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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
increase in Price = Demand Decrease by 200 units 2) 1 Re. Spent on Ads = increase the demand by 0. 3) Increase of 1 person in population = increases the demand by 0. . Increase in Per capita Income = Demand increase by 100 units.Analyse the demand for refrigerators Parameters 1) 1 Re.05 units.001units 4) For each additional Re.
.4.a2.The Case / Situation Price increase by Rs.00.00.00.000 Population = 70.000 units. Advertisement = Rs.000 Q = a1 P + a2 Y + a3 Pop + a4 A P = Price Y = Per capita income of the consumer Pop = Population A = Advertisement A1.00.10.00.000 Per capita income rise by Rs. Answer = 50.1.a4 = Respective parameters of demand function.a3.000.
other things remaining constant. Qdx = F(P) Qdx = Quantity demanded of Product. P = Price .Law of Demand Higher the price lower the quantity demanded and vice versa.
.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 . 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. .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. Marginal Revenue: Marginal revenue is defined as the change in total revenue when there is a change in quantity sold of the product. 1. Total Revenue (TR=Q*P) 2.Revenue concepts It is the sale proceeds of a firm of a good during a particular period of time. 3 Parts. MRn=TRn-1 or d(TR)/dQ. .
Elasticity of Demand Is defined as the percentage change in quantity demanded caused by one percent change in the demand determinant under consideration. while other determinants are held constant. 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. (E=infinite) Absolutely inelastic demand = Where a change in price. 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=1).(E=0). however large.
(E<1) .(E>1) Relatively inelastic demand: Where a change in price causes a less than proportionate change in quantity demanded. Relatively elastic demand: Where a change in price causes a more than proportionate change in quantity demanded.
Types of Income Elasticity 1. 2. 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. . 4. 3.
Autonomous demand is more elastic than derived demand.Types of demands. 1) Derived Demand . 3) Industry demand 4) Firm demand.Producer¶s goods demand 2) Autonomous Demand ± Consumers goods demand. . Firm demand is more elastic than Industry demand.
6.Types of demand 5. Market segment demand. 8. after enough time is allowed to let the market adjust itself to the new situation. promotion or product improvement. Short run demand: Demand with its immediate reaction to price changes. 7. . Market demand. Long run demand: is which will ultimately exist as a result of the changes in pricing.
Fixing rate of exchange. Decision making ± public utilities. Taxation policy.Importance of Elasticity of Demand Level of output &price. Fixation of Rewards for factors of production. Electricity. Government policies. Eg. .
4. 1. Declining demand ± Applications for arts colleges. Latent demand ± A degree without writing examinations or attending college. Negative demand ± Vasectomies. 5. 6.Other types of demand. . 2. Full demand : Applications for MBA. No demand ± Foreign Language courses for students 3. Air conditioners. Irregular demand ± Theme parks.
Theme parks in summer season. Overfull demand ± Seats for Medical colleges. Unwholesome demand ± against cigarettes. 8. alcohol.7. . AIDS. drugs.
Forecast Passive forecasts Active forecasts . under given conditions.Demand Forecasting A forecast is a prediction or estimation of a future situation.
. Fixing suitable price. Financial planning. Manpower planning.Purpose of Forecasting Demand Short Run Forecasts Decide on sales policy Decide on inventory level. Deciding on Advertisements and promotional matters. Long Run Forecasts Capital planning Installing production capacity.
Interpretation of results. Identification of objective. 2. Determining the nature of goods under consideration. Selecting a proper method of forecasting. 1. 4.Steps involved in Forecasting. . 3.
7. Types of commodities for which forecast is to be undertaken 8. Miscellaneous factors. New product forecasting. Macro economic forecasting.Levels of Forecast 1. Industry demand forecasting Firm demand forecasting Product line forecasting. 4. 5. 3. 2. 6. Segment forecasting. .
Tastes and scales of preference of consumers. 2. Population Saturation limit of the market. . 6. Income levels of consumers Consumer credit outstanding.Determinants for Consumer Durable goods 1. Replacement demand Vs new demand. 7. 5. 4. Existing stock of the good. 3.
Disposable Income. Price.P.S) .Determinants of Consumer goods 1. 3. 2. Size & characteristics of population D = f(Yd.
Determinants for Capital goods. 6. 3. Norm of consumption of capital goods/unit of installed capacity. Tax provisions on repurchase. 8. 1. 7. Existing stock & its age distribution of the capital goods. Growth possibility of the industry of the particular firm. Excess capacity in the industry. Rate of obsolescence. Forecast for consumer goods. 4. Financial position of the company. 5. Price of Substitute / complementary goods. . 9. 2.
Methods of forecasting Forecasting Opinion polling methods Statistical Methods .
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. Fitting trend by observation: Involves merely the plotting of annual sales on a graph. observing it and extrapolating it. 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. 1) linear trends 2) Non linear trends.
. seasonal fluctuations. cyclical movements and irregular variations ± for a long period of time. Decomposing a time series: Composed of trend. 1) moving average 2) Exponential smoothing. Smoothing methods: It attempts to cancel ouot the effect of random variations on the values of the series.
of differences of the original series of inherent trend to be removed. Model Identification: a) Order of involvement of auto regressive terms b) no. Used when inherent pattern of time series exists. 2. Removal of trend ± those time series does not have a long term trend component. 5 stages 1. .ARIMA METHOD (Box Jenkin) Auto Regressive Integrated Moving Averages.
Forecasting: Using the Coefficients. Parameter estimation : Using least square method coefficients are obtained. 5. . Verification : Goodness of fit using residuals generated. 4.3.
. 3. 4. 2. Leading series(indicators) : eg. Coincident series: GNP ± Industrial production. B) Birth rate ± Demand for school seats.Demand for construction material.A) Applications for housing loans . Lagging Series: Inventory ± Consumer credit outstanding. Diffusion indices indicators.Barometric Technique 1.
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.
Introduction. Decline. 3. Test marketing Life cycle segmentation analysis. Growth Maturity Saturation.Demand forecasting of new products 1. a) b) c) d) e) Survey of buyer¶s intentions. 2. .
other things remaining the same. .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.
4. Prices of related goods.Determinants of supply 1. 10. Taxation on output. . 3. 6. 8. Political disturbances. 2. Producers objectives. To raise price ± supply may be destroyed. Prices of factors of production. Technological know how¶s. Price of the good. Time period. Cartels 7. 5. 9.
Expectations of the future level of prices. 3. 4. Government procurement / Govt.Miscellaneous determinants 1. 2. Natural factors ± monsoons. control. . floods etc. Inventory.
more of a commodity is supplied at a higher price and less of it is supplied at a lower price. Shift in Supply Vs Change in supply. .Law of Supply Law of supply states that other things remaining constant.
Elasticity of supply 1. (Es < 1) Relatively Elastic supply. (Es=infinity) Perfectly Inelastic supply. 4. (Es=1) Relatively Inelastic supply. . Perfectly Elastic supply. 5. (Es=0) Unitary Elastic supply. 2. ( Es > 1) Formula. 3.
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