ECONOMICS PROJECT GROUP C

INDEX•Demand Analysis• Indifference Curve•Consumer Surplus•Utility•How To Maximize Utility

DEMAND ANALYSIS

-SIDDHANT BHATTACHARYA -SHREYANSH SINGH

-AVIJIT JAIN

What is demand??????

It is the quantity which a consumer is willing to buy at a particular price and at a particular time.

Law Of Demand•The price and the product has a inverse relationship with the quantity demanded if other factors are considered constant.

D=a-bP

WHY?

•Higher price makes you feel poorer• Income effect•Higher price on one good,

substitute other goods.•Substitution effect

Demand Schedule• The demand schedule is a table of the quantity

demanded of a good at different price levels.

Demand Curve• It is a graphical representation of a demand schedule.

Qd

0 1 2 3 4

2

1.5

1

.5D

Shift in demand curveShift Towards right – demand increasesShift Towards left – demand decreases

Factors Affecting Demand

• Income• Prices of related goods• Buyer expectations•Nature of the product• Preferences• Price• Government policy• Advertisement

• Price of related goods

• Substitutes Qd

For e.g. :-

• If price of coke rises,• people switch to water• increase in demand for water

• If price of coke falls,• people switch from water

to Snapple• decrease in demand for water

•Complimentary Qd

For e.g. :-• If price of pretzels rises•eat fewer pretzels, so drink less water,•Demand for water falls

Demand Elasticity(Ed)• The demand elasticity refers to how sensitive the

demand for a good is to changes in other economic variables. Demand elasticity is important because it helps firms model the potential change in demand due to changes in price of the good, the effect of changes in prices of other goods and many other important market factors. A firm grasp of demand elasticity helps to guide firms toward more optimal competitive behavior. Elasticity greater than one are called "elastic," elasticity less than one are "inelastic," and elasticity equal to one are "unit elastic.“

TYPES Price IncomeCross

Price Elasticity Of Demand• It is the percentage change in quantity demanded in

response to percent change in price.

• Types

- Perfectly elastic demand

- Relatively elastic demand

- Elastic demand

- Relatively inelastic demand

- Perfectly inelastic demand

Perfectly Elastic Demand Condition: E(d)= ∞

Perfectly Inelastic Demand Condition: E(d)=0

Relatively Elastic Demand Condition: 1<E(d)< ∞

Relatively Inelastic Demand Condition: 0<E(d)<1

Unit Elastic Demand Condition: E(d)=1

Income Elasticity Of Demand

• It is the percentage change in quantity demanded in response to percent change in income.

• Types

- Positive

- Negative

- Zero

Positive Elasticity

• A positive income elasticity of demand is associated with normal goods; an increase in income will lead to a rise in demand. If income elasticity of demand of a commodity is less than 1, it is a necessity good. If the elasticity of demand is greater than 1, it is a luxury good or a superior good.

Negative Elasticity

•A negative income elasticity of demand is associated with inferior goods; an increase in income will lead to a fall in the demand and may lead to changes to more luxurious substitutes.

Zero Elasticity

• A zero income elasticity of demand occurs when an increase in income is not associated with a change in the demand of a good. These would be sticky goods

Cross Elasticity Of Demand• It is the percentage change in quantity

demanded in response to percent change in related goods

• Types

- positive

- negative

Positive Elasticity•  A high positive cross-price elasticity tells us that if

the price of one good goes up, the demand for the other good goes up as well.

Negative Elasticity• A negative tells us just the opposite, that an increase

in the price of one good causes a drop in the demand for the other good.

Demand Forecasting• Demand forecasting is the activity of estimating the

quantity of a product or service that consumers will purchase. Demand forecasting involves techniques including both informal methods, such as educated guesses, and quantitative methods, such as the use of historical sales data or current data from test markets. Demand forecasting may be used in making pricing decisions, in assessing future capacity requirements, or in making decisions on whether to enter a new market or not.

Methods of Demand Forecasting

- Survey1. Consumer interviews

2. Opinion poll

3. Experts opinion

- Statistical 4. Trend analysis

5. Regression analysis

INDIFFERENCE CURVE

-CHONIK -SANDEEP SAMRAT

-PRIYAM SURAI

Agenda •Definition.•Properties of Indifference curve.•Marginal utility.•Consumer equilibrium.• Indifference schedule.• Indifference map. • Indifference set.•Effects of Indifference curve .

Indifference Curve Definition : - An indifference curve is a graph showing

combination of two goods that give the consumer equal satisfaction and utility. Each point on an indifference curve indicates that a consumer is indifferent between the two and all points give him the same utility.

Graphically, the indifference curve is drawn as a downward sloping convex to the origin. The graph shows a combination of two goods that the consumer consumes.

The graph shown in the above slide shows the ‘U’ indifference curve showing bundles of Maggi and yippee. To the consumer, bundle A and B are the same as both of them give him the equal satisfaction. In other words, point A gives as much utility as point B to the individual. The consumer will be satisfied at any point along the curve assuming that other things are constant.

Properties Of Indifference Curve

o Indifference curves are negatively sloped.

o Indifference curves are convex to the origin.

o Indifference curve can never intersect each other.

o Higher level of Indifference curve represent the higher level of satisfaction.

o Direction of the curve and price line is same.

o The IC must touch the budget line/price line.

Consumer Equilibrium A consumer equilibrium is a situation in which a person get maximum

satisfaction. UTILITY :- The capacity of sure satisfaction is called utility. TOTAL UTILITY :- It’s the sum of total of utility derived from the

consumption of all units of a

commodity. BUDGET LINE :- It refers to attainable combinations of set of two

commodity at given prices of commodity

and income of the consumer.

At the Equilibrium point , Slope of Indifference Curve=Slope of price line.

Slope of Indifference Curve = M.R.S.

Slope of Price line=PX/PY. So, M.R.S = PX/PY.

Thus, satisfaction is maximized when the marginal rate of substitution of X and Y is just equal to the price of X to the

Price of Y .

Indifference Schedule Indifference schedule is a list of various list of

commodities which are equally satisfactory to the consumer concerned .

Indifference Map A graph showing a whole set of INDIFFERENCE CURVES is

called an INDIFFERENCE MAP. All points on the same curve give equal level of satisfaction , but each point on the higher curve gives higher level of

satisfaction .

Indifference Set

Indifference set is a set of two commodities which offers the consumer same level of satisfaction, so that he is indifferent

between these combinations.

Effects Of Indifference Curve

Price effect :- Change in the Consumer Equilibrium where there is change in the price of commodity.

Income Effect :- Change in the consumer equilibrium when there is a change in the income.

Substitute Effect :- When the price of a good decreases, consumers substitute that good instead of other competing (substitute) goods.

CONSUMER SURPLUS

-ABHISHEK ANAND -CHANDAN SINGH

-RISHABH KUMAR

Introduction

A consumer surplus occurs when the consumer is willing to pay more for a given product and services than the

actual price

Measurement of C.S> Consumer Surplus = difference between

buyer's willingness to pay and actual price paid

C.S =willingness to pay - amount paidFor e.g.If a buyer is willing to pay Rs.X for a

product and he gets the product at lower price I.e. Rs Y then,

C.S = X- Y

Benefits of Consumer Surplus The consumer gets more satisfaction as he

gets product/services at low price. Consumer has to pay less money then he

was willing to pay.

Consumer surplus is inversly proportional to the price.

Willingness To Pay It is the maximum amount that a buyer

will pay for a particular goods/services.

If

P < willingness: buyer will buy

P > willingness: buyer will not buy

Example From graph:

If a buyer is willing to pay

Rs C for a particular good

E and he gets it at Rs B

then,

C.S=OCDE-OBDE

This is Consumer Surplus.

UTILITY-HARSHA

-JASMIN PATEL -KARTHIKEYAN

Introduction

•Utility is a term used by economists to describe the measurement of

"usefulness" that a consumer obtains from any good. Utility may measure how much one enjoys a movie, or the sense of security one

gets from buying a deadbolt. The utility of any object or circumstance can be considered.

Example

• Sally wakes up in the morning, and her mother offers her the choice of a grapefruit or cereal. Sally, in an

instant, compares the utility she would derive from both choices and selects the cereal. Sally's mother

then needs to take Sally to school. She can either walk or drive. Sally's mother considers the benefits of

exercise and fresh air, which compose the utility she would derive from walking, and also considers the time savings and comfort of driving. Sally's mother

decides to drive

Marginal Utility

• Marginal utility, in economics, the additional satisfaction or benefit (utility) that a consumer

derives from buying an additional unit of a commodity or service. The concept implies that the utility or benefit to a consumer of an additional unit

of a product is inversely related to the number of units of that product he already owns.

Example The marginal utility of one slice of bread offered to a

family that has only seven slices will be great, since the family will be that much less hungry and the

difference between seven and eight is proportionally significant. An extra slice of bread offered to a family that has 30 slices, however, will have less marginal

utility, since the difference between 30 and 31 is proportionally smaller and the family’s hunger has

been allayed by what it had already. Thus, the marginal utility to a buyer of a product decreases as

he purchases more and more of that product, until the point is reached at which he has no need at all of

additional units. The marginal utility is then zero. 

Relation Between Total Utility AndMarginal Utility

When T.U M.U

T.U =0=M.U

T.U M.U becomes negative

Table

Qty T.U M.U

1 20 20

2 30 10

3 37 7

4 29 -8

5 24 -5

Utility

quanntity of goods and services

-20

-10

0

10

20

30

40

Series 1 Series 2 Series 3

HOW TO MAXIMIZE UTILITY

-Divya sara Kurian-Shweta Jha

-Prakhar Tiwari -Sanya Mittal

Utility Maximization

•The process or goal of obtaining the highest level of utility from the

consumption of goods or services. The goal of maximizing utility is a key assumption underlying consumer

behavior studied in consumer demand theory.

Utility Analysis • The accompanying table can be used to illustrate utility maximization. The numbers indicate the total utility obtained

by Edgar Millbottom while riding the Monster Loop Death Plunge roller coaster at the Shady Valley Amusement Park.

Peak Of The Curve • The Peak of the Curve

Utility maximization can be visually identified with a total utility curve, such as the one presented in this exhibit. In this case the maximum level of utility obtained by Edgar riding the Monster Loop Death Plunge roller coaster is relatively obvious.

Essence Of Life Essence of life while regular, everyday, noneconomist folks seldom use the term

utility maximization, it is a powerful motivation force underlying a great deal (if

not all) of the decisions people make and the actions they take. Again make note of the close

connection between utility maximization, unlimited wants and needs, and the pervasive

problem of scarcity.

GROUP MEMBERS • 1)SIDDHANT BHATTACHARYA

• 2) SHREYANSH SINGH

• 3) AVIJIT JAIN

• 4) CHONIK DORJEE TONGDOK

• 5) SANDEEP BONALA

• 6) PRIYAM SURAI

• 7) ABISHEK ANAND

• 8) CHANDAN SINGH

• 9) RISHABH KUMAR

• 10) MUNNANGI SRI HARSHA

• 11) JASMIN PATEL

• 12) KARTHIKEYAN.S

• 13) DIVYA SARA KURIAN

• 14) SHWETA JHA

• 15) SANYA MITTAL

• 16) PRAKHAR TIWARI

THANK YOU