MICROECONOMICS

Demand Analysis and Consumer's Choice

Introduction

*What is demand in economics?

People demand goods and services in an economy to satisfy their wants. All goods and services have wants satisfying capacity which is known as “UTILITY” in economics. Utility is highly subjective concept; it is different from person to person. Utility (level of satisfaction) is measured by means of introspection. By demand for goods and services economists essentially mean is willingness as well as ability of the consumer in procuring and consuming the goods and services. Thus, demand for a commodity or service is dependent upon (a) its utility to satisfy want or desire (b) capability of the prospective consumer to pay for the good or service. In nutshell therefore we can state that -

When desire is backed by willingness and ability to pay for a good ot service then it becomes Demand for the good or service

Learning Objectives

After reading this chapter, you are expected to learn about:

To understand about the concept of utility
To understand about the concept of equi marginal utility
To understand about relationship between Demand and utility theory

Significance of the concept of demand

Demand is one of the most important decision making variables in present globalised, liberlised and privatized economy. Under such type of an economy consumers and producers have wide choice. There is full freedom to both that is buyers and sellers in the market. Therefore Demand reflects the size and pattern of the market. The future of a producer is depends upon the well analysed consumer’s demand. Even the firm dose not want to make profit as such but want to devote for ‘customer services’ or ‘social responsibilities’. That is also not possible without evaluating the consumer’s tastes, preferences, choice etc. All these things are directly built into the economic concept of demand.

The survival and the growth of any business enterprise depends upon the proper analysis of demand for its product in the market. Demand analysis has profound significance to management for day today functioning and expansion of the business. Thus the short term and long term decisions of the management are depend upon the trends in demand for the product. Any rise or fall in demand for the product has to be to find out reasons and revised production plans, technology or change in advertisement, packging, quality etc.

Law of Demand

All other things are being constant if price of a commodity changes then the demand for that commodity also changes. Thus the price is the major determinant of demand

DEMAND FUNCTION Dx= f(Px) ^Px ------------- ^Qdx Rise in Px -----leads to --------------fall in Qdx ---------and vice-versa Fall in Px----------------rise in Qdx If Px is bar----------------------Qdx bar There is inverse or opposite relationship between price and quantity demanded of a commodity.

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Case Study

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	Activity
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