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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
Analyse the demand for refrigerators Parameters 1) 1 Re.05 units. .increase in Price = Demand Decrease by 200 units 2) 1 Re.001units 4) For each additional Re. Spent on Ads = increase the demand by 0. 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.a2.4. .00.00.10.a3. Answer = 50.000 units.00.1.000.The Case / Situation Price increase by Rs.000 Q = a1 P + a2 Y + a3 Pop + a4 A P = Price Y = Per capita income of the consumer Pop = Population A = Advertisement A1.00.00. Advertisement = Rs.000 Population = 70.a4 = Respective parameters of demand function.
Qdx = F(P) Qdx = Quantity demanded of Product.Law of Demand Higher the price lower the quantity demanded and vice versa. other things remaining constant. P = Price .
Exceptions to law of demand Giffen goods Commodities which are used as status symbols Expectations of change in the price of the commodity. .
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. Substitute products price effect. Rise in consumers real income when prices are decreased. .
.Change in . 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.quantity demanded / demand ( Shift of demand curve) Change in quantity demanded: Contraction or Extension of demand curve. Movement along a demand curve caused by a change in the own price of the commodity.
MRn=TRn-1 or d(TR)/dQ. 3 Parts.Revenue concepts It is the sale proceeds of a firm of a good during a particular period of time. 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. . Average Revenue = TR/Q=Q*P/Q=P 3. 1.
E = % change in quantity demanded of good X / % change in determinant Z. 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= .
Types of Elasticity of demand Price elasticity of demand Income elasticity of demand Cross elasticity of demand Promotional elasticity of demand. . Expectations elasticity of demand.
Unit elasticity of demand: Where a given proportionate change in price causes an equally proportionate change in quantity.(E=1).Price elasticity of demand Perfectly elastic demand = No reduction in price is needed to cause an increase in quantity demanded. however large. . causes no change in quantity demanded. (E=infinite) Absolutely inelastic demand = Where a change in price.(E=0).
Relatively elastic demand: Where a change in price causes a more than proportionate change in quantity demanded.(E>1) Relatively inelastic demand: Where a change in price causes a less than proportionate change in quantity demanded. (E<1) .
5. 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). 4. .Types of Income Elasticity 1. 2. 3.
1) Derived Demand . . Firm demand is more elastic than Industry demand. 3) Industry demand 4) Firm demand. Autonomous demand is more elastic than derived demand.Producer¶s goods demand 2) Autonomous Demand ± Consumers goods demand.Types of demands.
Short run demand: Demand with its immediate reaction to price changes. Market demand. Long run demand: is which will ultimately exist as a result of the changes in pricing. . 8.Types of demand 5. 7. Market segment demand. promotion or product improvement. 6. after enough time is allowed to let the market adjust itself to the new situation.
Eg. . Taxation policy.Importance of Elasticity of Demand Level of output &price. Fixation of Rewards for factors of production. Electricity. Decision making ± public utilities. Fixing rate of exchange. Government policies.
4. Declining demand ± Applications for arts colleges.Other types of demand. Irregular demand ± Theme parks. Negative demand ± Vasectomies. . Full demand : Applications for MBA. 5. Latent demand ± A degree without writing examinations or attending college. 1. 2. No demand ± Foreign Language courses for students 3. Air conditioners. 6.
Theme parks in summer season. . AIDS. Overfull demand ± Seats for Medical colleges. drugs.7. alcohol. Unwholesome demand ± against cigarettes. 8.
Forecast Passive forecasts Active forecasts . under given conditions.Demand Forecasting A forecast is a prediction or estimation of a future situation.
.Purpose of Forecasting Demand Short Run Forecasts Decide on sales policy Decide on inventory level. Deciding on Advertisements and promotional matters. Financial planning. Long Run Forecasts Capital planning Installing production capacity. Fixing suitable price. Manpower planning.
3. Identification of objective. Interpretation of results. . 1. 4. Selecting a proper method of forecasting. 2. Determining the nature of goods under consideration.Steps involved in Forecasting.
Industry demand forecasting Firm demand forecasting Product line forecasting. Miscellaneous factors. 3. . 7. Macro economic forecasting. 2. Types of commodities for which forecast is to be undertaken 8. New product forecasting.Levels of Forecast 1. 5. 4. 6. Segment forecasting.
Tastes and scales of preference of consumers. Replacement demand Vs new demand. 5. Income levels of consumers Consumer credit outstanding. 2. Population Saturation limit of the market. Existing stock of the good.Determinants for Consumer Durable goods 1. 3. 7. 4. 6. .
Price. Disposable Income.Determinants of Consumer goods 1. Size & characteristics of population D = f(Yd.S) .P. 3. 2.
Rate of obsolescence. 3. Price of Substitute / complementary goods. Existing stock & its age distribution of the capital goods. 1. 5. 9.Determinants for Capital goods. 4. Forecast for consumer goods. Financial position of the company. Norm of consumption of capital goods/unit of installed capacity. Growth possibility of the industry of the particular firm. 7. 8. Excess capacity in the industry. Tax provisions on repurchase. 2. . 6.
Methods of forecasting Forecasting Opinion polling methods Statistical Methods .
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1) linear trends 2) Non linear trends. . Fitting trend by observation: Involves merely the plotting of annual sales on a graph. 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.
. Smoothing methods: It attempts to cancel ouot the effect of random variations on the values of the series. seasonal fluctuations. Decomposing a time series: Composed of trend. 1) moving average 2) Exponential smoothing. cyclical movements and irregular variations ± for a long period of time.
2.ARIMA METHOD (Box Jenkin) Auto Regressive Integrated Moving Averages. . 5 stages 1. Model Identification: a) Order of involvement of auto regressive terms b) no. of differences of the original series of inherent trend to be removed. Used when inherent pattern of time series exists. Removal of trend ± those time series does not have a long term trend component.
5.3. Parameter estimation : Using least square method coefficients are obtained. Verification : Goodness of fit using residuals generated. . 4. Forecasting: Using the Coefficients.
2. Coincident series: GNP ± Industrial production.A) Applications for housing loans .Barometric Technique 1. Diffusion indices indicators. Lagging Series: Inventory ± Consumer credit outstanding. . B) Birth rate ± Demand for school seats. Leading series(indicators) : eg. 4.Demand for construction material. 3.
. they are expressed as an equation. Econometric models : All economic and demographic variables that influence a future are taken into account and build a cause effect relationship. Regression Equation method ± Once the variables are identified.
Decline. Growth Maturity Saturation. 3. Test marketing Life cycle segmentation analysis.Demand forecasting of new products 1. a) b) c) d) e) Survey of buyer¶s intentions. 2. . Introduction.
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. . at a point of time. other things remaining the same.
9. Producers objectives. 8. Prices of related goods. Cartels 7. Price of the good. Technological know how¶s.Determinants of supply 1. Political disturbances. Taxation on output. Prices of factors of production. 10. 2. 3. 4. To raise price ± supply may be destroyed. 6. Time period. 5. .
Expectations of the future level of prices. . control. Natural factors ± monsoons. Inventory. Government procurement / Govt. 4. 3. floods etc.Miscellaneous determinants 1. 2.
. 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. Perfectly Elastic supply. 3. (Es=infinity) Perfectly Inelastic supply. ( Es > 1) Formula. (Es < 1) Relatively Elastic supply. 2. .Elasticity of supply 1. (Es=0) Unitary Elastic supply. 4. (Es=1) Relatively Inelastic supply.
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