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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
3) Increase of 1 person in population = increases the demand by 0.05 units.001units 4) For each additional Re.Analyse the demand for refrigerators Parameters 1) 1 Re. Increase in Per capita Income = Demand increase by 100 units.increase in Price = Demand Decrease by 200 units 2) 1 Re. Spent on Ads = increase the demand by 0. .
1. Advertisement = Rs.00.The Case / Situation Price increase by Rs.00.4.a4 = Respective parameters of demand function. .000. Answer = 50.000 Q = a1 P + a2 Y + a3 Pop + a4 A P = Price Y = Per capita income of the consumer Pop = Population A = Advertisement A1.10.00.000 Population = 70.00.000 units.00.a3.000 Per capita income rise by Rs.a2.
other things remaining constant. P = Price .Law of Demand Higher the price lower the quantity demanded and vice versa. 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.
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. Substitute products price effect.
quantity demanded / demand ( Shift of demand curve) Change in quantity demanded: Contraction or Extension of demand curve.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. . Movement along a demand curve caused by a change in the own price of the commodity.
Average Revenue = TR/Q=Q*P/Q=P 3. Total Revenue (TR=Q*P) 2. 3 Parts. . Marginal Revenue: Marginal revenue is defined as the change in total revenue when there is a change in quantity sold of the product.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.
E = % change in quantity demanded of good X / % change in determinant Z. E= .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.
.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.
Price elasticity of demand Perfectly elastic demand = No reduction in price is needed to cause an increase in quantity demanded. causes no change in quantity demanded. Unit elasticity of demand: Where a given proportionate change in price causes an equally proportionate change in quantity.(E=0). (E=infinite) Absolutely inelastic demand = Where a change in price.(E=1). . 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.
. 2. 5.Types of Income Elasticity 1. 4. 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.
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. 1) Derived Demand .Types of demands.
8. Long run demand: is which will ultimately exist as a result of the changes in pricing. Market segment demand. 7. after enough time is allowed to let the market adjust itself to the new situation. promotion or product improvement. .Types of demand 5. Market demand. 6. Short run demand: Demand with its immediate reaction to price changes.
Decision making ± public utilities. Government policies. . Electricity. Fixing rate of exchange. Eg.Importance of Elasticity of Demand Level of output &price. Taxation policy. Fixation of Rewards for factors of production.
5. Negative demand ± Vasectomies. 6. Latent demand ± A degree without writing examinations or attending college. 1. Full demand : Applications for MBA. No demand ± Foreign Language courses for students 3. 4. Irregular demand ± Theme parks. 2. .Other types of demand. Declining demand ± Applications for arts colleges. Air conditioners.
AIDS. drugs. alcohol. Overfull demand ± Seats for Medical colleges. . 8. Unwholesome demand ± against cigarettes. Theme parks in summer season.7.
Forecast Passive forecasts Active forecasts .Demand Forecasting A forecast is a prediction or estimation of a future situation. under given conditions.
. Fixing suitable price. Financial planning. 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. Deciding on Advertisements and promotional matters.
Determining the nature of goods under consideration. Interpretation of results. 1. 2. 3. . Identification of objective. Selecting a proper method of forecasting.Steps involved in Forecasting. 4.
. Miscellaneous factors. Industry demand forecasting Firm demand forecasting Product line forecasting. 5. Segment forecasting. 7.Levels of Forecast 1. 4. Macro economic forecasting. New product forecasting. 2. Types of commodities for which forecast is to be undertaken 8. 6. 3.
Population Saturation limit of the market. 7. 4. Income levels of consumers Consumer credit outstanding. Existing stock of the good. 3. 6. .Determinants for Consumer Durable goods 1. Replacement demand Vs new demand. 2. 5. Tastes and scales of preference of consumers.
Disposable Income. Size & characteristics of population D = f(Yd.S) . 3. Price.Determinants of Consumer goods 1. 2.P.
Financial position of the company. 5. 1. Growth possibility of the industry of the particular firm. 8.Determinants for Capital goods. 2. Excess capacity in the industry. Rate of obsolescence. 3. Existing stock & its age distribution of the capital goods. Price of Substitute / complementary goods. Forecast for consumer goods. 6. Tax provisions on repurchase. 4. 9. 7. Norm of consumption of capital goods/unit of installed capacity. .
Methods of forecasting Forecasting Opinion polling methods Statistical Methods .
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. observing it and extrapolating it. 1) linear trends 2) Non linear trends. 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. Fitting trend by observation: Involves merely the plotting of annual sales on a graph.
. 1) moving average 2) Exponential smoothing. Decomposing a time series: Composed of trend. Smoothing methods: It attempts to cancel ouot the effect of random variations on the values of the series. seasonal fluctuations. cyclical movements and irregular variations ± for a long period of time.
Model Identification: a) Order of involvement of auto regressive terms b) no. Used when inherent pattern of time series exists. Removal of trend ± those time series does not have a long term trend component. . of differences of the original series of inherent trend to be removed.ARIMA METHOD (Box Jenkin) Auto Regressive Integrated Moving Averages. 5 stages 1. 2.
5.3. Parameter estimation : Using least square method coefficients are obtained. Forecasting: Using the Coefficients. 4. Verification : Goodness of fit using residuals generated. .
4. . Diffusion indices indicators. 3.Barometric Technique 1.Demand for construction material. Coincident series: GNP ± Industrial production. 2. Lagging Series: Inventory ± Consumer credit outstanding.A) Applications for housing loans . Leading series(indicators) : eg. B) Birth rate ± Demand for school seats.
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.
2.Demand forecasting of new products 1. Decline. Growth Maturity Saturation. Test marketing Life cycle segmentation analysis. Introduction. a) b) c) d) e) Survey of buyer¶s intentions. . 3.
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. To raise price ± supply may be destroyed. Prices of related goods. Prices of factors of production. Taxation on output. Price of the good. Producers objectives. 4. Cartels 7. Technological know how¶s. 9. 10. 2. 6. Political disturbances. . 3. 8.Determinants of supply 1.
2. Expectations of the future level of prices. Government procurement / Govt. control. Natural factors ± monsoons. Inventory. 4. . floods etc.Miscellaneous determinants 1. 3.
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. . Shift in Supply Vs Change in supply.
2. ( Es > 1) Formula. Perfectly Elastic supply. (Es < 1) Relatively Elastic supply. 5. (Es=0) Unitary Elastic supply.Elasticity of supply 1. . (Es=infinity) Perfectly Inelastic supply. 3. (Es=1) Relatively Inelastic supply. 4.