Class2 market, demand and supply

1,075 views

Published on

0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total views
1,075
On SlideShare
0
From Embeds
0
Number of Embeds
2
Actions
Shares
0
Downloads
10
Comments
0
Likes
0
Embeds 0
No embeds

No notes for slide
  • Variants of CokeSpriteMinute Maid Juice
  • Want may or may not be supported by income.But demand is always supported by income or ability to pay.It is also not how much he can buy but how much he will buy
  • Want may or may not be supported by income.But demand is always supported by income or ability to pay.It is also not how much he can buy but how much he will buy
  • http://www.informationweek.com/news/hardware/desktop/230200053-Change in Preferences: saturation in the netbook market, -competition from mainstream notebooks and media tablets, Tablets, smartphones, and even eReaders have also affected PC growth as consumers turn to other devices for Internet browsing and other activitieseconomic uncertainty have cut into the consumer PC market. - No Increase in products to increase preferences. PC growth is that users aren't finding compelling reasons to replace their current PCs, since no significant new product has been announced that will enhance user experience enough to buy a new PC-PC growth is also being affected by modest growth in the commercial sector, disruptions including the Japan earthquake and nuclear disaster, the political uprisings in the Middle East, and reduced economic projections, which will keep overall growth in single digits the rest of 2011, IDC reported. A lot of that was fueled by sales of netbooks that made PCs a much more disposable commodity and kept the PC industry afloat ... Yet now the popularity of netbooks has really taken a dive." The price of a PC is $1000, how many PCs would you purchase?It Depends! Upon what all?IncomePrice of other substitutesPreferencesExpected pricesLet us say the consumer consumed one PC at $1000. Now the price of the PC decreased to $500. How many would you consume?Is it possible that you consume no PC at all? Is it defying the law? Why?
  • Your income is $1000 and price of the product is $1000, your demand say is 1.Now let us say that your income increases to $2000, this will influence your demand.What about someone who earns $1, their demand would be zero. What about Vijay Mallya?A good can be both a normal good and an inferior good for someone else. Frozen foods, Maggi noodles. Cheap cars, Fish etc
  • Substitutes: red pen and black pen
  • Suppose the price of the PC is decided to be $1000. Then how much would you as COMPAQ be willing to produce and sell. Assume you sell whatever you produce.Price of the productCost of production, wages, oil etcPrice of inputsExpected future prices and so on
  • Demand is less than supply at zero price.Advice!
  • At zero quantity, the price asked is more than maximum the consumers are willing to give.DEMAND FOR SPACE TRAVEL.
  • Class2 market, demand and supply

    1. 1. DEMAND AND SUPPLY
    2. 2. Staples and Office Depot Merger• 1997, Staples and Office Depot wanted to merge• FTC analyzed the effect of proposed merger on consumers.• How would Staples’ lawyer argue the case?
    3. 3. Staples and Office Depot Merger• Staples’ argued that you could buy office supplies from any stationary store, Wal-Mart, Kmart• Computers from a number of small computer stores and online• Thus, merger would lead to a 6% market share
    4. 4. Staples and Office Depot Merger• Would FTC have the same opinion?• FTC argued that Staples and Office Depot belonged to “one stop shopping for all office supplies”.• Three major players- Staples, Office Depot, Office Max• Merger would significantly increase prices
    5. 5. Market• What constitutes a market is in the eye of the beholder• How to define a market?
    6. 6. What is a Market?• Product• Buyers• Sellers• They together (sometimes the Govt.) interact (invisible hand).• Market is not industry
    7. 7. Coca Cola Inc.
    8. 8. Coca Cola Inc.• Coca Cola is reviewing price of Coke. How should it view its market?• Coke and Pepsi constitute about 80% of the soft drinks market.• So is this Coca Cola’s market?
    9. 9. Coca Cola Inc.• “Stomach Share”- Coke’s share of portable liquid that a human consumes• Coca Cola accounts 3% of the total liquid consumed by humans• Competing with coffee, tea, hard liquid etc• SSNIP Test- Small but significant non transitory increase in price, test
    10. 10. SSNIP Test• Identify smallest relevant market within which the firm / cartel can exercise price increase (“Relevant Market”)• Smallest set of firms (including the concerned firm/cartel) that can sustain an increase in price of 5% for around a year
    11. 11. DEMAND SIDE OF MARKET
    12. 12. Coca Cola Inc.• Coca Cola is reconsidering the price for Minute Maid• Would an increase in price lead to an increase in revenues?
    13. 13. Demand and Managerial Decisions• How much should a firm produce?• Should the firm increase its capacity?• Entry decisions to new markets• Price/advertising changes=> All require knowledge of the market demand
    14. 14. WHAT IS DEMAND?Individual Demand-The quantity of a product that an individual will purchase at a particular price, ceteris paribus. 14
    15. 15. Demand for PC• Late 1990’s, Price of HP – Rs. 50,000• Only source of income gives Rs. 1 lakh annually• Demand for HP?• Increase in income – Rs 5 lakh annually• Sony enters the market.
    16. 16. WHAT IS DEMAND?Individual Demand-The quantity of a product that an individual will purchase at a particular price, ceteris paribus.• Demand influenced by preferences (Willingness)• Demand backed by ability to pay 16
    17. 17. DEATH OF PC?• What is the reason for decrease in sales of PCs since the third quarter of 2010?• Why did PC sales increase in later part of 2009?• Why are i-pad sales on the rise?
    18. 18. DEATH OF PC?• Change in Preferences:Saturation of the market with net-books• Economic Uncertainty: Affecting future income• External Disruptions: Japan Earthquake etc
    19. 19. Demand For Big Macs**• Mc Donald dwarfs competition: 36,000 restaurants in 122 countries. Burger King- 11,200 restaurants in 57 countries• Sales figures since mid 1980s
    20. 20. Reasons• Price increase- Average check $4 versus 15 cent• Health concerns• Proportion of 15-29 years shrunk from 27.5% to 22.5 %• Increase competition from other fast food joints• Multimillion dollar law suit- “Super Size Me”
    21. 21. Individual Consumer’s DemandQdX = f(PX, I, PY, T)QdX = quantity demanded of commodity X by an individual per time period PX = price per unit of commodity X I = consumer’s income PY = price of related (substitute or complementary) commodity T = tastes of the consumer
    22. 22. Coca Cola Inc.• Coca Cola is reconsidering the price for Minute Maid• Would an increase in price lead to an increase in demand?
    23. 23. Law of DemandLaw of demand: Ceteris Paribus, when theprice of a product falls, the quantitydemanded of the product will increase, andvisa versa.
    24. 24. Demand Schedule and Curve• Demand Schedule and Curve: Represent amount of a quantity that will be demanded at various prices• Sometimes referred to as the “ demand” of a consumer.
    25. 25. Demand Schedule and CurvesA Demand Schedule andDemand Curve
    26. 26. Pointers on Demand Schedule• Market demand pertains to a particular time period. Longer the time period greater demand• Demand curve slopes downwards• Demand curve assumes , other prices, Income, tastes to be constant.
    27. 27. CHANGE IN DEMAND V/S A CHANGE IN QUANTITY DEMANDED PA change in quantity 25 The demand curvedemanded occurs when shifts when income, 20 tastes, the price ofyou move along the related goods, or expectationsdemand curve, it is a change. (i.e. 15 whenever ceterisresult of a change in price paribus is violated)of that good alone. 10A change in demand (shift 5in the curve) occurs whensomething other than the D1 D 2price changes. 5 10 15 15 20 25 30 Quantity
    28. 28. Demand for Samsung Galaxy S3• Priced at Rs 40,000• Your current income is Rs 50,000 p.a.• How much will you demand at this price?• Now assume your income increased to Rs 12 lakhs p.a.
    29. 29. CHANGE IN DEMAND V/S A CHANGE IN QUANTITY DEMANDED PA change in quantity 25 The demand curvedemanded occurs when shifts when income, 20 tastes, the price ofyou move along the related goods, or expectationsdemand curve, it is a change. (i.e. 15 whenever ceterisresult of a change in price paribus is violated)of that good alone. 10A change in demand (shift 5in the curve) occurs whensomething other than the D1 D 2price changes. 5 10 15 15 20 25 30 Quantity
    30. 30. Variables That Shift MarketDemandIncome•Normal good: A good for which the demandincreases as income rises and decreases as incomefalls.•Inferior good: A good for which the demandincreases as income falls and decreases as incomerises.
    31. 31. Normal and Inferior Goods• A particular good may be normal for one segment but inferior for the other• Increase in income:- Normal Good: Shifts the demand curve outside- Inferior Good: Shifts the demand curve inside
    32. 32. Variables That Shift Market DemandPrice of related goods– Substitutes Goods and services that can be used forthe same purpose.– Complements Goods and services that are usedtogether.Tastes Consumers can be influenced by an advertising campaign for a product.
    33. 33. Demand for Samsung Galaxy• What if Apple slashed the price of 4S model?From Rs 41,000 to Rs 30,000• What happens to the demand of Samsung Galaxy if the tariff rates of 3G plan increases?
    34. 34. Variables That Shift Market DemandPopulation and demographicsDemographics The characteristics of a population withrespect to age, race, and gender.Expected Future PricesConsumers choose not only which products to buybut also when to buy them.
    35. 35. Variables That Shift Market DemandVariables That Shift Market Demand Curves
    36. 36. Variables That Shift Market DemandVariables That Shift Market Demand Curves (continued)
    37. 37. Market Demand• Market Demand: Total quantity of a good that would be purchased at a particular price, ceteris paribus
    38. 38. Market Demand Curve• Horizontal summation of demand curves of individual consumers• Exceptions to the summation rules – Bandwagon Effect • collective demand causes individual demand – Snob (Veblen) Effect • conspicuous consumption • a product that is expensive, elite, or in short supply is more desirable
    39. 39. Market Demand Function QDX = f(PX, N, I, PY, T)QDX = quantity demanded of commodity X PX = price per unit of commodity X N = number of consumers on the market I = consumer income PY = price of related (substitute or complementary) commodity T = consumer tastes
    40. 40. SUPPLY SIDE OF MARKET
    41. 41. SUPPLYSupply-The quantity of a product that an individual or a group will sell at a particular price, ceteris paribus.
    42. 42. Supply of PCs• Assume the price of PC isRs 50,000 (pre determined)• How many PC s would you as HP would be willing to sell?• Assume that you sell whatever you produce.
    43. 43. SUPPLYSupply-The quantity of a product that an individual or a group will sell at a particular price, ceteris paribus.• Depends upon available resources• Depends upon available technology
    44. 44. Supply of PCs**• What were the reasons for the decline in production of PCs ?
    45. 45. SUPPLY OF PCs• Japan Earthquake• Price of Microchips• Wages and Incomes• and so on..
    46. 46. Individual Firm’s SupplyQsX = f(PX, E, PY, T)QsX = quantity supplied of commodity X by an individual firm per time period PX = price per unit of commodity X E = Extraneous factors PY = price of inputs T= Technology
    47. 47. Law of SupplyLaw of supply: Ceteris Paribus, when the priceof a product rises, the quantity supplied of theproduct will increase, and visa versa.
    48. 48. Supply Schedule and Curve• Supply Schedule and Curve: Represent amount of a quantity that will supplied at various prices.• Sometimes referred to as the “ supply” of a firm.
    49. 49. Supply Schedule and Curve**
    50. 50. Pointers on Supply Schedule• Market supply pertains to a particular time period. Longer the time period greater supply• Supply curve slopes upwards• Supply curve assumes , prices of resources and inputs, Technology to be constant.
    51. 51. CHANGE IN SUPPLY V. A CHANGE IN QUANTITY SUPPLIED P 4.00 S2A change in quantity S1 3.50supplied occurs whenyou move along the 3.00supply curve, it is a The supplyresult of a price change curve shifts 2.50 when resourcealone. prices change, technology improves, orA change in supply 2.00 shocks occur. (i.e. whenever(shift in the curve) ceteris paribus is violated)occurs when something 5 10 15 20 25 30other than the price Quantitychanges. (cans)
    52. 52. Variables That Shift SupplyVariables That Shift Market Supply Curves
    53. 53. Variables That Shift Supply Variables That Shift Market Supply Curves (continued)
    54. 54. Putting Demand and Supply Together
    55. 55. Market Coordination • Check out the following clip from the “Hudsucker Proxy.” • The clip nicely shows how markets coordinate prices and eliminate excess supply and excess demand.
    56. 56. Hudsucker Graphic S Price of Hula Hoop Market clearing price $3.99 $1.79 Free D2Surplus of hoops Quantity of Hula Hoopsbefore the craze D1
    57. 57. Market Equilibrium• Market equilibrium is determined at the intersection of the market demand curve and the market supply curve.• At equilibrium price there is no tendency to change the price.
    58. 58. Shortage• When the price is below the equilibrium quantity demanded exceeds quantity supplied• Shortages put upward pressure on the price QS QD 60
    59. 59. Surplus• When the price is above the equilibrium quantity supplied is greater than the quantity demanded.• Surplus puts downward pressure on demand QD QS 61
    60. 60. Equilibrium Price• Only at $1 per pound would there be no tendency for price change.• At any point in time, observed price may not be the equilibrium price.• Market forces always push the market price towards equilibrium.
    61. 61. Markets are never in equilibrium but they always tend to the equilibrium 63
    62. 62. Which market can be characterized by the following graph? P Q
    63. 63. Which market can be characterized by the following graph? P Q 65
    64. 64. The Effect of Demand and Supply Shifts on EquilibriumThe Effect of Shifts in Supply on Equilibrium The Effect of an Increase in Supply on Equilibrium
    65. 65. The Effect of Demand and Supply Shifts on Equilibrium The Effect of Shifts in Demand on Equilibrium The Effect of an Increase in Demand on Equilibrium
    66. 66. Price of Personal Computers**• From 1986- 2006, massive increase in demand for PCs• For the same period, surge of PC producers and their production.• Increase in supply more than the demand• What is the effect on the equilibrium price and demand?
    67. 67. Price of Coffee**
    68. 68. The Effect of Demand and Supply Shifts on EquilibriumHow Shifts in Demand and Supply AffectEquilibrium Price (P) and Quantity (Q) SUPPLY CURVE SUPPLY CURVE SUPPLY CURVE UNCHANGED SHIFTS TO THE RIGHT SHIFTS TO THE LEFTDEMAND CURVE Q unchanged Q increases QUNCHANGED P unchanged P decreases PDEMAND CURVE Q increases QSHIFTS TO THE RIGHT Q P increases or P P decreasesDEMAND CURVE Q decreases Q increases or Q decreasesSHIFTS TO THE LEFT P decreases decreases P decreases or P decreases increases
    69. 69. The Effect of Demand and Supply Shifts on EquilibriumHow Shifts in Demand and Supply AffectEquilibrium Price (P) and Quantity (Q) SUPPLY CURVE SUPPLY CURVE SUPPLY CURVE UNCHANGED SHIFTS TO THE RIGHT SHIFTS TO THE LEFTDEMAND CURVE Q unchanged Q increases Q decreasesUNCHANGED P unchanged P decreases P increasesDEMAND CURVE Q increases Q increases orSHIFTS TO THE RIGHT Q increases P increases or decreases P increases decreases P increasesDEMAND CURVE Q decreases Q increases or Q decreasesSHIFTS TO THE LEFT P decreases decreases P decreases or P decreases increases
    70. 70. The Effect of Demand and Supply Shifts on Equilibrium The Effect of Shifts in Demand and Supply over TimeFIGURE 3-11 Shifts in Demand and Supply over Time

    ×