Demand Analysis - Commerce Video Lecture

Have you ever wished to have a luxurious
car? That was your desire for the car.
However because of lack of money in your
bank account, you tell yourself I wish I
had the money to buy the car! That is
your Willingness to buy the car. Now say
you get a huge lottery and loads of
money in that situation you will have
the ability to pay for the car. Remember!
The desire for an asset, backed by the
willingness to pay for it, plus the
ability to pay for it all together
constitute to demand. Welcome friends
to the Sagar Raut Channel. In your day to day
life as long as we are willing to pay
for a commodity and have the ability to
pay for it we call it demand. However in
economics such demand is referred to as
direct demand. There are different types
of demands let's have a look at them one
by one. Say you own a factory and produce
washing machines, TV"s, and Cell Phones
These products cannot be produced
without the factors of production like
screws hammers etc. Hence the demand for
screws and hammers is because of the
need to produce a final product like
washing machine. Demand for such goods
which are demanded indirectly for
producing final consumer goods is
referred to as indirect demand or
derived demand.
Have you ever demanded tea? Have you ever
thought that you cannot demand tea without
demanding milk, sugar, tea powder and
water? Which are necessary for making tea.
When two or more Goods are demanded
jointly to satisfy a single want we call
it joint demand. Certain things like
electricity satisfies multiple wants
from lighting a bulb, to charging a
mobile phone when there is demand for a
commodity that satisfies several wants
at a time we call it Composite Demand.
These were certain types of demand.
Friends let me ask you a question
say you go to a store on a regular basis
to purchase three chocolates worth
$10. However one fine day suddenly
the prices of chocolates increases to $20
In such a situation you will buy only
one chocolate instead of three. Why?
Because as the prices of a commodity
goes up, your purchasing power reduces
hence your consumption goes down. We can
show this with the help of a diagram. It
is customary to plot prices on the y
axis and quantity on the x axis. The
demand curve is downward sloping because
it symbolizes a negative relationship
between prices and quantity demanded. The
demand curve shows that as the prices of
the commodity rises from $10 to
$20 the quantity demanded falls
from 3 chocolates to 1. And as the prices
fall the quantity demanded rises. This
behaviour was given by Alfred Marshall in
his book Principles of Economics
Marshall stated that ceteris paribus
meaning, (other things being equal) higher
the price of a commodity smaller the
quantity demanded and lower the price of
a commodity higher the quantity demanded.
This behaviour came to be known as the
Law of Demand.
However we stated other things being
equal. What are those other things?
Factors like population, income,
preferences, substitutes and government
policies should remain the same or
rather we need to make an assumption
that they remain the same. Let us
understand why is necessary to make such
an assumption. If the population of an
economy keeps growing then the quantity
demanded of the commodity will also rise,
even if the prices remain constant or
increase a little. This way the law will
fail to hold. Hence it is important for
us to assume that population in the
economy remains constant. Similarly, if a
person's income increases he could
afford any commodity even when prices
rise.
Hence income is also assumed to be
constant for this law to hold. A person's
preference
should not shift from one commodity to
another. If he prefers ice-cream today and
a few days later starts demanding cake
then one will witness fall in demand for
ice-cream
even if prices remain the same. This
thing happens between different brands
Hence, We assume that preferences remain
the same. If the prices of champagne
Falls then people will stop drinking
whiskey even if the prices of whiskey
remain the same. Hence for the law of demand to
hold it is important that prices of
substitute commodities remain the same.
And last but not the least if the
government reduces taxes then it will
leave more money in the hands of the
people.
Hence they'll buy more of any commodity
even if the prices rise. This way the law
will fail to hold.
Hence, we assume government policies do
not change. These are certain things that
we need to assume if the law of demand
has to hold true. Variations in Demand
When the prices of commodities go up the
quantity demanded falls. This is
Contraction of demand.
Similarly when prices fall, the quantity
demanded rises, this is Expansion in
demand. When the government reduces taxes
it leaves more money in the hands of the
people. This way even if the prices of
the commodity remains same, they can
purchase more of the commodity. This
leads to a rightward shift in the demand
curve and is referred to as increase in
demand.
Similarly, when government increases
taxes it leaves less money in the hands
of the people.
hence, lesser quantity is what at the
same price which leads to a leftward
shift in the demand curve. This is
decrease in demand
Remember friends, Expansion and
Contraction of demand happens across the
demand curve whereas during increase and
decrease in demand either the demand
curve moves a rightward or shifts
leftward. Friends, I hope I have shared
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