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Business Markets - Essay Example

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Business Markets

A distinction made between incomes i.e. the amount of money that a man earns, and real income which means the quantity of goods and the services which he can buy with that amount of money. In times of technical progress, there is a large output of cheap goods. The purchasing power of money increases or it may be said, real income increase. Less money will be needed to purchase the same quantity of goods and the saving of money will be utilized for the purchase of the other good. The demand schedule will have to be recast. Some goods may be eliminated from consumption and instead entirely new goods purchase; demand for some goods will decrease and that for others increase.
Where there is inflation the additional money will add to the purchasing power of the commodity, and the prices will rise but this rise in price is not uniform in case of all goods. People will have to readjust their expenditure: demand for certain things will be reduced and for other stimulated.
Through the instrument of public finance for example by taxing the rich and spending the funds so obtained on the poor, wealth is redistributed. There is a transfer of spending power. This bound to affect demand. Demand for those goods will increases which are purchased by a class whose spending power has increased, and vice versa. The larger if the average household income, greater is the demand for the commodities they consume.
Change in saving.
Demand for goods is affected by a change in the household's propensity to save. Large saving means less money to purchase the goods. The demand will there for decrease.
Change in asset preferences.
It is quit obvious that if a consumer develops the marked liquidity preferences his demand for goods will decrease, because he prefers to keep with him ready cash instead of buying things.
Change in Expectations or Anticipations.
Expectation also brings a change in demand. If prices are expected to rise in future the demand for goods will increases now in the present. Similarly expectation of rising incomes will restrain current purchase and postpone purchases to a future favorable situation.
Change in Conditions of trade.
Demand for every thing is greater in boom even though the prices are rising. On the other hand in time s of depression there is a general slacking of demand.
Change in Price of related goods.
Substitutes
In case of substitutes for example tea and coffee an increase in the consumption of one will lead to a decrease in the consumption of the other. When a decline in the price of one good results in the decline in the demand for another good they are substitutes. Or two goods are substitutes if the demand for one is directly related to the price if other.
Complements
In case of complements for example horse and carriage increases demand for one will ...Show more

Summary

By analyzing the above definition we have calculated that the demand principally changes with the change in its price. The demand of house hold rise when the price of that good falls and the demand will fall when the price of the house hold rise, so there is an inverse relation between demand and the price of the good demanded.
Author : murphyosinski
Business Markets essay example
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