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The quantity of the commodity which an individual consumer or a household is willing to purchase per unit of time at a particular price. Demand for a commodity implies:\ a) Desire of the consumer to buy the product b) his willingness to buy the product c) Purchasing power. Demand for a commodity by all the individuals in the market ± Market demand / aggregate demand.
Factors determining demand
Price of the commodity Income of the consumer Prices of related goods. ( Complementary / Substitutes ) Tastes and preferences. Advertisement Expectations 1) Related to their future income 2) Related to future prices of good and its related goods.
A mathematical expression of the relationship between quantity demanded of the commodity and its determinants. Qdx = F (Px,Y,P1,..Pn-1,T,A,Ey,Ep,u )
Qdx = Quantity demanded of Product. Px = Price of product. Y = Level of House hold income P1..Pn-1 = Prices of other related products T = Tastes of consumer A = Advertising Ey = Consumers expected future income Ep = Consumers expectations about future prices U = other determinants
05 units. Spent on Ads = increase the demand by 0. .001units 4) For each additional Re.increase in Price = Demand Decrease by 200 units 2) 1 Re.Analyse the demand for refrigerators Parameters 1) 1 Re. Increase in Per capita Income = Demand increase by 100 units. 3) Increase of 1 person in population = increases the demand by 0.
000 Per capita income rise by Rs.00.10. .4.000 Q = a1 P + a2 Y + a3 Pop + a4 A P = Price Y = Per capita income of the consumer Pop = Population A = Advertisement A1.000 Population = 70.000 units.The Case / Situation Price increase by Rs.1.00.000.a3.a2.00.a4 = Respective parameters of demand function. Advertisement = Rs.00.00. Answer = 50.
Law of Demand Higher the price lower the quantity demanded and vice versa. P = Price . other things remaining constant. Qdx = F(P) Qdx = Quantity demanded of Product.
Exceptions to law of demand Giffen goods Commodities which are used as status symbols Expectations of change in the price of the commodity. .
. Substitute products price effect. Rise in consumers real income when prices are decreased.Why do demand curves slope downwards? Law of diminishing utility Individual consumer comes to an equilibrium where marginal utility is equal to its price More use.
. Movement along a demand curve caused by a change in the own price of the commodity. Change in demand / Shift of demand curve: Change in factors like Income of the consumer Prices of substitute products % of women going out to work.Change in .quantity demanded / demand ( Shift of demand curve) Change in quantity demanded: Contraction or Extension of demand curve.
Average Revenue = TR/Q=Q*P/Q=P 3. Total Revenue (TR=Q*P) 2. Marginal Revenue: Marginal revenue is defined as the change in total revenue when there is a change in quantity sold of the product. 3 Parts.Revenue concepts It is the sale proceeds of a firm of a good during a particular period of time. . 1. MRn=TRn-1 or d(TR)/dQ.
while other determinants are held constant.Elasticity of Demand Is defined as the percentage change in quantity demanded caused by one percent change in the demand determinant under consideration. E= . E = % change in quantity demanded of good X / % change in determinant Z.
. Expectations elasticity of demand.Types of Elasticity of demand Price elasticity of demand Income elasticity of demand Cross elasticity of demand Promotional elasticity of demand.
Price elasticity of demand Perfectly elastic demand = No reduction in price is needed to cause an increase in quantity demanded. however large. (E=infinite) Absolutely inelastic demand = Where a change in price.(E=1). Unit elasticity of demand: Where a given proportionate change in price causes an equally proportionate change in quantity. causes no change in quantity demanded.(E=0). .
(E>1) Relatively inelastic demand: Where a change in price causes a less than proportionate change in quantity demanded. (E<1) . Relatively elastic demand: Where a change in price causes a more than proportionate change in quantity demanded.
High income elasticity:(Ey>1) Unitary income elasticity (Ey=1) Low income elasticity : (Ey<1) Zero income elasticity : (Ey=0) Negative income elasticity: (Ey<0). 5. 2. . 4. 3.Types of Income Elasticity 1.
3) Industry demand 4) Firm demand. Firm demand is more elastic than Industry demand. . 1) Derived Demand . Autonomous demand is more elastic than derived demand.Types of demands.Producer¶s goods demand 2) Autonomous Demand ± Consumers goods demand.
Market demand. after enough time is allowed to let the market adjust itself to the new situation. 7. Long run demand: is which will ultimately exist as a result of the changes in pricing.Types of demand 5. 8. promotion or product improvement. Short run demand: Demand with its immediate reaction to price changes. Market segment demand. . 6.
Importance of Elasticity of Demand Level of output &price. . Decision making ± public utilities. Taxation policy. Government policies. Electricity. Fixation of Rewards for factors of production. Eg. Fixing rate of exchange.
Declining demand ± Applications for arts colleges. . 1. Full demand : Applications for MBA. 5. Negative demand ± Vasectomies. Latent demand ± A degree without writing examinations or attending college. Irregular demand ± Theme parks. Air conditioners.Other types of demand. No demand ± Foreign Language courses for students 3. 2. 6. 4.
alcohol.7. Unwholesome demand ± against cigarettes. Theme parks in summer season. drugs. . Overfull demand ± Seats for Medical colleges. 8. AIDS.
under given conditions. Forecast Passive forecasts Active forecasts .Demand Forecasting A forecast is a prediction or estimation of a future situation.
Long Run Forecasts Capital planning Installing production capacity. Manpower planning. Financial planning.Purpose of Forecasting Demand Short Run Forecasts Decide on sales policy Decide on inventory level. Deciding on Advertisements and promotional matters. Fixing suitable price. .
4.Steps involved in Forecasting. Determining the nature of goods under consideration. 3. Identification of objective. 2. Selecting a proper method of forecasting. . Interpretation of results. 1.
.Levels of Forecast 1. New product forecasting. 3. Miscellaneous factors. Segment forecasting. Industry demand forecasting Firm demand forecasting Product line forecasting. Types of commodities for which forecast is to be undertaken 8. 4. 2. Macro economic forecasting. 7. 6. 5.
6. 2. Tastes and scales of preference of consumers. 5. . 4. 7. 3. Population Saturation limit of the market. Existing stock of the good. Replacement demand Vs new demand.Determinants for Consumer Durable goods 1. Income levels of consumers Consumer credit outstanding.
Disposable Income.S) . Size & characteristics of population D = f(Yd. 2. Price. 3.P.Determinants of Consumer goods 1.
9. 4. 2. 1. 6. 5. Growth possibility of the industry of the particular firm. Financial position of the company. Existing stock & its age distribution of the capital goods. 3. 8. Excess capacity in the industry. Norm of consumption of capital goods/unit of installed capacity. Tax provisions on repurchase. . Rate of obsolescence. Forecast for consumer goods.Determinants for Capital goods. 7. Price of Substitute / complementary goods.
Methods of forecasting Forecasting Opinion polling methods Statistical Methods .
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Time Series analysis employing Least Square Method: ³Line of best fit´ By statistical methods a trend line is fitted and by extrapolating the trend line for future we get the forecasted sales. observing it and extrapolating it. Fitting trend by observation: Involves merely the plotting of annual sales on a graph. 1) linear trends 2) Non linear trends. .
Smoothing methods: It attempts to cancel ouot the effect of random variations on the values of the series. Decomposing a time series: Composed of trend. seasonal fluctuations. 1) moving average 2) Exponential smoothing. . cyclical movements and irregular variations ± for a long period of time.
Used when inherent pattern of time series exists. 2. Removal of trend ± those time series does not have a long term trend component.ARIMA METHOD (Box Jenkin) Auto Regressive Integrated Moving Averages. of differences of the original series of inherent trend to be removed. . Model Identification: a) Order of involvement of auto regressive terms b) no. 5 stages 1.
Parameter estimation : Using least square method coefficients are obtained. . 4.3. Forecasting: Using the Coefficients. Verification : Goodness of fit using residuals generated. 5.
A) Applications for housing loans .Barometric Technique 1. B) Birth rate ± Demand for school seats. . Coincident series: GNP ± Industrial production. 3. Diffusion indices indicators. 4. 2. Leading series(indicators) : eg. Lagging Series: Inventory ± Consumer credit outstanding.Demand for construction material.
Regression Equation method ± Once the variables are identified. Econometric models : All economic and demographic variables that influence a future are taken into account and build a cause effect relationship. they are expressed as an equation. .
3. a) b) c) d) e) Survey of buyer¶s intentions.Demand forecasting of new products 1. Growth Maturity Saturation. 2. Introduction. . Decline. Test marketing Life cycle segmentation analysis.
. at a point of time.Supply Supply of a commodity refers to the various quantities of the commodity which a seller is willing and able to sell at different prices in a given market. other things remaining the same.
Time period.Determinants of supply 1. Prices of related goods. Producers objectives. Taxation on output. 2. 9. Political disturbances. Prices of factors of production. 4. 6. To raise price ± supply may be destroyed. 5. Technological know how¶s. 8. Cartels 7. 3. Price of the good. 10. .
control. 3.Miscellaneous determinants 1. Natural factors ± monsoons. Expectations of the future level of prices. 4. floods etc. . 2. Government procurement / Govt. Inventory.
Shift in Supply Vs Change in supply. . more of a commodity is supplied at a higher price and less of it is supplied at a lower price.Law of Supply Law of supply states that other things remaining constant.
5. (Es=infinity) Perfectly Inelastic supply. 4. ( Es > 1) Formula. 2. Perfectly Elastic supply.Elasticity of supply 1. . (Es < 1) Relatively Elastic supply. (Es=1) Relatively Inelastic supply. (Es=0) Unitary Elastic supply. 3.
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