IndiaMART, which made market debut in July, has seen the steepest rally in its share price.
Reasons for Increase and Decrease in Demand!
Now, if the other things, that is, determinants of demand other than price such as consumers’ tastes and preferences, income, price of the related goods change, the whole demand curve will change. When due to the changes in these other factors, the demand curve shifts upwards, increase in demand is said to have occurred.
Increase in demand means the consumer buys more of the good at various prices than before. For example, if the income of a consumer increases, or if the fashion for a goods increases, the consumer will buy greater quantities of the goods than before at various given prices.
What is an Overallotment / Greenshoe Option?
As a result the whole demand curve will shift upward, flow considers Figure 7.
In the beginning, the demand curve is DD. If there is a favorable change in the factors determining the demand and the demand curve for the goods shift upward to D’D’, increase in demand has occurred. It will be clear from the Figure 7. that when the demand curve for the goods is DD, then the price OF, OM quantity of the goods is demanded, but with the demand curve D’D’, at the same price OP, a greater quantity OH is demanded.
Likewise, at other prices also, at the demand curve D’D’, more quantity is demanded than at the demand curve DD. We have explained above how the increase in demand takes place.
The role of direct listings
In brief increase in demand occurs due to the following reasons:-
(i) The fashion for a goods increases or people’s tastes and preferences become more favourable for the good;
(ii) Consumer’s income increases.
(iii) Prices of the substitutes of the goods in question have risen.
(iv) Prices of complementary goods have fallen.
(v) Propensity to consume of the people has increased and
(vi) Owing to the increase in population and as a result of expansion in market, the number of consumers of the goods has increased.
If there is any above change, demand will increase and the demand curve will shift to an upward position.
Now, take the question of decrease in demand. Whereas the contraction in demand implies the fall in quantity demanded as a result of rise in price, decrease in demand means the whole demand curve shifts to a lower position.
In other words, decrease in demand means that at various prices, less is demanded than before. The decrease in demand does not occur due to the rise in price but due to the changes in other determinants of demand.
Market Demand Curve. How do we sum individual demand curves?
Decrease in demand may occur due to the following reasons:
(i) A goods has gone out of fashion or the tastes of the people for a commodity have declined.
(ii) Incomes of the consumers have fallen.
(iii) The prices of the substitutes of the commodity have fallen.
(iv) The prices of the complements of that commodity have risen and
(v) The propensity to consume of the people has declined. In other words, the propensity to save has increased.
Increase and decrease in demand is depicted in Figure 7. In this figure DD is the demand curve for the goods in the beginning.
If due to the above reasons the demand for the goods declines, the whole demand curve will shift below. In figure 7 as a result of the decrease in demand, demand curve has shifted below to the position D”D”.
It is now clear from the figure that when the demand curve shifts below from DD to D”D”, at price OP, quantity demanded decreases from OM to OL.
A glance at the demand curve D”D” will reveal that at prices other than Op also, less quantity of the good is demanded at the demand curve D”D” than at the demand curve DD.