2014-mng 609-demand analysis 1.ppt

8/9/2019 2014-MNG 609-Demand Analysis 1.ppt

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ManagerialEconomics

[MGT609] Trupti MishraShailesh J Mehta School OfManagementIIT Bom a!


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"eman#$ %a& of "eman# "eman# Sche#ule$"eman# 'ur(e$"eman#

)unction

)actors a*ecting "eman# 'hange$Shift in the "eman# Suppl!$ %a& of Suppl! Suppl! Sche#ule$Suppl! 'ur(e$Suppl! )unction )actors a*ecting Suppl! 'hange$Shift in the Suppl! Mar+et E,uili rium

"eman# -nal!sis


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What is demand?

- relation sho&ing the ,uantities of a goo#that consumers are &illing an# a le to u!at (arious prices per perio#. other things

constant/

"eman# 1ants 2 3ee#s


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Law of Demand

4elationship et&een 5rice an# ,uantit!#eman#e# is an economic la&/

The ,uantit! of a goo# #eman#e# perperio# relates in(ersel! to its price. otherthings constant/


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Exception to Law of Demand

2 Gi*en Goo#s2 e len E*ect2 5re#iction2 "emonstration e*ect2 Share Mar+et2 Insigni7cant proportion of Income spent2 Goo#s &ith 3o su stitute


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Demand Schedule and DemandCurve

In#i(i#ual point on #eman# cur(e $ sche#ule sho&s ,uantit!#eman#e# an# entire #eman# cur(e$sche#ule sho&s #eman#/


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Factors In uencing Demand

5rice of goo# or ser(ice (P) Incomes of consumers (M) 5rices of relate# goo#s 8 ser(ices (P R )

Taste patterns of the consumer T: E;pecte# future price of pro#uct (Pe) 3um er of consumers in mar+et (N)


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Variable Relation to Qd Sign of Slope Parameter P Inverse b = Qd/ P is negative

M Direct for normal goodsInverse for inferior goods

PR Direct for substitutesInverse for complements

d = Qd/ PR is positive

d = Qd/ PR is negative

T Direct e = Qd/ T is positive

Pe Direct f = Qd/ Pe is positive

N Direct g = Qd/ N is positive


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Variable Relation to Qd Sign of Slope Parameter P Inverse b = Qd/ P is negative

M Direct for normal goodsInverse for inferior goods

PR Direct for substitutesInverse for complements

d = Qd/ PR is positive

d = Qd/ PR is negative

T Direct e = Qd/ T is positive

Pe Direct f = Qd/ Pe is positive

N Direct g = Qd/ N is positive


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Demand Function

Demand function sho&s relation et&een 5 8


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Mar+et "eman#

Mar+et #eman# is the sum of all in#i(i#ual#eman#s at each possi le priceGraphicall!. in#i(i#ual #eman# cur(es are

summe# hori=ontall! to o tain the mar+et#eman# cur(e/


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Change in the Demand Curve

Change in -uantit. demandedOccurs &hen price changesMo(ement along #eman# cur(e

Change in demandOccurs &hen one of the other (aria les. or determinants ofdemand . changes"eman# cur(e shifts right&ar# or left&ar#


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Change in the Demand Curve


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Shifts in Demand

Q d0 ?.?0

0@00?00

$uantit.

' r

i c e

& / u p e e s

(

900

P

A00 >00 ?.>00

?.A00

?0

0

A0

C0

>0

60

@0

D0

D0

D1

D2

"eman#increase

"eman##ecrease


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?@

Price of

Cigarettes,per Pack.

Number of CigarettesSmoked per Day

0 0

4s/00

" ?

-

A tax that raisesthe price ofcigarettes resultsin a movements alongthe demand curve.

'

?

4sC/00

1 2ovement 1long the DemandCurve


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?D

Do Soaring 'rice and 2ounting Demand inIndian old 2ar3et Spea3 of a 'aradox


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?9

Suppl.

Suppl! of a goo#s refers to the (arious,uantities of the goo# &hich a seller is&illing an# a le to sell at a #i*erentprices in a gi(en mar+et. at a particularpoint of time/

%a& of Suppl!

The la& of suppl! states that. otherthings e,ual. the ,uantit! supplie#of a goo# rises &hen the price of thegoo# rises/


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0

Factors In uencing Suppl.

5rice of goo# or ser(ice (P)Input prices (PI )5rices of goo#s relate# in pro#uction (Pr)

Technological a#(ances (T)E;pecte# future price of pro#uct (Pe)3um er of 7rms pro#ucing pro#uct (F)


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23

- Suppl! function. or suppl!. sho&s relation et&een P 8Q s &hen all other (aria les are hel# constant

Q s = g(P)

Suppl! Sche#ule2 The suppl! sche#ule is a ta le that sho&s the

relationship et&een the price of the goo# an# the,uantit! supplie#/

Suppl! 'ur(e

2The suppl! cur(e is a graph of the relationshipet&een the price of a goo# an# the ,uantit!

supplie#/

Suppl. Function


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24

Suppl. Schedule4 Example

>A/00C/>0A/00

?/>0??/0000/>000/00


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26

>A/00

00/>0

00/00

A5rice of Ice2cream'one 4s:

2ar3et suppl. Schedule

D

0

0

B

?A

C/>0

A/00

?/>0

??/00

6

C

0

?0

@

C

?

0

0

Market

F


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2!

S 0

S 2

S 1

Suppl!#ecrease

Q s0 @00?00 900A00 >00

?0

0

A0

C0

>0

60

@0

D0

$uantit.

' r

i c e

& /

u p e e s

(

P

Suppl!increase

Shifts in Suppl.


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2"

!"ili#ri"m refers to a situation in &hich theprice has reache# the le(el &here ,uantit!supplie# e,uals ,uantit! #eman#e#/

E,uili rium price 8 ,uantit! are #etermine#! the intersection of #eman# 8 suppl! cur(es

-t the point of intersection. Q d = Q s

'onsumers can purchase all the! &ant 8pro#ucers can sell all the! &ant at the

mar+et2clearingH price

2ar3et E-uili#rium


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3#

-t 4s /00. the ,uantit! #eman#e# is e,ual tothe ,uantit! supplie#

Demand Schedule Supply Schedule

E-uili#rium


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31

#$uilibriumprice

Demand

Supply

4s/00

5 6 7++

Equilibrium

#$uilibrium$uantity

$uantit. ofIce;Cream

Cones

'rice of

Ice;Cream

Cone

:87 9 * < = 77

>he E-uili#rium of Suppl. andDemand


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32

E-uili#rium

S"r$l"s1hen price e,uili rium price. then ,uantit! supplie# ,uantit! #eman#e#/ There is e;cess suppl! or a surplus/ Suppliers &ill lo&er the price to increase sales. there !

mo(ing to&ar# e,uili rium/S%orta&e

1hen price K e,uili rium price. then ,uantit! #eman#e# the ,uantit! supplie#/ There is e;cess #eman# or a shortage/ Suppliers &ill raise the price #ue to too man! u!ers

chasing too fe& goo#s. there ! mo(ing to&ar#e,uili rium/


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33

Demand

Supply

/00

5 6 7++ uantity of!ce"Cream

Cones

Price of!ce"Cream

Cone

:87 9 * < = 77

/>0

Surplus

QuantityDemanded

QuantitySupplied

Excess Suppl.


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34

Demand

Supply

/00

5 6 7++ uantity of!ce"Cream Cone

Price of!ce"Cream

Cone

:87 9 * < = 77

?/>0

Shortage

QuantitySupplied

QuantityDemanded

Excess Demand


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35

" ?

Supply

4s/00

5 7++ uantity of!ce"Cream Cone

Price of!ce"Cream

Cone

:87 9 * < 77

"

4s />0

?/ Lot &eather increases the#eman# for ice cream

/ resultingin a higherprice

A/ an# a higher,uantit! sol#/

3e&e,uili rium

Initiale,uili riu

m

ow an Increase Demand 1@ectsthe E-uili#rium


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36

Demand

S ?

4s/00

7++ uantity of!ce"Cream

Cones

Price of!ce"Cream

Cone

:87 9 < 77

S

4s/>0

?/ - technical failure re#ucesthe suppl! of ice cream

/ resultingin a higherprice

A/ an# a lo&er,uantit! sol#/

e!equilibrium

Initialequilibrium

ow a Decrease Demand1@ects the E-uili#rium


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3

" ?

S ?

+ uantity of!ce"Cream Cone

Price of

!ce"CreamCone

Q 7

"

%argeincrease in#eman#

P

S

Q 2

3e&e,uili riu

m

Small#ecrease insuppl!

Initial e,uili riumP?

1 Shift in Aoth Suppl. andDemand


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3!

" ?

S ?

+ uantity of!ce"Cream Cone

Price of

!ce"CreamCone

Q 7

"

%arge

#ecrease insuppl!

P

S

Q 8

3e&e,uili riu

m

Smallincrease in#eman#

!nitiale$uilibrium

P ?

1 Shift in Aoth Suppl. andDemand


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3"

1hen #eman# 8 suppl! shift simultaneousl!

'an pre#ict either the #irection in &hich pricechanges or the #irection in &hich ,uantit!

changes. ut not oth

The change in e,uili rium price or ,uantit! issai# to e in#eterminate &hen the #irection ofchange #epen#s on the relati(e magnitu#es !&hich #eman# 8 suppl! shift

Simultaneous Shifts


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What appens to 'rice and$uantit. when Suppl. or DemandShifts?

2014-mng 609-demand analysis 1.ppt

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