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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
001units 4) For each additional Re. Spent on Ads = increase the demand by 0.increase in Price = Demand Decrease by 200 units 2) 1 Re.05 units.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. .
10.00.00.The Case / Situation Price increase by Rs.a2. Answer = 50.00.000 units. .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.a4 = Respective parameters of demand function.000 Per capita income rise by Rs.4.a3.000 Population = 70.00.1. Advertisement = Rs.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.
. Rise in consumers real income when prices are decreased. Substitute products price effect.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.
. 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.Change in .
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. 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. . MRn=TRn-1 or d(TR)/dQ. 1.
E = % change in quantity demanded of good X / % change in determinant Z.Elasticity of Demand Is defined as the percentage change in quantity demanded caused by one percent change in the demand determinant under consideration. E= . while other determinants are held constant.
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. .
Unit elasticity of demand: Where a given proportionate change in price causes an equally proportionate change in quantity. (E=infinite) Absolutely inelastic demand = Where a change in price. . causes no change in quantity demanded.(E=0). however large.Price elasticity of demand Perfectly elastic demand = No reduction in price is needed to cause an increase in quantity demanded.(E=1).
(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.
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). 3. .Types of Income Elasticity 1. 5. 4. 2.
Autonomous demand is more elastic than 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. .Types of demands. 1) Derived Demand .
7. 8. Market segment demand. after enough time is allowed to let the market adjust itself to the new situation. Market demand. Short run demand: Demand with its immediate reaction to price changes. . 6. Long run demand: is which will ultimately exist as a result of the changes in pricing. promotion or product improvement.Types of demand 5.
Electricity. Eg. Government policies. Decision making ± public utilities. Fixing rate of exchange. . Taxation policy. Fixation of Rewards for factors of production.Importance of Elasticity of Demand Level of output &price.
2. . 6. Air conditioners. 1. 5. No demand ± Foreign Language courses for students 3. Negative demand ± Vasectomies.Other types of demand. Irregular demand ± Theme parks. Declining demand ± Applications for arts colleges. Full demand : Applications for MBA. 4. Latent demand ± A degree without writing examinations or attending college.
. Theme parks in summer season. 8. Overfull demand ± Seats for Medical colleges. alcohol. Unwholesome demand ± against cigarettes.7. AIDS. drugs.
under given conditions. Forecast Passive forecasts Active forecasts .Demand Forecasting A forecast is a prediction or estimation of a future situation.
. Financial planning. Fixing suitable price. Deciding on Advertisements and promotional matters. Long Run Forecasts Capital planning Installing production capacity. Manpower planning.Purpose of Forecasting Demand Short Run Forecasts Decide on sales policy Decide on inventory level.
1. 3. Selecting a proper method of forecasting. 2. 4. Interpretation of results. .Steps involved in Forecasting. Determining the nature of goods under consideration. Identification of objective.
Types of commodities for which forecast is to be undertaken 8. Segment forecasting. New product forecasting. 6.Levels of Forecast 1. Industry demand forecasting Firm demand forecasting Product line forecasting. . 5. 7. Miscellaneous factors. 2. 4. 3. Macro economic forecasting.
Population Saturation limit of the market. 7. 3. 4.Determinants for Consumer Durable goods 1. 2. 5. . 6. Income levels of consumers Consumer credit outstanding. Tastes and scales of preference of consumers. Existing stock of the good. Replacement demand Vs new demand.
3. Size & characteristics of population D = f(Yd. Disposable Income.S) .Determinants of Consumer goods 1. 2. Price.P.
5. . Existing stock & its age distribution of the capital goods. 7. 2. 1. Tax provisions on repurchase. Growth possibility of the industry of the particular firm. Rate of obsolescence. Price of Substitute / complementary goods. 9. 3. Financial position of the company. Norm of consumption of capital goods/unit of installed capacity.Determinants for Capital goods. 8. Forecast for consumer goods. Excess capacity in the industry. 6. 4.
Methods of forecasting Forecasting Opinion polling methods Statistical Methods .
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observing it and extrapolating it. . 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. 1) linear trends 2) Non linear trends.
1) moving average 2) Exponential smoothing. . Decomposing a time series: Composed of trend. cyclical movements and irregular variations ± for a long period of time. Smoothing methods: It attempts to cancel ouot the effect of random variations on the values of the series. seasonal fluctuations.
of differences of the original series of inherent trend to be removed. 5 stages 1. Used when inherent pattern of time series exists. .ARIMA METHOD (Box Jenkin) Auto Regressive Integrated Moving Averages. Removal of trend ± those time series does not have a long term trend component. 2. Model Identification: a) Order of involvement of auto regressive terms b) no.
. 4.3. Verification : Goodness of fit using residuals generated. 5. Parameter estimation : Using least square method coefficients are obtained. Forecasting: Using the Coefficients.
Barometric Technique 1. Leading series(indicators) : eg. 4. Lagging Series: Inventory ± Consumer credit outstanding. B) Birth rate ± Demand for school seats. . Coincident series: GNP ± Industrial production. 2.A) Applications for housing loans . 3.Demand for construction material. Diffusion indices indicators.
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. they are expressed as an equation.
Decline. . Test marketing Life cycle segmentation analysis. 3. Introduction. Growth Maturity Saturation.Demand forecasting of new products 1. a) b) c) d) e) Survey of buyer¶s intentions. 2.
. 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. 5. 9. Political disturbances. Cartels 7. 2. Prices of related goods. 3. Technological know how¶s. Prices of factors of production. 4. Producers objectives. To raise price ± supply may be destroyed. 8. Taxation on output. Price of the good. . 6.Determinants of supply 1. 10.
Natural factors ± monsoons. . 2. 3. control. 4.Miscellaneous determinants 1. floods etc. Expectations of the future level of prices. Government procurement / Govt. Inventory.
. Shift in Supply Vs Change in supply.Law of Supply Law of supply states that other things remaining constant. more of a commodity is supplied at a higher price and less of it is supplied at a lower price.
Elasticity of supply 1. 2. 4. 3. ( Es > 1) Formula. . (Es=infinity) Perfectly Inelastic supply. Perfectly Elastic supply. (Es=0) Unitary Elastic supply. (Es=1) Relatively Inelastic supply. 5. (Es < 1) Relatively Elastic supply.
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