THEORY OF DEMAND

MEANING OF DEMAND

Demand is generally defined as the number of buyers willing to buy over a specified period at a given price. This is called effective demand in economics.

• Demands are desires/want backed by money.
• Demand = desire + ability to pay + will.
• It is always related to price and time.
• Example; a household needs 5 kg of oranges per week at Rs. 50 per kg.

DEFINITION OF DEMAND

The quantity of a product that will be purchased per unit of time at a particular price is called its demand.

INDIVIDUAL DEMAND TO MARKET DEMAND

INDIVIDUAL DEMAND:

Demand comes from individuals, families, or households. One individual consumes.

MARKET DEMAND:

In other words, it refers to the total demand of all buyers combined. A product's volume demand is the total of all the quantities demanded at a given price over a period of time. This is the sum of each individual demand. From a business perspective, market demand is more important than sales.

The demand curve in economics shows the relationship between the price of a certain commodity and the amount that consumers are willing to and can purchase at the given price. A demand curve is an example of a demanding schedule. The demand curve for all consumers together follows from the demand curve of each individual consumer.

DEMAND CURVE

DEMAND FUNCTION

At any given point in time, the quantity of a given product purchased by consumers depends on several factors.

• Own price of the product (P)
• Price of supplementary goods (Ps) and complementary goods (Pc)
• Level of disposable income (Ya)
• Change in tastes & preferences (T)
• Change in several buyers. (N)

Dx= f (Px, Ps, Pc, Yd, T, A, N)

where, x= Commodity

Dx= amount of qty demands

          Px = price of x.

LAW OF DEMAND

According to the Law of Demand, when all other factors remain constant, the quantity demanded for a product falls as its price increases ( ); conversely, when the price decreases, the quantity demanded rises ( ).

The law of demand refers to the inverse relationship between price and quantity of demand. Price and quantity of demand are negatively related.

Other than the price of the product, the remaining factors are assumed to be constants.

EXCEPTIONS OF LAW OF DEMAND

GIFFEN GOODS:

Even if their price decreases, the demand for these inferior goods will fall.

EXPECTATIONS OF CHANGE IN PRICE:

The demand for goodwill increases if households expect that the price of a commodity will increase (in the future). In such a situation, the law of supply is inapplicable.

BASIC OR NECESSITY GOODS:

There are some necessities, such as milk for babies, medicines, etc., whose consumption cannot be avoided or reduced. These goods are required regardless of price fluctuations. Price increases or price decreases do not affect the quantity demanded for such a good.

DETERMINANTS OF DEMAND

For an organization to assess and analyze individual and market demand, they should have a good understanding of demand and its determinants.

• A product's price is:

Demand is greatly affected by it. A product's price and quantity demanded are inversely related.

EXAMPLE:

A consumer prefers to purchase a product in large quantities only if its price is low.

• Consumer income:

Demand is determined by this factor. In turn, a consumer's income affects his/her purchasing power, which affects the demand for a product. While other factors remain constant, an increase in income would increase demand for products by him/her. Using the income – demand relationship as an example, goods can be grouped into: –

• Essential or basic consumer Goods.

Everyone consumes these goods (oil, soap, food grains, clothes, etc.). Demand for such goods increases as income increases, but to a fixed limit, while other factors remain constant.

• Normal Goods:

With an increase in income, demand for these goods increases. A consumer would purchase wheat and rice over millet with an increase in income, for example. Millet will become inferior to wheat and rice. However, both of these foods can be found in low-income households.

• Inferior Goods:

As income increases, demand increases. Vehicles and food items are relatively more in demand as income increases.

• Luxury Goods:

With an increase in consumer income, demand increases. Consumers use luxury goods for pleasure and esteem. Examples include expensive jewelry, luxury cars, antique paintings, etc.

• Consumer tastes and preferences:

They influence individual and market demand for a product heavily. Lifestyles, customs, common habits, fashion changes, etc. affect them. Changes in such factors alter tastes and preferences, resulting in a reduction in consumption of old products.

• Price of Related Goods:

A specific good's demand will be affected by the price of its related goods.

• Goods substituted

The goods satisfy the same needs of consumers at different prices. Examples include tea and coffee, bajra and jowar. Increasing the price of a good will increase the demand for its substitute.

• Complementary Goods

Cal and petrol are used simultaneously or in combination, like pen and ink. Their relationship is inverse. The price of petrol decreases the demand for cars.

• Expectations of consumers

The short-term demand for a product is affected by consumer expectations about future price changes. The demand for petrol will increase now if consumers expect the price of petrol to rise in the next week. In contrast, consumers will delay purchasing products whose prices are expected to drop in the future.

EXPANSION & CONTRACTION

• Variations in demand indicate an expansion or contraction of demand. Expansion or contraction of demand is the result of a change in price.
• This is a movement along the same demand curve due to changes in price.
• The diagram shows that the demand increases from point a to b and then decreases to point c as a result of price changes.

INCREASE & DECREASE IN DEMAND

• Changes in demand occur as a result of conditions/factors other than price determining demand.
• Therefore, a change in demand implies an increase or decrease in demand with a constant price.
• An increase/decrease in demand signifies that more or less will be demanded at a given price. An increase in demand is represented graphically by shifting the demand curve to the right, while a decrease in demand is represented by shifting the demand curve to the left.
• Some causes include changes in income, tastes, and preferences, as well as the demand for substitute and complementary goods.

CONCLUSION

In today's scenario, both producers and consumers rely heavily on the study of demand. Consumers must know the value of the product they want to buy, as this informs them about the product's worth, which enables them to use their resources efficiently.

Knowing this is important for producers because they can produce according to the demand and price of the products in the markets, meet the changing tastes of consumers, so they can achieve equilibrium by maximising profits.

NOKIA CASE STUDY

INTRODUCTION

The Nokia Corporation was founded in 1865 as a multinational telecommunications, information technology, and consumer electronics company. Nokia's headquarters are located in Espoo, in the greater Helsinki metropolitan area. Nokia employed about 50,000 people in 2017. We employ 122,000 people in over 100 countries, do business in more than 130 countries, and report annual revenue of roughly 23 billion euros. The New York Stock Exchange and Helsinki Stock Exchange both list Nokia. By 2016 revenues, it was the 415th largest company in the world, according to the Fortune Global 500 index, and it is a part of the Euro Stock 50 index.

NOKIA’S DEMAND OVERVIEW

• Nokia differentiates devices based on price points.
• Pricing is heavily influenced by competitor prices, e.g., the smartphone segment typically has a price bracket.
• Different device segments have different demand depending on geography, local taxes, distribution chain, etc.
• A smartphone (high segment) has a higher margin than a low-end phone.

NOKIA: DEMAND CURVE

• Nokia shipped 83.7 million handsets worldwide in Q2 2012, down – 5% annually but up + 1% sequentially.
• Mobile phone handset demand is expected to grow even more in the future.
• Typical demand curve of Nokia looks like:
• On the overall demand curve of mobile phones, Nokia tries to capture multiple price points.
• The prices of mobile phones can be differentiated based on target segments of consumers.
• EXAMPLE: 600€ phone for developed markets, and 100€ phone for emerging markets.

NOKIA: DEMAND FACTORS

• Nokia phones are in demand due to the following factors:
• Each phone's price point.
• Price of substitute goods (e.g., laptops, PDAs, tablets, etc.)
• The level of advertising expenditure
• (For example, accessories, etc.)
• Consumers' disposable income.
• External microeconomic factors (e.g., inflation, IT boom, etc.)
• Tastes and preferences of consumers
• Changes in population.
• Consumers’ expectations.
• Cost and availability of credit.

DEMAND ANALYSIS OVERVIEW

In order to analyze Nokia's mobile phone demand, the following is necessary:

Forecasting sales

Planned production

Financial planning and cost analysis (per segment)

Strategies for pricing

Advertisement costs

Inventory and Resource Management

DEMAND

The demand curve is downward sloping

The demand for a good or service is determined by the consumer's desire to purchase it

According to the law of demand, when the price of a commodity increases, the demand for it will decrease.

CERTIFICATE

This is to certify that the present project report is the outcome of my efforts, and my indebtedness to other works/publications has been duly acknowledged at the relevant places.

It had not been submitted in part or full for any other diploma or degree of any University.

Teacher’s                                                                                                                                                 Examiner’sSignature                                                                                                                                                 SignatureACKNOWLEDGMENT

My economics teacher helped me greatly in analyzing the topic - DEMAND. The course clarified my concepts, enhanced my knowledge, and made me realize the importance of the SAME

The CBSE gave me an opportunity to do this project and gave me suitable guidelines to prepare it.

ACKNOWLEDGMENT

I am very thankful to my economics teacher for helping me analyze the Topic - DEMAND. The experience made my concepts clear, enhanced my knowledge, and made me realize the significance of the Same

Additionally, I am grateful to the CBSE for giving me the opportunity to do this project and for providing guidelines for preparing it.

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