage independent products are shelter, cloths, ext… The autonomous products

are more requirements in to the day to day human being life.

Derived product utilization

Derived demand is linkage of two products consumption. This products consumption is

depending on the other product. One product demand is depending on the other product

performance. Agricultural land is depending on water and climate, car and petrol.

Short run product utilization

Human being consumptions of the products are different and usage of the products are

differed from one two others. Some products are using short period only like fashion goods,

umbrella, rain coat ext… this type of goods are rising demand short period, like seasonal are

occasional days or celebrations days only.

Long run products utilization

Human beings are using some products and/ or services long period like food related

goods, producer goods, this product or/and services are required continuously and day to day

human being life. These types of goods are having long term demand in the market.



3. Consumer status demand

Consumer means end user of the product or/and services. “Consumer is the king” has

become reality of realization in the new economy. Today business promoters or managers were

concentrating to know the consumer attitude and consumption. Consumer priority of the

consumption of the product is changing continuously because of number of factors are

influencing. The consumer consumption changing factors are Change in income, Change in

habit, Consumer age, Change in level of taxation, Availability of credit, Rate of interest and

transaction, Priority for wither condition and Demonstration Effort.

Change in income

Consumer income is one of the demand determined factor. The consumer consumption is

depending on income, it is effected the consumer demanded a given product. Consumers

purchasing Power affected by per capital income or gross National Product., if income status

changes simultaneously consuming quantity of demand also changing. Generally income is

affected in four ways; there is Positive reaction and Negative reaction.

Consumer income increases, Quantity of Demand also increases.

Consumer income increases, quantity of demand decreases.

Consumer’s income decreases, quantity of demand also decreases.

Consumer’s income decreases, quantity of demand decreases.

Consumer income is affected by the Normal goods and Inferior goods. Normal goods

have positive relation income and quantity of Demand (Income and Demand both increases).

Inferior goods have negative relation on income and quantity of demand (Income and Demand

both Fall down).

Change in habit

Consumer consumption of the quantities is changing some times, because of consumer

habit. The consumer habit is changing from x product from y product, demand of the x product is

increasing and y product demand is reducing simultaneously.



Consumer age

Consumer usage product is depending on the age priority. Most of the consumers are

given priority for fashion comparing to the youth and old age people. Youth people are ready to

use in new model garments and other things comparing to other age peoples.

Level of taxation

Present days Taxation is one of the revenue source of state and central government, it is

also effecting to the product price and consumers consumptions. Generally taxes are imposed by

government in two ways there are indirect tax and direct tax. Indirect tax imposed by the

product and services, it’s effected by the product price. High product price is problem to the

common man to consuming product. The direct tax imposed by government on income, wealth,

ext. The consumers are trying to reducing tax payment, through purchasing or investing tax

exemption investment Products like insurance plans and National Saving plans.

Rate of interest and transaction

Effective Financial plan is supporting to the credit transaction, when it is facing scarcity

of finance. Consumers are also living more desires but limited income. Now consumers are

building financial plan effectively and fulfilling their desire with help of financial institutions.

Consumers are purchasing their desire products through credit transaction but some of them not

preferred because of high interest rate and critical transaction process.

Priority for weather condition

The consumers prefer products are depending on the weather condition, it is changing

seasonal. Some of the products are supporting to the human being weather problems. Based on

that some of the product demands are accruing from weather conditions.

4. Product Price

The product demand consideration, one of the factors is consumer willing to pay the

product price. The producers consider this element, before fixing the product price. Most of the

consumers are preferred to the Product price. It is affected from product demand through

different factors like Product Price, Substitution Product Price and Complimentary Product Price.



Product Price

The consumer product preferences considered different factors based on wants. The price

is one of the factors to consider product priority decision taken by the consumer. Generally

consumers prefer by minimum price maximum quantity. The Most of the firms are delivering

products at consumer conveniently. In general product price and quantity of demand has inverse

relationship. Producers fixing product price by nature of the product, normal products set by the

minimum price and superior product set by the high price.

Substitution Product Price

Substitution means replacement of product for satisfying consumer objectives. Present

scenario competition is high through globalization, each product having substituted product.

Substitution or replacement products are soft drinks, mobile phones, televisions Ext. The

consumer is purchasing product before comparing to the substituted product price, and quality,

prefer to the product in conveniently. Product demand is depending on the substituted product

price also.

Complimentary Product Price

The complimentary product means different products, those goes together with one

objective consideration. Like Coffee powder, Milk and Sugar. The price of the coffee depending

on the above three elements cost, if one or more elements cost increase is effected by the coffee

price. The coffee powder cost increases simultaneously coffee price increase, it affected by the

consumer demanded decision of the coffee or tea.

Future product price expectation

Most of the consumers’ products purchased in advance; they are assuming product price rise

in future. Even investors are purchased through market estimation of different financial

commodities, like Bonds, debentures, gold, real estate properties and shares.

5. Sales Promotion tools

Change in Advertisement

Most of the companies are using sales promotional tools through advertisement. The

companies changing advertisement or brand ambassador is affected to the quantity of sales or

quantity of demand.



6. Producer Consumption

Resources demand is created through consumption this consumption is depending on the

consumers, firm and industry.

Individual demand

Individual demand is demand for quantities of consumed at a given different time and

price levels individual person. The persons consumed quantity is depending on the price factor in

general conditions, it is functioning reverse performance.

For observing customer-1 and gaff the quantity of the Product price is Rs 10/- and Rs 20/-

the customer is consumed 25 quantity. The quantity price is changing Rs 30/- the demand of the

Product is 20. The quantity price is Rs 40/- the demand of the product is 15 and quantity price is

Rs 50/- the demand of the quantity is 10. When the price is changing the demand of the quantity

is changing.

Factors Influencing Individual demand

Price of the product

Individual Income

Taste and Habit

0

10

20

30

40

10 20 30 40 50

Dem

and

of th

e Q

untit

y

Price of the Quntity

Customer-1 demand

0

20

40

60

Dem

and

of th

e Q

untit

y

Customer-2 demand

quntyty ofdemand



Relative Product Performance

Consumers Expectations

Advertising Effect

Segmentation demand

Segment demand is refer to the selected group of people consuming specified quantity at

different Price levels. Here selected group of

people are regional, sex, religion,

occupations/ profession, nation ext… this

factors are effected to the product demand

differently one two others. Consumed

Products are changing one nation to other

nation or regional ext… For observing

engineers segment quantity of consumption

is different from one customer and other

customers. At the price level Rs 10/-, the customer -1, 2 and 3 are demanded 25 quantities.

Quantity Price level Rs 20/-, demanded at 25, 30 and 25 quantities respectively.

The quantity Price level Rs 30/-, demanded at 20, 35 and 25 quantities. The quantity price

is Rs 40/-, demanded 15, 40 and 25 quantities. The quantity of price Rs 50/-, customers

demanded at 10, 40 and 25 quantities. All customers prefer their quantity demand in differently

at different price level. We observing all engineering customers demand is called engineers

segment demand at given price level.

0

50

100

150

10 20 30 40 50

Administatersigmentation

S. No.Price

level

Engineers quantity of

Consumed Total

C-1 C-2 C-3

1 10 25 25 25 75

2 20 25 30 25 80

3 30 20 35 25 80

4 40 15 40 25 80

5 50 10 40 25 65





Advertising Effect

Segmentation demand


















0

50

100

10 20 30 40 50

Others Sigmentation

0

20

40

60

80

100

10 20 30

S. No.Price

level


Consumed Total

C-1 C-2 C-3

1 10 25 25 25 75

2 20 25 30 25 80

3 30 20 35 25 80

4 40 15 40 25 80

5 50 10 40 25 65





Advertising Effect

Segmentation demand


















30 40 50

S. No.Price

level


Consumed Total

C-1 C-2 C-3

1 10 25 25 25 75

2 20 25 30 25 80

3 30 20 35 25 80

4 40 15 40 25 80

5 50 10 40 25 65



The engineers’ segmentation is given quantity of demand different price level at different

quantity. The quantity price level Rs 10/-, given 75 quantity of demanded. The quantity price

level Rs 20/-, 30/- and 40/-, given 80 quantities or demanded. Individual demand is different

form market demand in given price sometimes.

For observing other segmentation (administration and others segmentations) segment it is

changing from one to others quantity of demanded. It is not a condition to demanded quantity

performance different or same. Sometimes it may be different or same in segmentation

performance.

Market demand

The market demand is a total horizontal of individual demand from the quantity

consumed at given price level. It is affected from the group of peoples consumed

product/services at different price level. The groups of people are covered by the number of

consumers or/and available different segmentation people in the market.

S. NoPrice

Levels

Quantity sold

TotalEngineers Administrators Others

C-1 C-2 C-3Tot

alC-4 C-5 C-6 Total C-7 C-8 C-9 Total

1 10 25 25 25 75 35 40 25 100 35 35 20 90 265

2 20 25 30 25 80 30 35 25 90 35 30 20 85 255

3 30 20 35 25 80 25 30 20 75 30 25 20 75 215

4 40 15 40 25 80 20 25 15 60 25 20 20 65 180

5 50 10 40 25 65 15 10 10 35 20 15 15 50 130

020406080

100

10 20 30

Engineers sigmentation










performance.

Market demand





S. NoPrice

Levels

Quantity sold


C-1 C-2 C-3Tot


1 10 25 25 25 75 35 40 25 100 35 35 20 90 265

2 20 25 30 25 80 30 35 25 90 35 30 20 85 255

3 30 20 35 25 80 25 30 20 75 30 25 20 75 215

4 40 15 40 25 80 20 25 15 60 25 20 20 65 180

5 50 10 40 25 65 15 10 10 35 20 15 15 50 130

40 50

Engineers sigmentation

0

50

100

150

10 20 30

Administater sigmentation










performance.

Market demand





S. NoPrice

Levels

Quantity sold


C-1 C-2 C-3Tot


1 10 25 25 25 75 35 40 25 100 35 35 20 90 265

2 20 25 30 25 80 30 35 25 90 35 30 20 85 255

3 30 20 35 25 80 25 30 20 75 30 25 20 75 215

4 40 15 40 25 80 20 25 15 60 25 20 20 65 180

5 50 10 40 25 65 15 10 10 35 20 15 15 50 130

40 50

Administater sigmentation



For observing to the Market demand is a combination of all customers or all

segmentation. Sometimes it may be equal to the any customer or segmentation in quantity of

demand curve from graphic representations. The administrative Market segmentation and others

segmentation is similar in the market demand curve from graphical representation but customers

prefer demanded quantity is defer from market demand.

Factors Influencing Segmentation Demand

Factors influencing Market Demand

Distribution of Income or Wealth in the Community

Community Common Habit

Standers of People

Number of Byers in the Market

Age Structure and Gender Factor of the People

Level of Taxation

Climate or weather Conditions

Consumers Psychology

Firm consumption

The firm consumed quantity is called firm consumption. If the firm consuming more

quantity the quantity of demand is high or less consumed the quantity of demand is less.

0

20

40

60

80

100

10 20 30 40 50

Others Sigmentation

0

100

200

300

10 20 30 40 50

Market Demand



Industry Demand

Industry demand means all forms consumed quantity is called industry consumed. If all

firms are consuming more quantity the demand is high or lee quantity is consumed the demand is

less.

Reference

1. Atmanand, Managerial Economics,Paper-2, School of distance Education, Bharathiar

University, Coimbatore, Excel Book Private limited, 2007

2. www. Extension.iastate.edu/agdm/May 2007

Economy & Finance

Demand and Demand Determinent