Answer No (1)

CONCEPT:-

MARGINAL RATE OF SUBSTITUTION:- The Marginal Rate

of Substitution refers to the rate at which the consumer substitutes one commodity for
another in such a way that the total utility remains the same.

In other words, the marginal rate of substitution , between two commodities, X and Y
mention in the case can be defined as the quantity of Y required to replace one unit of X
in such a combination that the total utility remains unchanged. It can be determined
using the following formula:~

ΔY
MRS(y,x)= Δ X

Where, ∆Y show the amount of Y which consumer has to give for the ∆X, increase in X
if he is to remain on the same indifference curve.

The ordinal theory posits that the marginal rate of substitution (MRS) decreases. This
means that as the consumer goes on substituting one commodity for another, the
quantity of the commodity that a consumer sacrifice for an additional unit of another
goes on decreasing.

APPLICATION:-
 Indifference Combinations Change in Y(∆Y) Change in X(∆X) MRS(y,x)
points (∆Y/∆X)
Y+X

A 40+10 - - -

B 25+14 -15 4 -3.75

C 17+19 -8 5 -1.6

D 10+27 -7 8 -0.88

E 7+38 -3 11 -0.27

From the table, at point b, we can see that the consumer, is ready to exchange 15 units
of Y for 4 extra units of good X, therefore, at this stage,

−ΔY −15
MRS(Y,X) i.e = = -3.75.
ΔX 4

As he moves down, on the indifference curve from point b to c, he further loses, 8 units
of Y and gets 5 units of commodity X, giving

−ΔY −8
MRS(Y,X) i.e = = -1.6
ΔX 5

As he moves down, on the indifference curve from point c to d, he further loses, 7 units
of Y and gets 8 units of commodity X, giving

−ΔY −7
MRS(Y,X) ,i.e = = -0.88
ΔX 8

As he moves down, on the indifference curve from point d to e, he further loses, 3 units
of Y and gets 11 units of commodity X, giving

−ΔY −3
MRS(Y,X) ,i.e = = -0.27
ΔX 11
Thus, as the consumer moves from point a to b and from point b to c the MRS
decreases from -3.75 to -1.6. As the consumer moves further, the MRS goes on
decreasing.

CONCLUSION:-
This important result tells us that utility is maximized when the consumer's budget is
allocated so that the marginal utility per unit of money spent is equal for each good. If
this equality did not hold, the consumer could increase his/her utility by cutting spending
on the good with lower marginal utility per unit of money and increase spending on the
other good. To decrease the marginal rate of substitution, the consumer must buy more
of the good for which he/she wishes the marginal utility to fall for (due to the law of
diminishing marginal utility).

Answer No (2)

INTRODUCTION:-
PRODUCT LAUNCH:-A Product Launch is a marketing strategy
consisting of a carefully planned and scheduled sequence of events with the goal to
make a big happening out of the release and, of course, make as much sales as
possible in short time span.

At the time of launching of product, product marketing manager and his team has to
consider various factors for successful product launch such as price, promotion,
competition and most important is market demand of product i.e, willingness of buyer to
buy specific quantity of a product at specific point of time. Along with demand manager
has to also consider market supply i.e,quantity of product that he is willing to offer in the
market at a particular price within specific time.

Both Market Demand & Market Supply does not remain constant all the time in the
market. There are many factors that influence the demand & supply of a product ,
therefore it is important for the marketing manager to consider all these factor efficiently
in order to ensure successful product launch .
CONCEPTS & APPLICATION:-
FACTORS IMPACTING DEMAND OF PRODUCTS
1. Price of the Given Commodity:-It is the most important factor affecting
demand for the given commodity. Generally, there exists an inverse relationship
between price and quantity demanded. It means, as price increases, quantity
demanded falls due to decrease in the satisfaction level of consumers.

2. Price of Related Goods:-Demand for the given commodity is also affected

by change in prices of the related goods. Related goods are of two types:-

(i) Substitute Goods:-Substitute goods are those goods which can be used in

place of one another for satisfaction of a particular want, like tea and coffee. An
increase in the price of substitute leads to an increase in the demand for given
commodity and vice-versa. For example, if price of a substitute good (say, coffee)
increases, then demand for given commodity (say, tea) will rise as tea will become
relatively cheaper in comparison to coffee. So, demand for a given commodity is directly
affected by change in price of substitute goods.

(ii) Complementary Goods:-Complementary goods are those goods which are

used together to satisfy a particular want, like car and petrol. An increase in the price of
complementary good leads to a decrease in the demand for given commodity and vice-
versa. For example, if price of a complementary good (say, petrol) increases, then
demand for given commodity (say, car) will fall as it will be relatively costlier to use both
the goods together. So, demand for a given commodity is inversely affected by change
in price of complementary goods.

3. Income of the Consumer:-Demand for a commodity is also affected by

income of the consumer. However, the effect of change in income on demand depends
on the nature of the commodity under consideration.
i. If the given commodity is a normal good, then an increase in income leads to rise in
its demand, while a decrease in income reduces the demand.
ii. If the given commodity is an inferior good, then an increase in income reduces the
demand, while a decrease in income leads to rise in demand.

iii. If the given commodity is an luxury good, then an increase in income leads to rise in
its demand, while a decrease in income reduces the demand.

4. Tastes and Preferences:-Tastes and preferences of the consumer directly

influence the demand for a commodity. They include changes in fashion, customs,
habits, etc. If a commodity is in fashion or is preferred by the consumers, then demand
for such a commodity rises. On the other hand, demand for a commodity falls, if the
consumers have no taste for that commodity.

5. Expectation of Change in the Price in Future:-If the price of a

certain commodity is expected to increase in near future, then people will buy more of
that commodity than what they normally buy. There exists a direct relationship between
expectation of change in the prices in future and change in demand in the current
period. For example, if the price of petrol is expected to rise in future, its present
demand will increase.

FACTORS IMPACTING SUPPLY OF PRODUCTS

1. Price of the given Commodity:-The most important factor determining
the supply of a commodity is its price. As a general rule, price of a commodity and its
supply are directly related. It means, as price increases, the quantity supplied of the
given commodity also rises and vice-versa. It happens because at higher prices, there
are greater chances of making profit. It induces the firm to offer more for sale in the
market.

2. Cost of Production:-Implies that the supply of a product would decrease

with increase in the cost of production and vice versa. The supply of a product and cost
of production are inversely related to each other. The cost of production rises due to
several factors, such as loss of fertility of land, high wage rates of labor, and increase in
the prices of raw material etc.
3. Natural Conditions:-Implies that climatic conditions directly affect the
supply of certain products. For example, the supply of agricultural products increases
when monsoon comes on time. However, the supply of these products decreases at the
time of drought.

4. Transport Conditions:-Refer to the fact that better transport facilities

increase the supply of products. Transport is always a constraint to the supply of
products, as the products are not available on time due to poor transport facilities.
Therefore even if the price of a product increases, the supply would not increase.

5. Taxation Policy:-Increase in taxes raises the cost of production and, thus,

reduces the supply, due to lower profit margin. On the other hand, tax concessions and
subsidies increase the supply as they make it more profitable for the firms to supply
goods.

CONCLUSION:-
Product launching is one of most important market strategy ,manager should consider
all the factors affecting demand and supply of product efficiently as both demand and
supply does not remain constant and changes due to various factors as discussed
avove. Hence manager should frame a effective plan for launching product keeping in
mind all factors responsible for successful product launch.

Answer No (3)

INTRODUCTION:-
a)ARC ELASTICITY METHOD:~Any two points on a demand
curve make an arc, and the coefficient of price elasticity of demand of an arc is
known as arc elasticity of demand. This method is use to find out price elasticity
of demand over a certain range of price and quality. Thus, this method is applied
while calculating PED when price or quantity demanded of the commodity is
highly changed.
 The formula of the arc elasticity method is:

ΔQ P+ P 1
ep ¿ Δ P × Q+Q 1

Where,
∆Q is change in quantity(Q1-Q)
∆P is change in price (P1-P)
Q is original quantity demanded
Q1 is new quantity demanded
P is original price
P1 is the new price

APPLICATION:-
P=100
P1=120
Q=400
Q1=250

ΔQ P+ P 1
ep ¿ ×
Δ P Q+Q 1

250−400 100+120
e p= ×
120−100 400+ 250

−150 220
¿ ×
20 650

=7.5×0.338

=2.54(approx) (ignoring the negative sign)

CONCLUSION:-
As price and demand are inversely related and move in opposing directions. Therefore,
the negative sign is ignored. The change in demand is greater than change in price
.Therefore ,in this case the price elasticity of demand is greater than 1 and represented
as ep>1 known as relatively elastic demand.

INTRODUCTION:-
b) PERCENTAGE METHOD :~ It is the most common method for
measuring price elasticity of demand (Ed). This method was introduced by Prof.
Marshall. This method is also known as ‘Flux Method’ or ‘Proportionate Method’ or
‘Mathematical Method’.
According to this method, elasticity is measured as the ratio of percentage change in
the quantity demanded to percentage change in the price.

The formula of the percentage method is:

(Q2−Q ) (P ¿ ¿ 2−P1)
ep ¿ 1
÷ ¿
Q P

Where

Q1 = Initial Quantity demanded

Q2= New Quantity demanded

P1 = Initial Price

P2= New Price

APPLICATION:-
P1=100
P2=120
 Q1=400
Q2=250

(Q2−Q ) (P ¿ ¿ 2−P1)
ep ¿ 1
÷ ¿
Q P

−150 20
¿ ÷
400 100

−150 100
= ×
400 20

=1.88(approx) (ignoring the negative sign)

CONCLUSION:-
As price and demand are inversely related and move in opposing directions. Therefore,
the negative sign is ignored. The change in demand is greater than change in price
.Therefore ,in this case the price elasticity of demand is greater than 1 and represented
as ep>1 known as relatively elastic demand.