Demand Analysis- II.pptx

Market Demand Curve

Demand Analysis-IIElasticity of DemandSlope of the Demand curveMarket Demand FunctionQDX = f(PX, N, I, PY, T)quantity demanded of commodity Xprice per unit of commodity Xnumber of consumers on the marketconsumer incomeprice of related (substitute or complementary) commodityconsumer tastesQDX =PX =N =I =PY =

T =3Demand Curve Faced by a Firm Depends on Market StructureMarket demand curveImperfect competitionFirms demand curve has a negative slopeMonopoly - same as market demandOligopolyMonopolistic CompetitionPerfect CompetitionFirm is a price takerFirms demand curve is horizontal4Demand Curve Faced by a Firm Depends on the Type of ProductDurable GoodsProvide a stream of services over timeDemand is volatile Nondurable Goods and ServicesProducers GoodsUsed in the production of other goodsDemand is derived from demand for final goods or services5Linear Demand FunctionQX = a0 + a1PX + a2N + a3I + a4PY + a5TPXQXIntercept:a0 + a2N + a3I + a4PY + a5TSlope:QX/PX = a16Linear Demand Function Example Part 1Demand Function for Good XQX = 160 - 10PX + 2N + 0.5I + 2PY + TDemand Curve for Good XGiven N = 58, I = 36, PY = 12, T = 112Q = 430 - 10P7Linear Demand Function Example Part 2Inverse Demand CurveP = 43 0.1QTotal and Marginal Revenue FunctionsTR = 43Q 0.1Q2MR = 43 0.2Q8

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11Price Elasticity of Demand

Point Definition12Price Elasticity of DemandArc Definition

13Marginal Revenue and Price Elasticity of Demand

14Marginal Revenue and Price Elasticity of DemandPXQXMRX

15Determinants of Price Elasticity of DemandThe demand for a commodity will be more price elastic if:It has more close substitutesIt is more narrowly definedMore time is available for buyers to adjust to a price change16Determinants of Price Elasticity of DemandThe demand for a commodity will be less price elastic if:It has fewer substitutesIt is more broadly definedLess time is available for buyers to adjust to a price change17

Income Elasticity of DemandPoint Definition

19Income Elasticity of DemandArc Definition

Normal GoodInferior Good

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21Cross-Price Elasticity of DemandPoint Definition

22Cross-Price Elasticity of DemandArc DefinitionSubstitutesComplements

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