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Case studies using Demand and Supply Concept
The document discusses the relationship between the cost of production and demand, distinguishing between essential and non-essential goods. For essential goods, demand remains inelastic despite production cost increases, while non-essential goods exhibit elastic demand, leading to decreased demand as costs rise. Additionally, factors such as price sensitivity, income levels, consumer preferences, competition, and future price expectations significantly influence overall demand.
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Case studies using Demand and Supply Concept
- 1. Prepared By: Devesh Kumar ManishKumar Raghvendra Narendra
- 4. Relation betweenCost of production and Demand: As price increases (moving up along the vertical axis), the demand from customers decreases (from Right to Left, along the horizontal axis).
- 5. Case 1.Essential Goods • For essential goods, if the cost of production increases, Demand as well as Supply, both will remain unaffected or it will vary slightly. • It is a case of Inelastic Demand. Case 2. Non Essential Goods • As in above case, if the cost of production increases, Demand as well as supply, both will decrease. • It is a case of Elastic Demand.
- 6. Case 1:Essential Goods • For essential goods,if the Cost of Production increases, the supply will remain almost unchanged. • The more necessary a good is, the lower the price elasticity of supply, as people will attempt to buy it no matter the price. • E.g. Salt, Water etc. Case 2. Non essential Goods • As in above case, there is shift in supply curve i.e. the supply will decreased with increase in price. e.g. Luxury items, Movie Tickets etc.
- 7. As inabove case, there is shift along supply curve after taxation. Here two cases arise. Case 1. • Essential goods: • Demand and Supply curves are unaffected for essential goods with price change. • Inelastic supply • It is a market situation in which any increase or decrease in the price of a good or service does not result in a corresponding increase or decrease in its supply. • No shift along supply curve.
- 8. Case 2. •Non Essential Goods: • Demand and Supply curve are affected with price change. • Elastic Supply. • Supply of a good or service that increases or decreases as the price of an item goes down or up. • Hence, There will be shifting along supply curve.
- 9. Case 1. Forsame margin Let CP is Rs. 100/- and let old SP Rs. 110/- New SP after 5% taxation Rs.115.5/- (105+10) Now, Because SP is increased, Demand will be affected, and profit will not get affected. Case 2. For decreased Margin Let CP is Rs. 100/- and let old SP Rs. 110/- New SP after 5% taxation Rs. 110/- (105+5). Here, because SP is same, Demand will not affected and there will be less profit.
- 10. (i) Demand ofthe product is totally inelastic (ii) Demand of the product is perfectly elastic • There will be no change in Demand. • Whatever price is set. • Let CP is 100/- • Old SP 110/- (100 + 10% of 100) • After Tax CP 105/- • New SP 115.5/- (100+5+ 10%of 105). • The Demand will become zero if price is increased.. • There can't be change in price of product.
- 11. Price • Usuallyviewed as the most important factor that affects demand. • Products have different sensitivity to changes in price. • For example, demand for necessities such as bread, eggs and butter does not tend to change significantly when prices move up or down Income levels • When an individual’s income goes up, their ability to purchase goods and services increases, and this causes demand to increase. • When incomes fall there will be a decrease in the demand for most goods.
- 12. Consumer tastesand preferences • Changing tastes and preferences can have a significant effect on demand for different products. Persuasive advertising is designed to cause a change in tastes and preferences and thereby create an increase in demand. A good example of this is the recent surge in sales of smoothies! Competition • Competitors are always looking to take a bigger share of the market, perhaps by cutting their prices or by introducing a new or better version of a product
- 13. Fashions • Whena product becomes unfashionable, demand can quickly fall away. consumers´ tastes: • when a consumer likes the good more he or she buys it more and the demand increases consumers´ future expectations: • When consumers expect higher prices in the future, they buy more goods in order to avoid higher prices and as a result the demand increases.