Demand analysis is a research done to estimate or find out the customer demand for a product or service in a particular market. Demand analysis is one of the important consideration for a variety of business decisions like determining sales forecasting, pricing products/services, marketing and advertisement spending, manufacturing decisions, expansion planning etc. Demand analysis covers both future and retrospective analysis so that they can analyse the demand better and understand the product/service’s past success and failure too.
For a new company, the demand analysis can tell whether a substantial demand exists for the product/service and given the other information like number of competitors, size of competitors, industry growth etc it helps to decide if the company could enter the market and generate enough returns to sustain and advance its business.
The Law of Demand states that when the price of a commodity falls, its demand increases and when the price of a commodity rises, its demand decreases; other things remaining constant. Thus, there exists an inverse relationship between price and quantity demanded of a commodity. The functional relationship between price and quantity demanded can be represented as Dx = f(Px).
It is a statement in the form of a table that shows the different quantities in demand at different prices. There are two types of Demand Schedules:
- Individual Demand Schedule
- Market DemandSchedule
Individual Demand Schedule
It is a demanding schedule that depicts the demand of an individual customer for a commodity in relation to its price. Let us study it with the help of an example.
|Price per unit of commodity X (Px)||Quantity demanded of commodity X (Dx)|
The above schedule depicts the individual demand schedule. We can see that when the price of the commodity is ₹100, its demand is 50 units. Similarly, when its price is ₹500, its demand decreases to 10 units.
Thus, we can conclude that as the price falls the demand increases and as the price raises the demand decreases. Hence, there exists an inverse relationship between the price and quantity demanded.
Individual Demand Curve
It is a graphical representation of the individual demand schedule. The X-axis represents the demand and Y-axis represents the price of a commodity.
The above demand curve shows the demand for Gasoline. When the price of gasoline is $3.5 per litre, its demand is 50 litres and when the price is $0.5 per litre, its demand is250 litres.
Market Demand Schedule
It is a summation of the individual demand schedules and depicts the demand of different customers for a commodity in relation to its price. Let us study it with the help of an example.
|Price per unit of commodity X||Quantity demanded by consumer A (QA)||Quantity demanded by consumer B (QB)||Market Demand QA + QB|
The above schedule shows the market demand for commodity X. When the price of the commodity is ₹100, customer A demands 50 units while the customer B demands 70 units.
Thus, the market demand is 120 units. Similarly, when its price is ₹500, Customer A demands 20 units while customer B demands 30 units.
Thus, it’s market demand decreases to 40 units. Thus, we can conclude that whether it is the individual demand or the market demand, the law of demand governs both of them.
Market Demand Curve
It is a graphical representation of the market demand schedule. The X-axis represents the market demand in units and Y-axis represents the price of a commodity.