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Business Economics 03 Demand, Supply and the Market
Business Economics 03 Demand, Supply and the Market
Business Economics 03 Demand, Supply and the Market
Business Economics 03 Demand, Supply and the Market
Business Economics 03 Demand, Supply and the Market
Business Economics 03 Demand, Supply and the Market
Business Economics 03 Demand, Supply and the Market
Business Economics 03 Demand, Supply and the Market
Business Economics 03 Demand, Supply and the Market
Business Economics 03 Demand, Supply and the Market
Business Economics 03 Demand, Supply and the Market
Business Economics 03 Demand, Supply and the Market
Business Economics 03 Demand, Supply and the Market
Business Economics 03 Demand, Supply and the Market
Business Economics 03 Demand, Supply and the Market
Business Economics 03 Demand, Supply and the Market
Business Economics 03 Demand, Supply and the Market
Business Economics 03 Demand, Supply and the Market
Business Economics 03 Demand, Supply and the Market
Business Economics 03 Demand, Supply and the Market
Business Economics 03 Demand, Supply and the Market
Business Economics 03 Demand, Supply and the Market
Business Economics 03 Demand, Supply and the Market
Business Economics 03 Demand, Supply and the Market
Business Economics 03 Demand, Supply and the Market
Business Economics 03 Demand, Supply and the Market
Business Economics 03 Demand, Supply and the Market
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Business Economics 03 Demand, Supply and the Market

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  • Transcript

    • 1. Demand, Supply and the Market
    • 2. Sequence of discussion
        • What are demand and supply
        • What determines demand and supply
        • What is the relationship between demand, supply and price
        • How does the price mechanism transmit information to economic agents
        • How responsive are demand and supply to market incentives
    • 3. The market
      • A group of firms and individuals in touch with each other in order to buy or sell some goods, vary in their size, arrangement and procedures.
    • 4. Case-Coke’s perception of market share
      • Diet, caffeine free, diet caffeine free coke varieties and also Sprite and Minute Maid Orange Juice competing with Pepsi
      • For carbonated cola soft drinks, Coke and Pepsi share 80%
      • Coke views as “Stomach Share” for its market for potable liquids
      • 64 ounces of fluids to be consumed to survive each day
      • Coke accounts for less than 2 ounces i.e. 3% market
    • 5.
      • 100 tons o f steel are demanded by Maruti Suzuki
      • Diesel demand is going to be robust due to economic growth
      • Gold demand increases in India during festivals
    • 6.
      • Demand is defined as – the amount of money customers are willing to pay during a specific period and under a given set of economic conditions-demand which is backed up by the ability to pay
      • Rational consumers
    • 7. Demand Function
    • 8. Demand function with ceteris paribus condition
      • Qdx = f (Px) cet. par.
      • Demand and Derived Demand
      • The Law Of Demand
    • 9. Case- Law of demand solves environmental problem
      • 1960-American discarded an avg. of 2.6 pounds per person per day (ppppd)
      • Residents of Percasie, Penn paying annual fee of $120 per person
      • 2.2 pound of trash pppd
      • Percasie Municipality provided special bags for 40p-1.5$
      • MC increased from 0-4% per pound
      • Trash picked up in approved bags only
      • Recycling for cans, bottles and newspapers
      • Trash reduced by 1 ppppd, 40% less
      • Paid 30% less
    • 10. Demand function
      • Qd X = f (P x, O x, A x, St x, P z, O z, A z, St z, Y, T, E, C r, G,
      • Pop,W,--)
      • Where Qd x = the qty. demanded of good x in a given time period
      • P x = the own price of the product or service x
      • O x = the number of outlets through which x is
      • distributed
      • A x = the level of advertising or promotion for x
      • St x = the style or design of x
      • P z = the price of a related good, a substitute or complement
    • 11. O z = the number of outlets for a competitor product/service As = the level of advertising for the related product St z = the style or design of related product. Y = the income of consumers and distribution. T = the tastes or preferences of consumers E = the expectations of consumers with regard to price, etc. C r = the cost and availability of credit G = government policy Pop = the change in the population composition W = weather conditions
    • 12.
      • P x, O x, A x, St x - strategic variables
      • P z, O z ,A z St z - _ competitor’s variables
      • Y, T, E - consumer variables
      • W, P op , G, C r - other variables
    • 13.
      • Positively Sloped Demand Curve – indicator of quality, economic cycles
      • Change In the Quantity Demanded
      • Change In Demand
      • Individual and market demand
    • 14. Internet affects demand and supply
      • Enemy of high prices and high profit margins by eliminating geographical boundaries > increasing price elasticity of demand
      • Olx, futurebazar, flipkart, amazon
      • Bargain prices, broad assortment of attractive products and speedy delivery, returns and after sales services
      • Traditional retailers to compete and use internet
    • 15. Exercise
      • An economic consultant for x corporation recently provided the firm’s marketing manager with this estimate of demand function for the firm’s product.
      • Qd x = 12,000 – 3P x + 4P y – 1Y + 2A x
      • Suppose X sells for Rs. 200 per unit, Y for Rs. 15 per unit, the company utilizes Rs. 2,000 of advertising and consumer income is Rs.10,000. How much of good X do consumer purchase? Are goods X and Y substitute or compliments? Is good X a normal or an inferior good ?
    • 16. Supply
      • A quantity of a commodity that a producer or a supplier is willing to sell at various given prices over a specific time period .
    • 17. Supply function with ceteris paribus condition Qs x = f ( P x ) cet. par.
    • 18. Law of Supply
      • When price of a good rises the quantity supplied will also rise.
      • Why?
    • 19.
      • Higher Cost
      • Higher Profit Levels
      • New Producers
      • Complete supply function
    • 20. Supply function
      • Qs x = f(P x, F e ,F p ,P o, G,W,E,C n ,N,C,T----------)
      • Qs x = quantity supplied of x
      • P x = product price
      • F e = factor productivities (efficiencies) or the
      • state of technology
      • F p = factor price
      • P o = prices of other related product
      • G = firm’s goals
    • 21.
      • C = character of the firms in the industry T = time lag E = firm’s expectations about future prospects for prices, costs, sales and the state of economy in general. C n = Porter- Consumer’s sophisticated and knowledgeable demands at home (Japanese cameras, Nokia of Finland, Ericsson of Sweden)
      • N = number of firms N r =natural shocks (weather, diseases, wars, machine breakdown, industrial disputes, fire, flood, earthquake)
    • 22. Exercise
      • Find out possible reasons for increasing supply of butter
      • Do you see a relationship between the markets of nitrogen and butter?
    • 23. Find out demand and supply functions for real estate market
    • 24. Qs x = 200 + 80P – 20a 1 – 15a 2 + 30j Where Qs x - quantity supplied of X, P is price of X, a 1, a 2 are profitability of two alternative goods that could be supplied instead, and j is the profitability of a good in joint supply. Explain why P and j terms have a positive sign, whereas a 1 and a 2 have a negative sign? Exercise
    • 25.
    • 26. Equilibrium price and quantity Monthly price (Rs. Per kg) Md (tons) Ms (tons) 4 700 100 8 500 195 11 450 450 16 400 540 19 190 810
    • 27. Equilibrium in the market
      • Market equilibrium
      • Demand and supply in wrong direction
      • Metastable equilibrium
      • General Equilibrium

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