managerial economics class3

8/6/2019 Managerial Economics Class3

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DEMANDDEMAND

Willingness of the buyerWillingness of the buyer

Ability of the buyerAbility of the buyer


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DEMANDDEMAND

The Qty demandedThe Qty demanded

The price at which the quantity isThe price at which the quantity is

demandeddemanded The time periodThe time period

The market areaThe market area

Annual demand for TV in Delhi at anAnnual demand for TV in Delhi at anaverage price of Rs 15000 each is 50,000average price of Rs 15000 each is 50,000is a meaningful demandis a meaningful demand


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TYPES OF DEMANDTYPES OF DEMAND

Individual DemandIndividual Demand

Market DemandMarket Demand


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Demand for durable goodsDemand for durable goods

Demand for NonDemand for Non--Durable goodsDurable goods

Durable Goods : Are those goods whoseDurable Goods : Are those goods whosetotal utility or usefulness is nottotal utility or usefulness is not exhuastedexhuastedin a single or short run use .They are usedin a single or short run use .They are usedrepeatedly .repeatedly .

ExEx Clothes,shoes,carsClothes,shoes,cars ,,building,plantbuilding,plant,machinery etc,machinery etc


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NonNon--Durable goodsDurable goods Which can be usedWhich can be usedor consumed only once and their utility isor consumed only once and their utility is

exhausted in a single use .Exexhausted in a single use .Ex FoodFooditems,rawitems,raw material,fuel,powermaterial,fuel,power ,packing,packingitems etcitems etc

Demand for nonDemand for non--durable goods dependsdurable goods depends

upon the current price ,consumer incomeupon the current price ,consumer incomeanfdanfd fashion and is subject to frequentfashion and is subject to frequentchanges.Itschanges.Its demand changes linearly .demand changes linearly .


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Demand for durable goods depends onDemand for durable goods depends onthe expected price , income and change inthe expected price , income and change in

technology.I

tstechnology.I

ts demand vary over ademand vary over arelatively longer period of time . Itrelatively longer period of time . It creatscreatsreplacement demand .Its demandreplacement demand .Its demandincreases or decreasesincreases or decreases exponetiallyexponetially ..


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CONSUMER GOODSCONSUMER GOODS

Consumer goods are products that areConsumer goods are products that areproduced for consumption and use byproduced for consumption and use by

human.T

hey are final goods specificallyhuman.T

hey are final goods specificallyintended for the mass market .intended for the mass market .

Producer Goods are goods that are usedProducer Goods are goods that are usedas inputs in the production of other goods.as inputs in the production of other goods.


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SHORTTERM/LONG TERMSHORTTERM/LONG TERM

GOODSGOODS

Goods that are demanded for a shortGoods that are demanded for a shortperiodperiod FashionFashion

Goods that are demanded over alongGoods that are demanded over alongperiodperiod -- HousingHousing


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NORMAL GOODNORMAL GOOD

AnyAny goodsgoods for whichfor which demanddemand increasesincreaseswhen income increases and falls whenwhen income increases and falls when

income decreases but price remainsincome decreases but price remainsconstant.constant.


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INFERIOR GOODINFERIOR GOOD

AnyAny goodsgoods for whichfor which demanddemand decreasesdecreaseswhen income increases and increaseswhen income increases and increaseswhen income decreases but price remainswhen income decreases but price remainsconstant.constant.

ExEx-- Inter city bus servicesInter city bus services

--Demand for potatoDemand for potato


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SUPPLYSUPPLY

Willingness of the supplierWillingness of the supplier

Ability of the supplierAbility of the supplier


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EXPERIENCE/CREDENCEEXPERIENCE/CREDENCE

GOODSGOODS

Experience goodExperience good is a product or service whereis a product or service whereproduct characteristics such as quality or priceproduct characteristics such as quality or priceare difficult to observe in advance, but theseare difficult to observe in advance, but these

characteristics can be ascertained uponcharacteristics can be ascertained uponconsumptionconsumption

HealthcareHealthcare

Credence Goods are goods for which it is difficultCredence Goods are goods for which it is difficult

for consumers to ascertain the quality evenfor consumers to ascertain the quality even afterafterthey have consumed them.they have consumed them.

VitaminVitamin


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GIFFEN GOODSGIFFEN GOODS

aa GiffenGiffen goodgood is one which peopleis one which peopleconsume more of as price rises, violatingconsume more of as price rises, violatingthethe law of demandlaw of demand..


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1.1. the good in question must be anthe good in question must be an inferior goodinferior good,,

2.2. there must be a lack of closethere must be a lack of close substitute goodssubstitute goods,,andand

3.3. the good must constitute a substantialthe good must constitute a substantialpercentage of the buyer's income, but notpercentage of the buyer's income, but notsuch a substantial percentage of the buyer'ssuch a substantial percentage of the buyer'sincome that none of the associatedincome that none of the associated normalnormal

goodsgoods are consumed.are consumed.All Giffen goods are inferior goods but not allAll Giffen goods are inferior goods but not all

inferior goods are Giffen goods.inferior goods are Giffen goods.


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BAJRA WHEAT

Rs 10 Per Kg 20 Per Kg

20Kg 10Kg

Rs 200 200

BAJRA WHEAT

Rs 12 Per Kg 20 Per Kg

25Kg 5Kg

Rs 300 100


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Complementary GoodsComplementary Goods

AA complementary goodcomplementary good oror complementcomplementgoodgood inin economicseconomics is ais a goodgood which iswhich isconsumed with another good; It is twoconsumed with another good; It is twogoods that are bought and used togethergoods that are bought and used together


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SUBSTITUTE GOODSSUBSTITUTE GOODS

When the two kinds of goods can beWhen the two kinds of goods can beconsumed or used in place of one anotherconsumed or used in place of one anotherin at least some of their possible uses,in at least some of their possible uses,they are known as substitute goods.they are known as substitute goods.


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LAW OF DEMANDLAW OF DEMAND

AllAll otherother factorsfactors beingbeing equal,equal, asas thethe

priceprice ofof aa goodgood oror serviceservice increases,increases,

consumerconsumer demanddemand forfor thethe goodgood oror

serviceservice willwill decreasedecrease andand vicevice

versaversa..ThereThere isis aa inverseinverse relationshiprelationship

betweenbetween priceprice andand quantityquantity demandeddemanded..


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Marketdemand curveMarketdemand curve

Shows the maximum amount of aShows the maximum amount of acommodity that buyers would like tocommodity that buyers would like topurchase at various pricespurchase at various prices

The following figure shows the shape of aThe following figure shows the shape of a

demand curve.demand curve.

Demand curve

Price

0


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Propertiesofthe DemandCurvePropertiesofthe DemandCurve

The demand curve can refer to an individual, firm, or toThe demand curve can refer to an individual, firm, or toa whole market.a whole market.

The demand curve refers to a particular period of time.The demand curve refers to a particular period of time.

It is downward sloping implying that a lower priceIt is downward sloping implying that a lower priceresults in more quantity demanded.results in more quantity demanded.

Any demand curve is drawn based on the assumptionAny demand curve is drawn based on the assumptionthat the following variables (or parameters) arethat the following variables (or parameters) areconstant:constant:

Prices of competing goodsPrices of competing goods

Incomes of consumersIncomes of consumers

Number of consumers in the marketNumber of consumers in the market

Tastes of consumers

Tastes of consumers


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DETERMINANTS OF MARKETDETERMINANTS OF MARKET

DEMANDDEMAND

PricePrice

Price of substitutes & complementary goodsPrice of substitutes & complementary goods

Consumer incomeConsumer income

Consumers taste & preferenceConsumers taste & preference

Consumers expectationConsumers expectation

Demonstration effectDemonstration effect

Consumer credit facilityConsumer credit facility

Population of the countryPopulation of the country

Distribution of national incomeDistribution of national income


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DEMAND SHIFTERSDEMAND SHIFTERS

Tastes

Income

Information Expectations

Other prices


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EXCEPTIONS TO LAW OFEXCEPTIONS TO LAW OF

DEMANDDEMAND


ARTICLES OF DISTINCTIONARTICLES OF DISTINCTION

EXCEPTION OF RISE & FALL IN PRICE INEXCEPTION OF RISE & FALL IN PRICE INFUTUREFUTURE

IGNORANCE ON THE PART OFIGNORANCE ON THE PART OF

CONSUMER ABOUT

QUALITY

CONSUMER ABOUT

QUALITY


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normal good inferior good Ordinary good Giffen good

Consumption

Income Up up down down up

Income down down up up down

Income change Price change


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THANK YOUTHANK YOU

managerial economics class3

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