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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
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.05 units.increase in Price = Demand Decrease by 200 units 2) 1 Re.Analyse the demand for refrigerators Parameters 1) 1 Re.001units 4) For each additional Re.
The Case / Situation Price increase by Rs.a4 = Respective parameters of demand function.000 Per capita income rise by Rs.00.1. .00. Answer = 50.4.000 units.10.000. Advertisement = Rs.a2.000 Q = a1 P + a2 Y + a3 Pop + a4 A P = Price Y = Per capita income of the consumer Pop = Population A = Advertisement A1.00.000 Population = 70.00.a3.00.
Qdx = F(P) Qdx = Quantity demanded of Product. other things remaining constant.Law of Demand Higher the price lower the quantity demanded and vice versa. 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.
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.
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.Change in . .quantity demanded / demand ( Shift of demand curve) Change in quantity demanded: Contraction or Extension of demand curve.
. 1. 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. MRn=TRn-1 or d(TR)/dQ.Revenue concepts It is the sale proceeds of a firm of a good during a particular period of time. 3 Parts.
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= .
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. .
(E=infinite) Absolutely inelastic demand = Where a change in price. .(E=1).(E=0). causes no change in quantity demanded. however large.Price elasticity of demand Perfectly elastic demand = No reduction in price is needed to cause an increase in quantity demanded. Unit elasticity of demand: Where a given proportionate change in price causes an equally proportionate change in quantity.
Relatively elastic demand: Where a change in price causes a more than proportionate change in quantity demanded. (E<1) .(E>1) Relatively inelastic demand: Where a change in price causes a less 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. . 3. 2. 4.Types of Income Elasticity 1.
3) Industry demand 4) Firm demand. Firm demand is more elastic than Industry demand.Producer¶s goods demand 2) Autonomous Demand ± Consumers goods demand. . Autonomous demand is more elastic than derived demand. 1) Derived Demand .Types of demands.
Market demand. after enough time is allowed to let the market adjust itself to the new situation. Market segment demand.Types of demand 5. . Short run demand: Demand with its immediate reaction to price changes. Long run demand: is which will ultimately exist as a result of the changes in pricing. 7. 8. promotion or product improvement. 6.
Eg. Fixation of Rewards for factors of production.Importance of Elasticity of Demand Level of output &price. . Electricity. Decision making ± public utilities. Fixing rate of exchange. Taxation policy. Government policies.
Full demand : Applications for MBA. Latent demand ± A degree without writing examinations or attending college. Negative demand ± Vasectomies.Other types of demand. Irregular demand ± Theme parks. 5. 6. Declining demand ± Applications for arts colleges. Air conditioners. No demand ± Foreign Language courses for students 3. . 4. 2. 1.
. Overfull demand ± Seats for Medical colleges. AIDS. alcohol. 8. Unwholesome demand ± against cigarettes.7. drugs. Theme parks in summer season.
Forecast Passive forecasts Active forecasts .Demand Forecasting A forecast is a prediction or estimation of a future situation. under given conditions.
Deciding on Advertisements and promotional matters. Financial planning. Long Run Forecasts Capital planning Installing production capacity. .Purpose of Forecasting Demand Short Run Forecasts Decide on sales policy Decide on inventory level. Manpower planning. Fixing suitable price.
Selecting a proper method of forecasting. . 1. 2. 3.Steps involved in Forecasting. Determining the nature of goods under consideration. Identification of objective. Interpretation of results. 4.
Levels of Forecast 1. 6. Macro economic forecasting. . 3. New product forecasting. Industry demand forecasting Firm demand forecasting Product line forecasting. 5. Miscellaneous factors. 4. 2. Segment forecasting. Types of commodities for which forecast is to be undertaken 8. 7.
Tastes and scales of preference of consumers. 3. Population Saturation limit of the market. . Existing stock of the good. Replacement demand Vs new demand.Determinants for Consumer Durable goods 1. 7. 4. 2. 6. 5. Income levels of consumers Consumer credit outstanding.
Price. Disposable Income. Size & characteristics of population D = f(Yd.P. 2.Determinants of Consumer goods 1. 3.S) .
Excess capacity in the industry.Determinants for Capital goods. Norm of consumption of capital goods/unit of installed capacity. 3. 1. Forecast for consumer goods. 4. Rate of obsolescence. Price of Substitute / complementary goods. Tax provisions on repurchase. 5. 7. Existing stock & its age distribution of the capital goods. Financial position of the company. 8. 9. 6. 2. . Growth possibility of the industry of the particular firm.
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. .
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. 1) moving average 2) Exponential smoothing. Decomposing a time series: Composed of trend. seasonal fluctuations. .
2. 5 stages 1. 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. Model Identification: a) Order of involvement of auto regressive terms b) no.
3. Parameter estimation : Using least square method coefficients are obtained. Forecasting: Using the Coefficients. Verification : Goodness of fit using residuals generated. 4. . 5.
A) Applications for housing loans . 4. 2.Barometric Technique 1.Demand for construction material. Lagging Series: Inventory ± Consumer credit outstanding. Leading series(indicators) : eg. Diffusion indices indicators. 3. . Coincident series: GNP ± Industrial production. B) Birth rate ± Demand for school seats.
they are expressed as an equation. . 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.
. 2. Test marketing Life cycle segmentation analysis. 3. Growth Maturity Saturation. a) b) c) d) e) Survey of buyer¶s intentions. Introduction.Demand forecasting of new products 1. Decline.
other things remaining the same. . 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.
Technological know how¶s. Producers objectives. 10. Political disturbances. Cartels 7. To raise price ± supply may be destroyed. Taxation on output. Price of the good. 5. Time period.Determinants of supply 1. 3. Prices of related goods. 4. Prices of factors of production. 6. 9. 2. 8. .
3. 2. Expectations of the future level of prices. 4. . Natural factors ± monsoons. control. Inventory.Miscellaneous determinants 1. floods etc. Government procurement / Govt.
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. Shift in Supply Vs Change in supply. .
2. Perfectly Elastic supply. (Es < 1) Relatively Elastic supply. ( Es > 1) Formula. (Es=infinity) Perfectly Inelastic supply.Elasticity of supply 1. (Es=0) Unitary Elastic supply. . 4. 5. 3. (Es=1) Relatively Inelastic supply.
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