1 demand supply_analysis

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PCP SESSION 3 - 13 NOV 2011.
PREPARED BY NISHANT GARG

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1 demand supply_analysis

  1. 1. Demand Analysis
  2. 2. What is Demand? <ul><li>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 </li></ul>
  3. 3. Characteristics of Demand <ul><li>Demand has three main characteristics. </li></ul><ul><li>Willingness to pay </li></ul><ul><li>Ability to purchase </li></ul><ul><li>Demand is always at a price </li></ul>
  4. 4. Quantity Demanded vs. Demand <ul><li>Quantity Demanded </li></ul><ul><ul><li>The quantities of a good or service that people will purchase at a specific price over a given period of time . </li></ul></ul><ul><li>Demand </li></ul><ul><ul><li>Demand for product is the amount that consumers are willing and able to purchasers good or service at different prices at a given time </li></ul></ul>
  5. 5. Types of Demand <ul><li>Individual Demand </li></ul><ul><ul><li>The quantity of a good that an individual or firm stands ready to buy at various prices at a given time . </li></ul></ul><ul><li>Market Demand </li></ul><ul><ul><li>The sum of the individual demands in the marketplace . </li></ul></ul>
  6. 6. Determinants of Demand <ul><li>Changes in income </li></ul><ul><li>Price Level </li></ul><ul><li>Changing Prices of a Substitute Good </li></ul><ul><li>Changing Price of a Complement </li></ul><ul><li>Change in Tastes and Preferences </li></ul><ul><li>Consumer Expectations. </li></ul>
  7. 7. Determinants of Demand <ul><li>Changes in income </li></ul><ul><ul><li>Higher incomes  increase in demand </li></ul></ul><ul><ul><li>Lower incomes  decrease in demand </li></ul></ul><ul><li>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. </li></ul><ul><li>When incomes fall there will be a decrease in the demand for most goods. </li></ul>
  8. 8. Price Level <ul><li>Higher Price  lower Demand for Product. </li></ul><ul><li>Lower price  Higher demand for product </li></ul>
  9. 9. Changing Prices of a Substitute Good <ul><ul><li>Substitutes  Increase in the price of substitutes  increase in demand another product. </li></ul></ul><ul><li>. </li></ul>
  10. 10. Changing Price of a Complement <ul><li>Complements  Increase in the price of complements  decrease in demand </li></ul><ul><li>Examples: </li></ul><ul><li>Pen & Ink </li></ul>
  11. 11. Change in Tastes and Preferences <ul><li>Changing tastes and preferences can have a huge effect on demand. </li></ul><ul><li>Example </li></ul><ul><li>Persuasive advertising is designed to cause a change in tastes and preferences and thereby create an outward shift in demand. </li></ul><ul><li>A good example of this is the recent surge in sales of fruit juice drinks . </li></ul>
  12. 12. LAW OF DEMAND <ul><li>Inverse relationship </li></ul><ul><li>Downward sloping DD curve </li></ul><ul><li>Reasons </li></ul><ul><ul><ul><li>Income Effect </li></ul></ul></ul><ul><ul><ul><li>Substitution Effect </li></ul></ul></ul><ul><li>Exception </li></ul><ul><ul><li>Giffen Paradox – in case of inferior goods </li></ul></ul>
  13. 13. Demand Schedule and Demand Curve <ul><li>Demand schedule </li></ul><ul><ul><li>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). </li></ul></ul><ul><li>Demand curve </li></ul><ul><ul><li>A curve that indicates the number of units of a good or service that consumers will buy at various prices at a given time </li></ul></ul>
  14. 14. Individual Demand Schedule for CD 45 8 40 10 35 15 30 20 20 25 Quantity of CD Demanded per Year Price per CD Rs.
  15. 15. Individual Demand Curve <ul><li>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. </li></ul>
  16. 16. Individual Demand Curve <ul><li>When price increases, demand </li></ul><ul><li>for CD falls, when prices </li></ul><ul><li>falls, demand for CD </li></ul><ul><li>increases . </li></ul>25 20 15 10 8 Prices per CD Rs. 20 30 35 40 45 Demand for CD.
  17. 17. Market Demand <ul><li>We can get Market Demand from Individual Demand, by adding the quantities demanded by all consumers at each of the various possible prices. </li></ul><ul><li>The Market Demand can be described as the horizontal summation of the individuals demand for a commodity at various possible prices in market. </li></ul><ul><li>Market Demand Curve is a curve showing the relationship between price and quantity demanded by all consumers together, ceteris paribus (everything else held fixed). </li></ul>
  18. 18. Market Demand Schedule 131 46 40 45 8 116 41 35 40 10 102 37 30 35 15 87 31 26 30 20 50 22 18 20 25 Total Market Demand Consumer C Consumer B Consumer A Price per CD Rs.
  19. 19. Movement along the Demand Curve <ul><li>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. </li></ul><ul><li>Shift of the Demand Curve </li></ul>
  20. 20. ELASTICITY OF DEMAND <ul><li>It measures the responsiveness of quantity demanded of good or service to changes in its own price </li></ul>
  21. 21. Example <ul><li>Price 25 ,Qd = 20 </li></ul><ul><li>Price 20 ,Qd = 30 </li></ul>
  22. 22. Types of price elasticity <ul><li>Arc Elasticity of Demand </li></ul><ul><li>Point Elasticity of Demand </li></ul>
  23. 23. Total Expenditure Method <ul><li>Perfectly Inelastic – Ed = 0 </li></ul><ul><li>Perfectly Elastic – Ed = infinity </li></ul><ul><li>Unitary Elastic – Ed = 1 </li></ul>
  24. 24. <ul><li>Cross Price Elasticity of Demand </li></ul><ul><li>Income Elasticity of Demand </li></ul>
  25. 26. Supply <ul><li>Supply </li></ul><ul><li>Quantity supplied of any good or service is the amount that the sellers are willing and able to sell for a price </li></ul><ul><li>Individual supply </li></ul><ul><ul><li>Quantities offered for sale at various prices at a given time by an individual seller </li></ul></ul><ul><li>Market supply </li></ul><ul><ul><li>Sum of the individual supply schedules in the marketplace </li></ul></ul>
  26. 27. Determinants of Supply <ul><li>Changes in the cost of resources </li></ul><ul><ul><li>Increase in the cost of resources  decrease in supply </li></ul></ul><ul><li>Technology </li></ul><ul><ul><li>Improvements  increase in supply </li></ul></ul><ul><li>Expectations of future prices </li></ul><ul><li>Prices of related products </li></ul>
  27. 28. Law of Supply <ul><li>Direct Relation </li></ul><ul><li>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 </li></ul>
  28. 29. <ul><li>Supply schedule </li></ul><ul><ul><li>A table showing the various quantities of a good or service that sellers will offer at various prices at a given time </li></ul></ul><ul><li>Supply curve </li></ul><ul><ul><li>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 </li></ul></ul>
  29. 30. CHANGES IN THE SUPPLY CURVE <ul><li>Movement along the Supply Curve </li></ul><ul><li>Shift in Supply Curve </li></ul>
  30. 31. ELASTICITY OF SUPPLY <ul><li>The price elasticity of supply measures how much the quantity supplied responds to changes in price </li></ul><ul><li>Price elasticity of supply = % change in quantity supplied / % change in price </li></ul>
  31. 32. MARKET EQUILIBRIUM <ul><li>EQUILIBRIUM POSITION </li></ul><ul><li>CHANGES IN DEMAND AND SUPPLY </li></ul>

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