Demand Analysis

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Pricing > Demand Analysis
Demand Analysis
The Demand Curve

The Influence of Supply and Demand on Price
Elasticity of Demand
Yield Management Systems
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The Demand Curve

Demand does not only have to do with the need to have a product or a service,
but it also involves the willingness and ability to buy it at the price charged for it.
The demand curve for all consumers together follows from the demand curve of
every individual consumer. The individual demands at each price are added
together.
The negative slope of the demand curve is often referred to as the "law of
demand," which means people will buy more of a service, product, or resource as
its price falls.
Figure 2
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The Influence of Supply and Demand on Price

There are four basic laws of supply and demand.
Since determinants of supply and demand other than the price of the good in
question are not explicitly represented in the supply-demand diagram, changes in
the values of these variables are represented by moving the supply and demand
curves (often described as "shifts" in the curves).
Responses to changes in the price of the good are represented as movements
along unchanged supply and demand curves.
Supply and Demand

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Elasticity of Demand
Price elasticities are almost always negative; only goods which do not conform to
the law of demand, such as a Veblen good and a Giffen good, have a positive
PED.
In general, the demand for a good is said to be inelastic (or relatively inelastic)
when changes in price have a relatively small effect on the quantity of the good
demanded.
The demand for a good is said to be elastic (or relatively elastic) when changes in
price have a relatively large effect on the quantity of a good demanded.
A number of factors can thus affect the elasticity of demand for a good.
Equation
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Yield Management Systems

Yield management is the process of understanding, anticipating, and influencing
consumer behavior to maximize yield or profits from a fixed, perishable resource
(such as airline seats or hotel room reservations).
Yield management is particularly suitable when selling perishable products, which
are goods that become unsellable at a point in time (for example, airline tickets
just after a flight takes off).
While yield management systems tend to generate higher revenues, the revenue
streams tend to arrive later in the booking horizon as more capacity is held for
late sale at premium prices.
Airline Tickets
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Appendix
Pricing
Key terms
conjoint analysis Conjoint analysis is a statistical technique used in market research to determine how people value different
features that make up an individual product or service.
derived demand when demand for a factor of production or intermediate good occurs as a result of the demand for another
intermediate or final good
equilibrium price The price of a commodity at which the quantity that buyers wish to buy equals the quantity that sellers wish to
sell.
forecast An estimation of a future condition.
Giffen good A good which people consume more of as the price rises; Having a positive price elasticity of demand. As price
rises, more is consumed which increases demand.
Giffen good A good which people consume more of as the price rises; Having a positive price elasticity of demand. As price
rises, more is consumed which increases demand.
inventory The stock of an item on hand at a particular location or business.
perishable That which perishes or is short-lived.
straight rebuy the repurchase of a good with no changes to the details of the order
Veblen good A good for which people's preference for buying them increases as a direct function of their price, as greater price
confers greater status. As the price gets higher, demand rises.
Veblen good A good for which people's preference for buying them increases as a direct function of their price, as greater price
confers greater status. As the price gets higher, demand rises.
Pricing
Figure 2
Demand Curve
Connexions. "The price factor." CC BY 3.0 http://cnx.org/content/m23084/latest/ View on Boundless.com
Pricing
Equation
This is the price elasticity of demand equation.
Wikipedia. "Price elasticity of demand." GNU FDL http://en.wikipedia.org/wiki/Price_elasticity_of_demand View on Boundless.com
Pricing
Airline Tickets
Your ticket may cost more or less than mine due to yield management.
Flickr. "All sizes | My airline ticket hisses at me | Flickr - Photo Sharing!." CC BY http://www.flickr.com/photos/bryanalexander/296567921/sizes/m/in/photostream/
Pricing
Supply and Demand

The price P of a product is determined by a balance between production at each price (supply S) and the desires of those with purchasing power at each
price (demand D). The diagram shows a positive shift in demand from D1 to D2, resulting in an increase in price (P) and quantity sold (Q) of the product.
Wikipedia. "Supply and demand." GNU FDL http://en.wikipedia.org/wiki/Supply_and_demand View on Boundless.com
Pricing
The constant a in the demand curve represents

A) the willingness of consumers to buy more of a good or service as its
price falls.
B) how the price of the good influences consumer demand.
C) the effects of all non-price determinants that influence consumer
demand.
D) the effects of all price-related determinants that influence consumer
demand.
Pricing
The constant a in the demand curve represents

A) the willingness of consumers to buy more of a good or service as its
price falls.
B) how the price of the good influences consumer demand.
C) the effects of all non-price determinants that influence consumer
demand.
D) the effects of all price-related determinants that influence consumer
demand.
Boundless - LO. "Boundless." CC BY-SA 3.0 http://www.boundless.com/
Pricing
If the poultry market experiences a decrease in the supply of

healthy chickens, but market demand remains unchanged, it can
be concluded that
A) it will lead to a higher equilibrium price and higher quantity of poultry
products.
B) it will lead to a lower equilibrium price and lower quantity of poultry
products.
C) it will lead to a lower equilibrium price and higher quantity of poultry
products.
D) it will lead to a higher equilibrium price and lower quantity of poultry
products.
Pricing
If the poultry market experiences a decrease in the supply of

healthy chickens, but market demand remains unchanged, it can
be concluded that
A) it will lead to a higher equilibrium price and higher quantity of poultry
products.
B) it will lead to a lower equilibrium price and lower quantity of poultry
products.
C) it will lead to a lower equilibrium price and higher quantity of poultry
products.
D) it will lead to a higher equilibrium price and lower quantity of poultry
products.
Pricing
Which of the following best describes why a broad definition of a

consumer good would cause it to have a low elasticity of demand
in the market?
A) Goods with low price elasticity due to broad definitions tend to have
numerous substitutes.
B) Goods with low price elasticity due to broad definitions tend to
represent only a negligible portion of a consumer's budget.
C) Goods with low price elasticity due to broad definitions tend to have
few or no market substitutes.
D) Goods with low price elasticity due to broad definitions tend to have
price changes that hold for long periods for time.
Pricing
Which of the following best describes why a broad definition of a

consumer good would cause it to have a low elasticity of demand
in the market?
A) Goods with low price elasticity due to broad definitions tend to have
numerous substitutes.
B) Goods with low price elasticity due to broad definitions tend to
represent only a negligible portion of a consumer's budget.
C) Goods with low price elasticity due to broad definitions tend to have
few or no market substitutes.
D) Goods with low price elasticity due to broad definitions tend to have
price changes that hold for long periods for time.
Pricing
Yield management is particularly suitable for maximizing profits in

the airline industry because airline seats are
A) a large revenue generator.
B) a fixed, perishable resource.
C) sold at premium prices.
D) sold at different price points.
Pricing
Yield management is particularly suitable for maximizing profits in

the airline industry because airline seats are
A) a large revenue generator.
B) a fixed, perishable resource.
C) sold at premium prices.
D) sold at different price points.
Pricing
Attribution
Wikipedia. "Demand curve." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Demand_curve
Connexions. "The price factor." CC BY 3.0 http://cnx.org/content/m23084/latest/
Boundless Learning. "Boundless." CC BY-SA 3.0 http://www.boundless.com//marketing/definition/straight-rebuy
Wikipedia. "Derived demand." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Derived_demand
Wiktionary. "Giffen good." CC BY-SA 3.0 http://en.wiktionary.org/wiki/Giffen+good
Wiktionary. "Veblen good." CC BY-SA 3.0 http://en.wiktionary.org/wiki/Veblen+good
Wikipedia. "Yield management." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Yield_management#Yield_management_system
Canadian Center of Science and Education. "Yield Management in the French hotel business: An assessment of the
importance of the human factor | Selmi | International Business Research." CC BY
http://www.ccsenet.org/journal/index.php/ibr/article/view/9362/7109
Wiktionary. "forecast." CC BY-SA 3.0 http://en.wiktionary.org/wiki/forecast
Wiktionary. "perishable." CC BY-SA 3.0 http://en.wiktionary.org/wiki/perishable
Wiktionary. "inventory." CC BY-SA 3.0 http://en.wiktionary.org/wiki/inventory
Wikibooks. "Microeconomics/Supply and Demand." CC BY-SA 3.0
http://en.wikibooks.org/wiki/Microeconomics/Supply_and_Demand
Wikipedia. "Supply and demand." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Supply_and_demand
Wiktionary. "equilibrium price." CC BY-SA 3.0 http://en.wiktionary.org/wiki/equilibrium+price
Wiktionary. "Giffen good." CC BY-SA 3.0 http://en.wiktionary.org/wiki/Giffen+good
Wiktionary. "Veblen good." CC BY-SA 3.0 http://en.wiktionary.org/wiki/Veblen+good
Wikipedia. "conjoint analysis." CC BY-SA 3.0 http://en.wikipedia.org/wiki/conjoint%20analysis
Pricing
Wikipedia. "Price elasticity of demand." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Price_elasticity_of_demand

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Boundless Lecture Slides

Available on the Boundless Teaching Platform

Using Boundless Presentations

Get started now at:

Free to edit, share, and copy

If you have any questions or problems please email:

Pricing > Demand Analysis

The Demand Curve

Pricing > Demand Analysis

The Demand Curve

Pricing > Demand Analysis

The Influence of Supply and Demand on Price

Supply and Demand

Pricing > Demand Analysis

Pricing > Demand Analysis

Yield Management Systems

Supply and Demand

The constant a in the demand curve represents

The constant a in the demand curve represents

If the poultry market experiences a decrease in the supply of

If the poultry market experiences a decrease in the supply of

Which of the following best describes why a broad definition of a

Which of the following best describes why a broad definition of a

Yield management is particularly suitable for maximizing profits in

B) a fixed, perishable resource.

C) sold at premium prices.

D) sold at different price points.

Yield management is particularly suitable for maximizing profits in

B) a fixed, perishable resource.

C) sold at premium prices.

D) sold at different price points.

Wikipedia. "Price elasticity of demand." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Price_elasticity_of_demand

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