Meaning of Demand

• The demand for a commodity is its quantity which

consumers are able and willing to buy at various prices
during a given period of time. So, for a commodity to have
demand, the consumer must possess willingness to buy it,
the ability or means to buy it, and it must be related to per
unit of time i.e. per day, per week, per month or per year.

• According to Prof. Bober, “By demand we mean the various

quantities of a given commodity or service which
consumers would buy in one market in a given period of
time at various prices or at various incomes or at various
prices of related goods.”
 DETERMINANTS OF DEMAND
• Demand for a commodity depends on a
number of factors. Several factors may affect
the individual demand for a product. Likewise,
the market demand for a product is influenced
by many factors. We shall identify some of the
major determinants of demand as under:
 FACTORS INFLUENCING INDIVIDUAL
DEMAND

• Price of the Products: A larger quantity is demanded at a

lower price than at a higher price.

• ‹Income: A buyer’s income determines his/her purchasing

capacity.

• Tastes, Habits and Preferences: Demand for many goods

depends on the person’s tastes, habits and preferences. Demand
for several products like ice-cream, chocolates, beverages and
so on depends on individual’s tastes. Demand for tea, betel,
cigarettes, tobacco, etc., is matter of habits
• Relative Prices of Other Goods: Substitute and Complementary
Products. How much the consumer would like to buy of a given
commodity, however, also depends on the relative prices of other related
goods such as substitute or complementary goods to a commodity. When a
want can be satisfied by alternative similar goods, they are called
substitutes.
For example, peas and beans, groundnut oil and til oil, tea and coffee,
jowar and bajra, etc., are substitutes of each other. The demand for a
commodity depends on the relative price of its substitutes. If the
substitutes are relatively costly, then there will be more demand for
this commodity at a given price than in case of its substitutes are
relatively cheaper.

• Consumer’s Expectation: A consumer’s expectation about the future

changes in the prices of a given commodity also may affect its demand.
When he expects its prices to fall in future, he will tend to buy less at the
present prevailing low price. Similarly, if he expects its price to rise in
future, he will tend to buy more at present.

• Advertisement Effect: In modern times, the preferences of a consumer

can be altered by advertisement and sales propaganda, albeit to a certain
extent only
 Factors Influencing Market Demand
• ‹Price of the Product: At a low market price, market demand for
the product tends to be high and vice versa.

• ‹Distribution of Income and Wealth in the Community: If there

is equal distribution of income and wealth, the market demand for
many products of common consumption tends to be greater than in
the case of unequal distribution.

• ‹Community’s Common Habits and Scale of Preferences: The

market demand for a product is greatly influenced by the scale of
preferences of the buyers in general.

• General Standards of Living and Spending Habits of the People:

When people in general adopt a high standard of living and are
ready to spend more, demand for many comforts and luxury items
will tend to be higher than otherwise.
• Number of Buyers in the Market and the Growth of
Population: The size of market demand for a product
obviously depends on the number of buyers in the market.

• Future Expectations: If buyers in general expect that

prices of a commodity will rise in future, then present
market demand would be more as most of them would like
to hoard the commodity.

• Level of Taxation and Tax Structure: A progressively high

tax rate would generally mean a low demand for goods in
general and vice versa.

• ‹Inventions and Innovations: Introduction of new goods or

substitutes as a result of inventions and innovations in a
dynamic modern economy tends to adversely affect the
demand for the existing products, which as a result of
innovations, definitely become obsolete.
• Fashions: Market demand for many products is affected by
changing fashions. For example, demand for commodities
like jeans, salwar-kameej, etc., is based on current fashions.

• ‹Climate or Weather Conditions: Demand for certain

products is determined by climatic or weather conditions.
For example, in summer, there is a greater demand for cold
drinks, fans, coolers, etc. Similarly, demand for umbrellas
and raincoats is seasonal. ‹

• Customs: Demand for certain goods is determined by social

customs, festivals, etc. For example, during Dipawali days,
there is a greater demand for sweets and crackers, and
during Christmas, cakes are more in demand.

• Advertisement and Sales Propaganda: Market demand

for many products in the present day is influenced by the
sellers’ efforts through advertisements and sales
propaganda.
 DEMAND SCHEDULE

• A tabular statement of price/quantity relationship is

called the demand schedule. It relates the amount the
consumer is willing to buy corresponding to each
conceivable price for that given commodity, per unit
of time.

• There are, thus, two types of demand schedule:

(i) the individual’s demand schedule, and
(ii) the market demand schedule.
 INDIVIDUAL DEMAND SCHEDULE
• A below list showing the quantities of a commodity that will
be purchased by an individual at each alternative conceivable
price in a given period of time (say per day, per week, per
month or per annum) is referred to as an individual demand
schedule. Table 5.1 illustrates a hypothetical (purely
imaginary) demand schedule of an individual consumer, say
Mr. X for mangoes.
The demand schedule has the following characteristics: ‹

• The demand schedule does not indicate any changes in

demand by the individual concerned, but merely
expresses his present behaviour in purchasing the
commodity at alternative prices.
‹
• It shows only the variation in demand at varying
prices. ‹

• It seeks to illustrate the principle that more of a

commodity is demanded at a lower price than at a
higher one. In fact, most of the demand schedules show
an inverse relationship between price and quantity
demanded
 MARKET DEMAND SCHEDULE
• The demand side of the market is represented by the demand schedule. It is tabular
statement narrating the quantities of a commodity demanded in aggregate by all the
buyers in the market at different prices over a given period of time. A market
demand schedule, thus, represents the total market demand at various prices.
Theoretically, the demand schedule of all individual consumers of a commodity can
be complied and combined to form a composite demand schedule, representing the
total demand for the commodity at various alternative prices

• It is assumed that the market is composed only of three buyers, A, B and C.

• Apparently, the market demand schedule is constructed by the
horizontal additions of quantities at various prices related in
the individual demand schedules. It follows that like individual
demand schedule, the market demand schedule also depicts an
inverse relationship between price and quantity demanded.

• In general, the demand schedule (whether of an individual or

of a market) denotes an inverse functional relationship
between price and quantity demanded. That is to say, when the
price rises, demand tends to fall and vice versa. It refers to the
general tendency of the consumers that more will be bought at
low prices and less will be bought at high prices. This
tendency is described as the fundamental law of demand.
 Demand Forecasting Tools
There are many different ways to create forecasts. Here are five of the
top demand forecasting methods.

1. Trend projection
• Trend projection uses your past sales data to project your future
sales. It is the simplest and most straightforward demand forecasting
method.

• It’s important to adjust future projections to account for historical

anomalies. For example, perhaps you had a sudden spike in demand
last year. However, it happened after your product was featured on a
popular television show, so it is unlikely to repeat. Or your
eCommerce site got hacked, causing your sales to plunge. Be sure to
note unusual factors in your historical data when you use the trend
projection method.
2. Market research
• Market research demand forecasting is based on data from customer surveys. It
requires time and effort to send out surveys and tabulate data, but it’s worth it. This
method can provide valuable insights you can’t get from internal sales data.

• You can do this research on an ongoing basis or during an intensive research period.
Market research can give you a better picture of your typical customer. Your
surveys can collect demographic data that will help you target future marketing
efforts. Market research is particularly helpful for young companies that are just
getting to know their customers.

3. Sales force composite

• The sales force composite demand forecasting method puts your sales team in the
driver’s seat. It uses feedback from the sales group to forecast customer demand.

• Your salespeople have the closest contact with your customers. They hear feedback
and take requests. As a result, they are a great source of data on customer desires,
product trends, and what your competitors are doing.

• This method gathers the sales division with your managers and executives. The
group meets to develop the forecast as a team.
4. Delphi method
• The Delphi method, or Delphi technique, leverages expert opinions on your market
forecast. This method requires engaging outside experts and a skilled facilitator.

• You start by sending a questionnaire to a group of demand forecasting experts. You

create a summary of the responses from the first round and share it with your panel.
This process is repeated through successive rounds. The answers from each round,
shared anonymously, influence the next set of responses. The Delphi method is
complete when the group comes to a consensus.

• This demand forecasting method allows you to draw on the knowledge of people
with different areas of expertise. The fact that the responses are anonymized allows
each person to provide frank answers. Because there is no in-person discussion, you
can include experts from anywhere in the world on your panel. The process is
designed to allow the group to build on each other’s knowledge and opinions. The
end result is an informed consensus.

5. Econometric
• The econometric method requires some number crunching. This technique
combines sales data with information on outside forces that affect demand. Then
you create a mathematical formula to predict future customer demand.

• The econometric demand forecasting method accounts for relationships between

economic factors. For example, an increase in personal debt levels might coincide
with an increased demand for home repair services.