🧭 Introduction

1. Understanding how and why consumers make purchasing decisions is fundamental to managerial economics and marketing strategy.
2. Consumer Demand Analysis is the study of how individual preferences, incomes, and prices interact to influence purchasing behaviour.
3. It provides the theoretical and analytical tools to examine how consumers allocate their limited resources among various goods and services.
4. For managers, economists, and policy-makers, analysing demand goes beyond observing trends—it involves understanding the underlying motivations, behavioural patterns, and economic principles that govern consumption.
5. This knowledge forms the basis for pricing decisions, product development, market segmentation, and strategic planning.

📖 1. Utility Analysis

Utility refers to the satisfaction or benefit a consumer derives from consuming a product or service. It forms the foundation of consumer demand analysis.

• Total Utility: Overall satisfaction from consuming all units.

• Marginal Utility: Additional satisfaction from consuming one more unit.

• Law of Diminishing Marginal Utility: As more units are consumed, the marginal utility of each additional unit decreases.

Understanding utility helps businesses determine which products offer the highest value to consumers.

📖 2. Indifference Curve Analysis

Indifference curve analysis is a more refined tool for understanding consumer behavior. It is based on ordinal utility, where consumers rank preferences rather than assigning numerical values.

• Indifference Curve: Shows combinations of two goods that provide equal satisfaction.

• Budget Line: Represents all combinations a consumer can afford.

• Consumer Equilibrium: Achieved where the budget line is tangent to an indifference curve.

This method helps understand consumer choice, substitution effect, and income effect more precisely than utility analysis alone.

📖 3. Law of Demand

The Law of Demand states that, ceteris paribus (all else being equal), as the price of a product decreases, the quantity demanded increases, and vice versa.

• This inverse relationship is due to the substitution effect and income effect.

• Demand curves typically slope downward from left to right.

This principle is critical for pricing decisions, market entry, and policy analysis.

📖 4. Demand Elasticity Analysis

Elasticity measures how sensitive demand is to changes in key variables:

• Price Elasticity of Demand (PED): % change in quantity demanded / % change in price.

• Income Elasticity of Demand: Impact of income changes on demand.

• Cross Elasticity of Demand: Impact of the price of related goods on demand.

Understanding elasticity is crucial for setting prices, forecasting revenue, and estimating tax impact.

📖 5. Demand Forecasting

Demand forecasting involves predicting future demand based on historical data, market trends, and analytical models.

• Quantitative methods: Time series analysis, regression analysis.

• Qualitative methods: Expert opinion, market research, Delphi method.

Forecasting is vital for inventory planning, production scheduling, budgeting, and strategic decisions.