1 demand supply_analysis
DESCRIPTION
PCP SESSION 3 - 13 NOV 2011. PREPARED BY NISHANT GARGTRANSCRIPT
Demand Analysis
What is Demand?
Quantity of a particular good or service that consumers are willing or able to purchase at a given price, during a given period of time
Characteristics of Demand
Demand has three main characteristics.
1. Willingness to pay2. Ability to purchase 3. Demand is always at a price
Quantity Demanded vs. Demand Quantity DemandedQuantity Demanded
The quantities of a good or service that people will purchase at a specific price over a given period of time.
DemandDemandDemand for product is the amount that consumers are willing and able to purchasers good or service at different prices at a given time
Types of Demand
Individual DemandIndividual DemandThe quantity of a good that an individual or firm stands ready to buy at various prices at a given time.
Market DemandMarket DemandThe sum of the individual demands in the marketplace.
Determinants of Demand
Changes in income Price Level Changing Prices of a Substitute
Good Changing Price of a Complement Change in Tastes and Preferences Consumer Expectations.
Determinants of Demand
Changes in income Higher incomes increase in demand Lower incomes decrease in demand
When an individual’s income goes up, their ability to purchase goods and services increases, and this causes an outward shift in the demand curve.
When incomes fall there will be a decrease in the demand for most goods.
Price Level
Higher Price lower Demand for Product.
Lower price Higher demand for product
Changing Prices of a Substitute Good
Substitutes Increase in the price of substitutes increase in demand another product.
.
Changing Price of a Complement
Complements Increase in the price of complements decrease in demandExamples: Pen & Ink
Change in Tastes and Preferences Changing tastes and preferences can have
a huge effect on demand. Example Persuasive advertising is designed to
cause a change in tastes and preferences and thereby create an outward shift in demand.
A good example of this is the recent surge in sales of fruit juice drinks.
LAW OF DEMAND
Inverse relationship Downward sloping DD curve Reasons
Income Effect Substitution Effect
Exception Giffen Paradox – in case of inferior goods
Demand Schedule and Demand Curve
Demand schedule The Demand Schedule is a table of
numbers that shows the relationship between price and quantity demanded by a consumer, ceteris paribus (everything else held fixed).
Demand curve A curve that indicates the number of units
of a good or service that consumers will buy at various prices at a given time
Individual Demand Schedule for CD
Price per CD Rs.
Quantity of CD Demanded per Year
25 20
2030
1535
1040
8 45
Individual Demand Curve
The Individual Demand Curve shows the relationship between the price of a good and the quantity that a single consumer is willing to buy, or quantity demanded.
Individual Demand Curve When price increases, demand for CD falls, when prices falls, demand for CD increases. 25
20
15
10
8
Prices per CDRs .
20 30
35 40
45Demand for CD .
Market Demand We can get Market Demand from Individual
Demand, by adding the quantities demanded by all consumers at each of the various possible prices.
The Market Demand can be described as the horizontal summation of the individuals demand for a commodity at various possible prices in market.
Market Demand Curve is a curve showing the relationship between price and quantity demanded by all consumers together, ceteris paribus (everything else held fixed).
Market Demand Schedule Price per
CD Rs.
Consumer A
Consumer B
Consumer C
Total Market Demand
25 20 1822 50
2030 2631 87
1535 3037102
1040 3541116
8 45 4046 131
Movement along the Demand Curve
If other all factors remains constant and only there is change in the price of the commodity, then we move along the same demand curve.
Shift of the Demand Curve
ELASTICITY OF DEMAND
It measures the responsiveness of quantity demanded of good or service to changes in its own price
Example
Price 25 ,Qd = 20 Price 20 ,Qd = 30
Types of price elasticity
Arc Elasticity of Demand
Point Elasticity of Demand
Total Expenditure Method
Perfectly Inelastic – Ed = 0
Perfectly Elastic – Ed = infinity
Unitary Elastic – Ed = 1
Cross Price Elasticity of Demand
Income Elasticity of Demand
Supply Supply
Quantity supplied of any good or service is the amount that the sellers are willing and able to sell for a price
Individual supply
Quantities offered for sale at various prices at a given time by an individual seller
Market supply Sum of the individual supply schedules in the
marketplace
Determinants of Supply
Changes in the cost of resources Increase in the cost of resources
decrease in supply Technology
Improvements increase in supply Expectations of future prices Prices of related products
Law of Supply
Direct Relation
Producers are more willing to sell greater amounts of a good at a higher price , because this good has become relatively more profitable to produce, compared to other gds
Supply schedule A table showing the various
quantities of a good or service that sellers will offer at various prices at a given time
Supply curve A line showing the number of units
of a good or service that will be offered for sale at different prices at a given time
CHANGES IN THE SUPPLY CURVE
Movement along the Supply Curve
Shift in Supply Curve
ELASTICITY OF SUPPLY
The price elasticity of supply measures how much the quantity supplied responds to changes in price
Price elasticity of supply = % change in quantity supplied / % change in price
MARKET EQUILIBRIUM
EQUILIBRIUM POSITION
CHANGES IN DEMAND AND SUPPLY