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Name : Karoj H.

Najman

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Engineering Economic Studies – Creative step – Definition step – Conversion step to same scale to facilitate comparative evaluation – Decision step Elasticity of demand. It depends on whether the consumer product is a necessity or a luxury. A process can be improved at a rate with a diminishing return. Print to PDF without this message by purchasing novaPDF (http://www. Example: cost of inspection to reduce cost of repair and lost production.com/) . – Law of diminishing return.novapdf. Price changes and their effect on demand changes.

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there are many other factors which influence the purchase of a product (demand). holding other factors as constant. Define the Law of Demand: The relation of price to quantity demanded / sales is known as the law of demand. Define Determinants of Demand: An individual’s demand for a commodity depends on his desire and capability to purchase it.Demand 1. Apart from the desire to purchase. 2.novapdf.com/) . holding other factors constant. 6. Law of demand states that the higher the price is the lower the demand is and vice versa. These are known as demand determinants. Demand indicates the quantities of products (goods service) which the firm is willing and financially able to purchase at various prices. Print to PDF without this message by purchasing novaPDF (http://www.Define Demand.

hence the negative slope of the demand schedule. a. it is not necessarily a place. Print to PDF without this message by purchasing novaPDF (http://www. as predicted by the law of demand. A market is nothing more or less than the locus of exchange.novapdf. 2.1. This is a negative relation between price and quantity. but simply buyers and sellers coming together for transactions. As price falls from P1 to P2 the quantity demanded increases from Q1 to Q2.com/) . The law of demand states that as price increases (decreases) consumers will purchase less (more) of the specific commodity. The demand schedule (demand curve) reflects the law of demand it is a downward sloping function and is a schedule of the quantity demanded at each and every price.

consumers will buy less of it and more of other commodities. 2. Individual versus market demand . Nonprice determinants of demand. and 5. 3. 4. pleasure. 3.com/) . b.again the demand curve shows the negative relation between price and quantity. The income effect is the fact that as a person's income increases (or the price of item goes down [which effectively increases command over goods] more of everything will be demanded.novapdf. 2. utility (use. and a shift to the left (right) of the demand curve is called a decrease (increase) in demand. b. jollies) from the consumption of commodities. tastes and preferences of consumers. Price and quantity . the number of consumers. The substitution effect is the fact that as the price of a commodity increases. the money incomes of consumers. c. c. The change in utility derived from the consumption of one more unit of a commodity is called marginal utility.1. the prices of related goods.a market demand curve is simply an aggregation of all individual demand curves for a particular commodity. consumers' expectations concerning future availability or prices of the commodity. Demand Curve a. 3. The nonprice determinants of demand are: 1. Diminishing marginal utility is the fact that at some point further consumption of a commodity adds smaller and smaller increments to the total utility received from the consumption of that commodity. Print to PDF without this message by purchasing novaPDF (http://www.

notice that at each price there is a greater quantity demanded along D2 (the dotted line) than was demanded with D1 (the solid line). Print to PDF without this message by purchasing novaPDF (http://www. Changes in demand versus in quantity demanded An increase in demand is shown in the first panel. The second panel shows a decrease in demand.com/) . notice that there is a lower quantity demanded at each price along D2 (the dotted line) than was demanded with D1(the solid line).novapdf.d.

and 6. technology. 4. resource prices. a. There is a positive relation between price and quantity on a supply curve.com/) . Supply schedule . taxes and subsidies. Changes in one or more of the nonprice determinants of supply cause the supply curve to shift.novapdf. when price increases from P2 to P1 the quantity demanded decreases from Q2 to Q1. expectations concerning future prices. a. Print to PDF without this message by purchasing novaPDF (http://www. b. the number of sellers. The law of supply is that producers will supply more the higher the price of the commodity. The non price determinants of supply are: 1. 3. a shift to the right is called an increase in supply. A shift to the left of the supply curve is called a decrease in supply. Changes in quantities demanded are caused by changes in price.Movement along a demand curve is called a change in the quantity demanded.is nothing more than a schedule of the quantities at each and every price. prices of other goods. When price decreases from P1 to P2. 2. 4. 5. 5.are the quantities supplied at each and every price. the quantity demanded increases from Q1 to Q2. Supply curve .

A decrease in supply is shown in the first panel.com/) .novapdf. notice that there is a lower quantity supplied at each price with S2 (dotted line) than with S1 (solid line). notice that there is a larger quantity supplied at each price with S2 (dotted line) than with S1 (solid line). Print to PDF without this message by purchasing novaPDF (http://www. The second panel shows an increase in supply.

The following graphical analysis portrays a market in equilibrium.com/) . Where the supply and demand curves intersect.novapdf. equilibrium price is determined (Pe) and equilibrium quantity is determined (Qe) Print to PDF without this message by purchasing novaPDF (http://www.

What Highlights of the law of demand: 1.Define Individual demand : The quantity of a product demanded by an individual purchaser at a given price is known as individual demand. other than the price of a good that influence demand are known as demand shifters. 11. 2. Some example are diamonds and antiques. the sales of the shares while decrease in the price of the shares results in decrease of sale of the shares. 10. especially when the rise in price is taken to mean an improvement in quality and a reduction in price as deterioration in quality. Here when the price of the product rises then the appeal of the product also rises and thus the demand. ignorance on the part of the consumer may cause the consumer to buy at a higher price. The shift in the demand either to the left or right is called the demand shift. These factors. 9. Finally. Law of demand assumes that except for price and demand. In share markets on would have noticed that the rise in price of the shares increases. other factors remain constant. Price is the independent variable and demand the dependent variable.com/) . Some goods which act as status symbol and have a snob appeal fall under this category. 3.8. 3. What is Demand Shift: (Change in demand) Factors shift the demand for a particular product either on the right side of the demand curve or to the left side of the demand curve based on the changes in price. The relationship between price and quantity demanded is inverse. 2. Print to PDF without this message by purchasing novaPDF (http://www.novapdf. What are the Exceptions to law of demand: 1.

Product consumption function 3.com/) . 13.novapdf. 3.Define Market demand : The total quantity demanded by all the purchasers together is known as the market demand. 15. Income expectation and demand 14. What are the types of Demand function 1. Differences in regional incomes 4. The long run relationship between consumption and income is some what stable. the rate of increase in consumption is higher than the rate of the decline in consumption in times of recession. 4. In the periods of economic recovery. The consumption function is highly unstable in short runs and the relationship between income and consumption cannot be predicted by any mathematical formula. During the periods of economic prosperity.12. Consumption function 2. 16. It means that when there is a change in income there is a change in the demand for particular products. Define Product consumption function: This function can be defined as the relationship between the total income of the consumer and sales of particular products. 2. there is an absolute increase in the expenditure on consumption. Define Income expectations and Demand: Print to PDF without this message by purchasing novaPDF (http://www. and expenditure on consumption is usually about 85 to 90% of the income. but decrease as a percentage of income during periods of depression. What are the Characteristics of demand function ? 1. the consumption declines absolutely but the expenditure on the consumption increases as a percentage of income.

There is a direct relationship between advertising and sales. Cross elasticity of demand 4.novapdf.com/) . Promotional elasticity 5. Even when there is no advertising effort done. Price elasticity of demand 2.What are the Various Elasticities ? 1. Exportations elasticity of demand Print to PDF without this message by purchasing novaPDF (http://www. Thus when there is an increased spending on advertisements. etc) is often sensitive to general expectations regarding income level. Define demand determinant It is the degree of change in demand to the degree of change in any of the demand determinants. Define Elasticity of Demand: Elasticity of demand is defined as ‘the percentage change in quantity demanded caused by one percent change in the demand determinant under consideration. What are the features of advertising demand relationship ? 1. 17. while other determinants are held constant’. 3. there will be a certain amount of sales possible for a particular product by virtue of its presence in the market. The demand for many consumer durables (household appliances like TV. Income elasticity of demand 3. 2. 19.Expectations are related to people’s estimates of the level and durability of the future economic conditions. 20. It will bring in more sales. 18. After that any increase in advertisement will have only less than proportionate effect on sales. Washing machine. Increase in advertisements will lead to more than proportionate increase in sales only to a point.

Perfectly elastic demand 2.What are theFactors determining price elasticity of Demand ? The elasticity of demand depends on the following factors namely 1. Nature of the product 2. Income level of people 5. Urgency of demand and 7. 24.novapdf.com/) . Proportion of the income spent of the product 6. Unit elasticity of demand 4. Extent of usage 3. Print to PDF without this message by purchasing novaPDF (http://www. Durability of a product. 25. Here the shape of the demand curve in flat. What are the Types of price elasticity: 1. Define Price Elasticity of Demand Price elasticity of demand can be defined as “the degree of responsiveness of quantity demanded to a change in price”. Here.Define Absolutely inelastic demand or perfectly inelastic demand (ep=): Absolutely inelastic demand is where a change in price howsoever large. Relatively elastic demand 5. causes no change in the quantity demanded of a product. the shape of the demand curve is vertical. 22. Relatively inelastic demand 23.Define Relatively elastic demand (ep>1): It is where a reduction in price leads to more than proportionate change in demand. Availability of substitutes 4.21. Absolutely inclastic demand or perfectly inelastic demand 3.

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