Economics is the social science that describes the factors that determine the production, distribution and consumption of goods and services.
Demand means the quantity of goods and services which consumers would buy in a market at a given time and price.In order to change desire into demand ,it is essential that the consumer should have both willingness and ability to pay for it.
If the market response to a product is negative, it shows that people are not aware of the features of the service and the benefits offered. Under such circumstances, the marketing unit of a service firm has to understand the psyche of the potential buyers and find out the prime reason for the rejection of the service.
For example: if passengers refuse a bus conductor’s call to board the bus. The service firm has to come up with an appropriate strategy to remove the misunderstandings of the potential buyers. A strategy needs to be designed to transform the negative demand into a positive demand.
If people are unaware, have insufficient information about a service or due to the consumer’s indifference this type of a demand situation could occur. The marketing unit of the firm should focus on promotional campaigns and communicating reasons for potential customers to use the firm’s services. Service differentiation is one of the popular strategies used to compete in a no demand situation in the market.
At any given time it is impossible to have a set of services that offer total satisfaction to all the needs and wants of society. In the market there exists a gap between desirables and the availables. There is always a search on for better and newer offers to fill the gap between desirability and availability. Latent demand is a phenomenon of any economy at any given time, it should be looked upon as a business opportunity by service firms and they should orient themselves to identify and exploit such opportunities at the right time.
For example a passenger traveling in an ordinary bus dreams of traveling in a luxury bus. Therefore, latent demand is nothing but the gap between desirability and availability.
Some services do not have an all year round demand, they might be required only at a certain period of time. Seasons all over the world are very diverse. Seasonal demands create many problems to service organizations, such as:- idling the capacity, fixed cost and excess expenditure on marketing and promotions.
Demand function is defined as the relationship between demand for a commodity and its determinants. It can be expressed as:
Where,Dx=Demand for X-Commodity
Px=Price of X-commodity
Y=Income of the consumer
Pr=Price of related goods
T=Taste and Preference of the consumer
Linear demand function:
A demand function is said to be linear when the slope of the demand curve remains constant throughout its length.The simplest form of a linear demand function is given by the equation,
In this equation ,The alphabet ’a’denotes total demand at zero price and ‘b’ a constant ,denotes slope of the demand curve .
Non-linear demand function:
A demand function is said to be non-linear or curvilinear when the slope of a demand curve changes all along the demand curve.A non-linear demand function,generally,takes the form of a power function as
Four determinants of demand:
The four determinants of demand are as follows:
- Price of a commodity
- Income of the consumer
- Price of related goods
- Size and composition of population
law of demand:
Demand for a commodity increases with the fall in price and decreases with the rise in price.There is inverse relationship between price and quantity demanded for a commodity.This inverse relationship between price and quantity demanded is called law of demand.
Normal good is a good whose demand increases with an increase in income and decrease with a decrease in income of the consumer.There is positive relationship between income and demand.
When demand for a commodity increase with the decrease in income and decreases with the increase in income of the consumer.The good is called inferior goods.
When two or more commodities are demanded simultaneously for the satisfaction of a particular want ,they are called complementary goods .
For example,car and petrol,tea and sugar,etc.
Substitute goods are those goods which compete with each other and which can be used interchangeably,like Mayos and Waiwai ,Pepsi and Coke.
A demand schedule is a table which shows the relationship between the price of a commodity and its quantity demanded.
Movement along demand curve:
If demand for a commodity changes due to the change price of the same commodity,it can be shown by the different point on the same demand curve which is called movement along demand curve.It is also called change in quantity demanded.
Extension in demand:
When the demand for a commodity goes up due to fall in price of the same commodity, other things remaining constant it is referred to as an extension in demand. This results in downward movement along the same demand curve.
Contraction in demand:
When the demand for a commodity decreases due to rise in price of the same commodity, other things remaining constant it is referred to as a contraction in demand. This results in upward movement along the same demand curve.
Shift in demand curve:
If demand for a commodity changes due to change in other factor keeping its price constant,the entire demand curve move either rightward or leftward,it is called shift in demand curve or change in demand.
Causes for shifting demand curve:
The following are the causes of shift in demand curve:
- Change in income of the consumer.
- Change in the price of substitute goods and complementary goods.
- Change in taste and preference of the consumer.
- Change in size and composition of population.
Increase in demand:
When more quantities of a commodity are demanded due to the favourable change in other factors, ie. Income of the consumer,price of the related goods,etc,it is referred to as increase in demand.This results in the demand curve for the commodity shifting rightwards.
Causes of increase in demand:
The following are the main causes of increase in demand:
- Increase in income of the consumer.
- Rise in price of the substitute goods.
- Fall in price of the complementary goods.
- Expectation of further rise in price.
Decrease in demand:
As the quantity demanded falls due to unfavourable change in other factors, i.e. income of the consumer,price of related goods,etc., it is referred to as decrease in demand.This results in the demand curve for the commodity shifting leftwards.
Causes of decrease in demand:
The following are the causes of decrease in demand:
- Decrease in income of the consumer.
- Fall in price of the substitute goods.
- Rise in price of the complementary goods.
- Expectation of further fall in price.
Individual demand curve:
An individual demand curve is a curve that shows different quantities of a commodity demanded by an individual consumer at different prices. It is the graphical representation of individual demand schedule.
Market demand curve:
Market demand curve is a curve that represents the aggregate demand of all the consumers in the market at different prices of a particular commodity.It is horizontal summation of individual demand curves.
This is the foundation of an economic theory claiming that an increase in aggregate demand will ultimately cause an increase in total output in the long run. This is based on a hypothetical sequence of events where an increase in demand will, in effect, stimulate an increase in supply (within resource limitations). This stands in opposition to the common neo-classical theory that demand follows supply, and consequently, that supply determines growth in the long run.