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# Managerial Economics

Demand Analysis

## Importance of Demand Analysis for the Managers

Provides insights necessary to effectively manipulate demand Helps forecast sales and revenues

## Veena Pailwar Professor IMT, Nagpur

Demand Schedule
Demand: A Definition Quantity of a good or service a buyer (or buyers) would buy for a given price Price of Orange (Rs/ Unit) 10 Quantities Demanded (Units Per time period) 50 60 70 80 90

Demand Relationship
Demand Schedule (Table) Demand Curve Demand Function

9 8 7 6

## Individual Demand Curve

The highest quantity of a good at each price the consumer is Willing to Buy/ demand, ceteris paribus (all other factors other than the price remaining the same). Law of Demand
Q/time unit

## Demand Function Q = f( P, Ps, Pc, I, W, E)

+ + + + P: Price of the good Ps: Price of substitute good Pc: Price of Complementary good I : Income W: Wealth E:Expectations Demand function includes all the important variables that influence quantity demanded

Rs/Q

## The demand curve is downward sloping.

The Market Demand Curve is the horizontal 8 sum of the individual demand curves.
Price of Orange (Rs/ Unit)
10 9 8 7 6

Ram

Market

## A Change in Quantity Demanded

Price A to B: Increase in quantity demanded A B

70

40

110

## Quantities Quantities Quantities Demanded Demanded Demanded Ram Radha Market

50 60 70 80 90 20 30 40 50 60 70 90 110 130 150

10 6

D0 4 7 Quantity

Assumption: Factors other than the price of the commodity are constant

Consumer Surplus

A Change in Demand
Price D0 to D1: Increase in Demand

The value consumers get from a good but do not have to pay for. I got a great deal!
That company offers a lot of bang for the buck! Dell provides good value. Total value greatly exceeds total amount paid. Consumer surplus is large.

## I got a lousy deal!

That car dealer drives a hard bargain! I almost decided not to buy it! They tried to squeeze the very last cent from me! Total amount paid is close to total value. Consumer surplus is low.

6 D1 D0 7 13 Quantity

Assumption: Factors other than the price of the commodity are variable

## Consumer Surplus The Discrete Case

Price 10 8 6 4 2 D 1 2 3 4 5 Quantity Consumer Surplus: The difference between the highest price a consumer is willing to pay and the actual price the consumer pays (Area shown by green Colour)

Price Rs 10 8
Consumer Surplus

Value of 4 units