Distinguish between New and Replacement Demand, Total Market and Market Segments, and Autonomous and Induced Demand.

New and Replacement Demand:

If the purchase or acquisition of an item is meant for maintaining the old stock of capital/asset intact it is replacement demand. If the purchase of an item is meant as an addition to stock it is a new demand. Replacement expenditure is to overcome depreciation in the existing stock. This distinction has reference mostly to the durable-use producer’s goods like machines.

The demand for spare parts of a machine is replacement demand, but the demand for the latest model of a particular machine is a new demand. In course of pregentive maintenance and breakdown maintenance, the engineer express their replacement demand, but when a new process or a new technique or a new product is to be introduced, there is always a new demand.

Replacement demand is induced by the quantity and quality of the existing stock, new demand is of an autonomous type.

Total Market and Market Segmented Demand:

Different individual buyers together may represent a given market segment and several market segments together may represent the total market. The distinction takes care of different patterns of buying behaviour and consumer’s preference in different segments of the market. Such market segments may be defined in terms of criteria like location, age, sex, income, nationality and so on:

Different segments of the market may be represented by different regions/ zones, different uses of the product, different distribution channels etc. Each of these segments may differ with respect to delivery prices, net profit margins, element of competition, seasonal pattern and cyclical sensitivity.

Autonomous and Induced Demand:

When the demand for a product is tied to the purchase of some present product, its demand is called induced or derived. The demand for all producer’s goods is derived or induced. Even the complimentary items the demand for butter may be induced by the purchase of the bread.

Autonomous demand is not derived or induced. Unless a product is totally independent of the use of other product. In the present world of dependence there is hardly any autonomous demand. Even then all direct demands may be loosely called autonomous.

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