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Eco

1. 1. Demand Analysis Meaning of Demand: • Demand for a particular commodity refers to the commodity which an individual consumer or household is willing to purchase per unit of time at a particular price. • Demand for a particular commodity implies: Desire of the customer to buy the product; The customers willingness to buy the product; Sufficient purchasing power in the customers possession to buy the product. • The demand for a particular commodity by an individual consumer or household is known as Individual demand for the commodity and Summation of the individual demand is known as the Market demand. Anirban / Micro Economics / 2 Module 3 / CCIM Demand Analysis Demand Schedule: • A demand schedule is a numerical tabulation that shows the quantity of demeaned commodity at different prices. • The demand schedule may be of 2 types : • Individual demand Schedule • Market demand Schedule. Anirban / Micro Economics / 5 Module 3 / CCIM
2. 2. Demand Analysis Demand Function: • A Mathematical relationship between quantity demanded of the commodity and its determinants is known as Demand Function. • When this relationship relates to the demand by an individual consumer it is known as Individual demand function and while it relates to the market its known as market demand function. • Individual Demand Function : Qdx = f (Px, Y, P1……. Pn-1, T, A, Ey. Ep, U) Anirban / Micro Economics / 8 Module 3 / CCIM Demand Analysis Causes of downward sloping of Demand Curve: • According to the law of demand there exists a opposite relationship between the PRICE and the QUANTITY DEMANDED, and that is why demand curve is downward sloping. • Let the linear form of demand curve : P = a + bq, where a, q constant and b < 0, i.e. dp/dq = b < 0 (Assumption), so slope of the demand curve is negative. • The various reasons for this downwards sloping of demand curves are as follows: • Law of Diminishing Marginal Utility and Equi-Marginal utility. • Price Effect. • Income Effect. • Substitution Effect. • Different Use ( Electricity). Anirban / Micro Economics / 10 Module 3 / CCIM
3. 3. Demand Analysis Exceptions of Law of Demand: In certain cases the slope of Demand Curve is upward i.e. positively sloped, it is known as the exceptions of Law of Demand. These exceptions are as follows: • Giffen Goods (Giffen Paradox) • Emergency (War etc…) • Conspicuous necessities (Car, Fancy Cloths etc…) and Conspicuous Consumption (Fancy Diamonds, High price shoes, pens etc…) • Depression ( Price and quantity demand is low) • Ignorance Effect (High priced commodity is better in quality) • Speculation (Future change in price) Anirban / Micro Economics / 11 Module 3 / CCIM Demand Forecasting Meaning: • Forecasting is defined as a study with scientific prediction in regard to an event which may have future demand for goods, services either at the micro level or at the macro level. • Demand forecasting is a prediction or estimation of a future situation, under given condition. • Demand forecasting is all about prediction rather than estimation as the former one predicts about future trends where as later one tries to find out expected present sales level, given the sales determinant. Anirban / Micro Economics / 23 Module 3 / CCIM
4. 4. Demand Forecasting Steps in Demand Forecasting: • Identification of the objectives. Estimation of quantity and composition of demand Estimation of price. Inventory Control etc… • Determination of the nature of the goods. Capital Goods Consumer durables Non consumer durables • Selection of the proper method of forecasting. • Interpretation of results. Anirban / Micro Economics / 24 Module 3 / CCIM Demand Forecasting Factors involved in Demand Forecasting: • Time period • Levels of forecasting International level Macro level Industry level Firm level • Purpose of forecasting • Methods of forecasting • Nature of the commodity • Nature of the competition Anirban / Micro Economics / 25 Module 3 / CCIM
5. 5. Demand Forecasting Objectives: • Helping for continuous production • Regular supply for the commodities • Formulation of the price theory • Effective sales performance • Arrangement of finance • Determination of the production capacity • Labour requirement. Anirban / Micro Economics / 26 Module 3 / CCIM Demand Forecasting Criteria of a good Forecasting Method: • Accuracy • Plausibility (Mgt must have confidence and understanding) • Durability • Availability • Economy (Cost Effectiveness) Anirban / Micro Economics / 27 Module 3 / CCIM
6. 6. Demand Forecasting Methods of Demand Forecasting: Opinion polling method • Consumer’s Survey Methods  Complete enumeration survey  Sample Survey  End User (Input – Output) Method • Sales force Opinion or Collective Opinion or Reaction Survey Method • Expert’s Opinion Anirban / Micro Economics / 28 Module 3 / CCIM Demand Forecasting Mechanical Extrapolation / Trend Projection Method: • Graphical ( Fitting trend line by observation) • Statistical (Semi average) • Algebraic / Least Square (Straight Line, Parabolic & Logarithmic or Exponential) • Smoothing Techniques (Moving Average & Exponential Smoothing) • ARIMA (Auto regressive integrated moving average or Box – Jenkin Technique) Econometric Models: Simultaneous Equation Model: Anirban / Micro Economics / 29 Module 3 / CCIM
7. 7. Demand Forecasting Barometric / Leading Indicator Technique: • Coincident Indicators and Lagging Indicators. • Leading Indicators • Index Nos (Diffusion & Composite Indicators) Statistical Methods: • Naïve Method • Correlation • Regression Method • Simple Linear Equation – Graphical Method – Least Square Method • Non Linear Equation – Parabolic Regression Model – Logarithmic Regression Model – Multiple Regression Model Anirban / Micro Economics / 30 Module 3 / CCIM