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PowerPoint Slides Prepared by Robert F. Brooker, Ph.D. Copyright (c) 2007 by Oxford University Press, Inc. (Adapted by OUP India, 2008) law of demand expresses the relationship between the quantity demanded and the price of the commodity. The law of demands states that, "the lower the price of a commodity the larger the quantity demanded of it and vice versa"
PowerPoint Slides Prepared by Robert F. Brooker, Ph.D. Copyright (c) 2007 by Oxford University Press, Inc. (Adapted by OUP India, 2008) law of demand expresses the relationship between the quantity demanded and the price of the commodity. The law of demands states that, "the lower the price of a commodity the larger the quantity demanded of it and vice versa"
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PowerPoint Slides Prepared by Robert F. Brooker, Ph.D. Copyright (c) 2007 by Oxford University Press, Inc. (Adapted by OUP India, 2008) law of demand expresses the relationship between the quantity demanded and the price of the commodity. The law of demands states that, "the lower the price of a commodity the larger the quantity demanded of it and vice versa"
Авторское право:
Attribution Non-Commercial (BY-NC)
Доступные форматы
Скачайте в формате PPT, PDF, TXT или читайте онлайн в Scribd
PowerPoint Slides Prepared by Robert F. Brooker, Ph.D. Copyright 2007 by Oxford University Press, Inc.
University Press, Inc. (Adapted by OUP India, 2008) Slide 1
PowerPoint Slides Prepared by Robert F. Brooker, Ph.D. Copyright 2007 by Oxford University Press, Inc. (Adapted by OUP India, 2008) Slide 2 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. PowerPoint Slides Prepared by Robert F. Brooker, Ph.D. Copyright 2007 by Oxford University Press, Inc. (Adapted by OUP India, 2008) Slide 3 Law of Demand Holding all other things constant (ceteris paribus), there is an inverse relationship between the price of a good and the quantity of the good demanded per time period. Substitution Effect Income Effect PowerPoint Slides Prepared by Robert F. Brooker, Ph.D. Copyright 2007 by Oxford University Press, Inc. (Adapted by OUP India, 2008) Slide 4 Demand Analysis Law of Demand: Law of demand expresses the relationship between the Quantity demanded and the Price of the commodity. The law of demands states that, Ceteris Paribus, (other things remaining constant) the lower the price of a commodity the larger the quantity demanded of it and vice versa. In simple terms other things remain constant, if the price of the commodity increases, the demand will decrease and if the price of the commodity decreases, the demand will increase.
P Qd 1 60 2 50 3 40 4 30 PowerPoint Slides Prepared by Robert F. Brooker, Ph.D. Copyright 2007 by Oxford University Press, Inc. (Adapted by OUP India, 2008) Slide 5 Components of Demand: The Substitution Effect Assuming that real income is constant: If the relative price of a good rises, then consumers will try to substitute away from the good. Less will be purchased. If the relative price of a good falls, then consumers will try to substitute away from other goods. More will be purchased. The substitution effect is consistent with the law of demand. PowerPoint Slides Prepared by Robert F. Brooker, Ph.D. Copyright 2007 by Oxford University Press, Inc. (Adapted by OUP India, 2008) Slide 6 Components of Demand: The Income Effect The real value of income is inversely related to the prices of goods. A change in the real value of income: will have a direct effect on quantity demanded if a good is normal. will have an inverse effect on quantity demanded if a good is inferior. The income effect is consistent with the law of demand only if a good is normal. PowerPoint Slides Prepared by Robert F. Brooker, Ph.D. Copyright 2007 by Oxford University Press, Inc. (Adapted by OUP India, 2008) Slide 7 Individual Consumers Demand Qd X = f(P X , I, P Y , T) quantity demanded of commodity X by an individual per time period price per unit of commodity X consumers income price of related (substitute or complementary) commodity tastes of the consumer Qd X =
P X = I = P Y =
T = PowerPoint Slides Prepared by Robert F. Brooker, Ph.D. Copyright 2007 by Oxford University Press, Inc. (Adapted by OUP India, 2008) Slide 8 Qd X = f(P X , I, P Y , T) AQd X /AP X < 0 AQd X /AI > 0 if a good is normal AQd X /AI < 0 if a good is inferior AQd X /AP Y > 0 if X and Y are substitutes AQd X /AP Y < 0 if X and Y are complements PowerPoint Slides Prepared by Robert F. Brooker, Ph.D. Copyright 2007 by Oxford University Press, Inc. (Adapted by OUP India, 2008) Slide 9 PowerPoint Slides Prepared by Robert F. Brooker, Ph.D. Copyright 2007 by Oxford University Press, Inc. (Adapted by OUP India, 2008) Slide 10 Market Demand Curve Horizontal summation of demand curves of individual consumers PowerPoint Slides Prepared by Robert F. Brooker, Ph.D. Copyright 2007 by Oxford University Press, Inc. (Adapted by OUP India, 2008) Slide 11 PowerPoint Slides Prepared by Robert F. Brooker, Ph.D. Copyright 2007 by Oxford University Press, Inc. (Adapted by OUP India, 2008) Slide 12 Market Demand Function QD X = f(P X , N, I, P Y , T) quantity demanded of commodity X price per unit of commodity X number of consumers on the market consumer income price of related (substitute or complementary) commodity consumer tastes QD X = P X = N = I = P Y =
T = PowerPoint Slides Prepared by Robert F. Brooker, Ph.D. Copyright 2007 by Oxford University Press, Inc. (Adapted by OUP India, 2008) Slide 13 Demand Curve Faced by a Firm Depends on Market Structure Market demand curve Imperfect competition Firms demand curve has a negative slope Monopoly - same as market demand Oligopoly Monopolistic Competition Perfect Competition Firm is a price taker Firms demand curve is horizontal PowerPoint Slides Prepared by Robert F. Brooker, Ph.D. Copyright 2007 by Oxford University Press, Inc. (Adapted by OUP India, 2008) Slide 14 Demand Curve Faced by a Firm Depends on the Type of Product Durable Goods Provide a stream of services over time Demand is volatile Nondurable Goods and Services Producers Goods Used in the production of other goods Demand is derived from demand for final goods or services PowerPoint Slides Prepared by Robert F. Brooker, Ph.D. Copyright 2007 by Oxford University Press, Inc. (Adapted by OUP India, 2008) Slide 15 Elasticity of Demand Elasticity of Demand: Elasticity of demand is defined as the percentage change in quantity demanded caused one percent change in each of the determinants under consideration while the other determinants are held constant. Ed = % change in quantity demanded / % change in the determinant. There are mainly five types of Elasticity of Demand : Price Elasticity of demand Income Elasticity of demand Cross Elasticity of demand Promotional Elasticity of demand Expectation Elasticity of demand
PowerPoint Slides Prepared by Robert F. Brooker, Ph.D. Copyright 2007 by Oxford University Press, Inc. (Adapted by OUP India, 2008) Slide 16 PowerPoint Slides Prepared by Robert F. Brooker, Ph.D. Copyright 2007 by Oxford University Press, Inc. (Adapted by OUP India, 2008) Slide 17 Income Elasticity of Demand: Income Elasticity of Demand measures the degree of responsiveness of the quantity demanded of a commodity due to a change in money income of the consumer. Em = - (% change in quantity demanded) / ( % change in the Money Income). Cross Elasticity of Demand: Income Elasticity of Demand measures the degree of responsiveness of the quantity demanded of one commodity due to a change in price of some related goods. Exy = - (% change in quantity demand of goods Y) / ( % change in the price of goods X). PowerPoint Slides Prepared by Robert F. Brooker, Ph.D. Copyright 2007 by Oxford University Press, Inc. (Adapted by OUP India, 2008) Slide 18 Factors affecting the Elasticity of Demand : Nature of the product Availability of the substitute product Uses of the commodity Income Levels Proportion of Income spent Postpone consumption Price levels Time period Durability Taste & Preference Demonstration Effect Advertisement Special Demand (Medicine) Complementary Goods Expectation of the future price etc PowerPoint Slides Prepared by Robert F. Brooker, Ph.D. Copyright 2007 by Oxford University Press, Inc. (Adapted by OUP India, 2008) Slide 19 PowerPoint Slides Prepared by Robert F. Brooker, Ph.D. Copyright 2007 by Oxford University Press, Inc. (Adapted by OUP India, 2008) Slide 20 PowerPoint Slides Prepared by Robert F. Brooker, Ph.D. Copyright 2007 by Oxford University Press, Inc. (Adapted by OUP India, 2008) Slide 21 Price Elasticity of Demand / / P Q Q Q P E P P P Q A A = = A A Linear Function Point Definition 1 P P E a Q = PowerPoint Slides Prepared by Robert F. Brooker, Ph.D. Copyright 2007 by Oxford University Press, Inc. (Adapted by OUP India, 2008) Slide 22 Price Elasticity of Demand Arc Definition 2 1 2 1 2 1 2 1 P Q Q P P E P P Q Q + = + PowerPoint Slides Prepared by Robert F. Brooker, Ph.D. Copyright 2007 by Oxford University Press, Inc. (Adapted by OUP India, 2008) Slide 23 Marginal Revenue and Price Elasticity of Demand 1 1 P MR P E | | = + | \ . PowerPoint Slides Prepared by Robert F. Brooker, Ph.D. Copyright 2007 by Oxford University Press, Inc. (Adapted by OUP India, 2008) Slide 24 Marginal Revenue and Price Elasticity of Demand P X Q X MR X 1 P E > 1 P E < 1 P E = PowerPoint Slides Prepared by Robert F. Brooker, Ph.D. Copyright 2007 by Oxford University Press, Inc. (Adapted by OUP India, 2008) Slide 25 Marginal Revenue, Total Revenue, and Price Elasticity TR
Q X 1 P E < MR<0
MR>0
1 P E > 1 P E = MR=0
PowerPoint Slides Prepared by Robert F. Brooker, Ph.D. Copyright 2007 by Oxford University Press, Inc. (Adapted by OUP India, 2008) Slide 26 Determinants of Price Elasticity of Demand The demand for a commodity will be more price elastic if: It has more close substitutes It is more narrowly defined More time is available for buyers to adjust to a price change PowerPoint Slides Prepared by Robert F. Brooker, Ph.D. Copyright 2007 by Oxford University Press, Inc. (Adapted by OUP India, 2008) Slide 27 Determinants of Price Elasticity of Demand The demand for a commodity will be less price elastic if: It has fewer substitutes It is more broadly defined Less time is available for buyers to adjust to a price change PowerPoint Slides Prepared by Robert F. Brooker, Ph.D. Copyright 2007 by Oxford University Press, Inc. (Adapted by OUP India, 2008) Slide 28 Income Elasticity of Demand Linear Function Point Definition / / I Q Q Q I E I I I Q A A = = A A 3 I I E a Q = PowerPoint Slides Prepared by Robert F. Brooker, Ph.D. Copyright 2007 by Oxford University Press, Inc. (Adapted by OUP India, 2008) Slide 29 Income Elasticity of Demand Arc Definition 2 1 2 1 2 1 2 1 I Q Q I I E I I Q Q + = + Normal Good Inferior Good 0 I E > 0 I E < PowerPoint Slides Prepared by Robert F. Brooker, Ph.D. Copyright 2007 by Oxford University Press, Inc. (Adapted by OUP India, 2008) Slide 30 Cross-Price Elasticity of Demand Linear Function Point Definition / / X X X Y XY Y Y Y X Q Q Q P E P P P Q A A = = A A 4 Y XY X P E a Q = PowerPoint Slides Prepared by Robert F. Brooker, Ph.D. Copyright 2007 by Oxford University Press, Inc. (Adapted by OUP India, 2008) Slide 31 Cross-Price Elasticity of Demand Arc Definition Substitutes Complements 2 1 2 1 2 1 2 1 X X Y Y XY Y Y X X Q Q P P E P P Q Q + = + 0 XY E > 0 XY E < PowerPoint Slides Prepared by Robert F. Brooker, Ph.D. Copyright 2007 by Oxford University Press, Inc. (Adapted by OUP India, 2008) Slide 32 Example: Using Elasticities in Managerial Decision Making A firm with the demand function defined below expects a 5% increase in income (M) during the coming year. If the firm cannot change its rate of production, what price should it charge? Demand: Q = 3P + 100M P = Current Real Price = 1,000 M = Current Income = 40 PowerPoint Slides Prepared by Robert F. Brooker, Ph.D. Copyright 2007 by Oxford University Press, Inc. (Adapted by OUP India, 2008) Slide 33 Solution Elasticities Q = Current rate of production = 1,000 P = Price = - 3(1,000/1,000) = - 3 I = Income = 100(40/1,000) = 4 Price %Q = - 3%P + 4%I 0 = -3%P+ (4)(5) so %P = 20/3 = 6.67% P = (1 + 0.0667)(1,000) = 1,066.67 PowerPoint Slides Prepared by Robert F. Brooker, Ph.D. Copyright 2007 by Oxford University Press, Inc. (Adapted by OUP India, 2008) Slide 34 Other Factors Related to Demand Theory International Convergence of Tastes Globalization of Markets Influence of International Preferences on Market Demand Growth of Electronic Commerce Cost of Sales Supply Chains and Logistics Customer Relationship Management