Demand analysis
demand function = describes how much of a commodity will be purchased at certain prices of that commodity and related products, alternate income levels & alternative values of other variables affecting demand
Qd=F(Px,Pr,Y,T,E,....)
Determinants of demand = price of the good, price of related goods, consumer income,population,taste .........
elasticity of demand
Price elasticity = percentage change in quantity demanded/percentage change in price = change in Q/Q divide by change in p/p
The elasticity of demand depends on the following factors
Nature of the commodity = necessities being inelastic and luxuries being elastic
range if substitutes
income level
urgency of demand
purchase frequency of a product
possible combination of changes in price & demand
Relatively elastic demand (Ed>1) a small % change in price leading to a larger change in quantity demanded
perfectly elastic demand (Ed=infinite) samll change in price will change the quantity demanded by an infinite amount
Relatively inelastic demand (Ed<1) change in price leads to a smaller percentage change in quantity demanded
unit elastic = p change = quantity change
perfect inelastic = quantity demanded does not change regardless of the % change of the price
demand estimation
Linear Trend Equation