Demand analysis Firms sell goods/services to buyers Consumers (individuals) : utility Firms : make profits Willingness to pay: maximum price buyer will pay for a good Point of indifference between buying and not buying Lower price always preferred by buyer
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Demand analysis
Firms sell goods/services to buyers Consumers (individuals) : utility Firms : make profits
Willingness to pay: maximum price buyer will pay for a good Point of indifference between buying and not
buying Lower price always preferred by buyer
Willingness to pay is determined by Buyer’s tastes or needs Income and wealth
Normal/inferior goods Cyclical/acyclical demand
Substitutes Complementary goods
Demand curve for an individual buyer Willingness to pay for
different quantities of the good Or, quantity demanded at each
price Usually downward sloping:
lower willingness to pay for additional units Lower utility of consumption
for consumers Lower productivity of
resources for firms
Shifts in demand curve
Market demand Sum of individual demand curves Aggregate quantity demanded at each price Arrays individual buyers in order of willingness to pay Identical goods? Product differentiation?
Market segments / Price discrimination Different segments willing to pay different prices Consumer surplus Can firms exploit this?
Feasible? Fair?
Price sensitivity of demand Slope of market demand curve Flat demand curve: very price sensitive: Elastic
Goods with good substitutes Luxury items ?
Steep demand curve: less sensitive: Inelastic Necessities
Time-frame: easier to find substitutes over long run
Demand curves Accept as given? Seek to modify?
Supply analysis
Supply curve How much the firm will sell at each price Assumption: price-taking firm
Time-frame of supply decision Long run: compete in the market at all? Short run: how much to produce & sell?