Demand Types and Determinants

UNIT 2 B.
Tech 3 SEM MANAGERIAL ECONOMICS AND FINANCIAL ACCOUNTING (MEFA)
UNIT 2
DEMAND AND SUPPLY ANALYSIS-
LECTURE 6
DEMAND-TYPES OF DEMAND
MEANING OF DEMAND1
It refers to the quantity of a good or service that consumers are willing and able to
purchase at various prices during a given period of time.
 Desire of a commodity
 Ability to pay for it
 Willing to pay for it
 At the given price
 At a given time
DEMAND SCHEDULE2
Demand schedule is that the tabular statement show various amount of a

commodity which is demanded at different prices within a given period of your time.
Demand schedule is of 2 types
1. Individual demand schedule
2. Market demand schedule
INDIVIDUAL DEMAND SCHEDULE

Demand schedule is that the tabular statement show various amount of a
commodity which is demanded at different prices within a given period of your
time .Individual demand schedule may be a tabular statement showing the
quantities of a given commodity which a consumer is willing to shop for in the
BY: RAJESH KUMAR (ASSISTANT PROFESSOR) 28

MBA DEPT. MITRC, ALWAR
UNIT 2 B.Tech 3 SEM MANAGERIAL ECONOMICS AND FINANCIAL ACCOUNTING (MEFA)
least possible price within a given period of your time .
MARKET DEMAND SCHEDULE

Market demand schedule is a tabular representation showing the amount of a
commodity demanded by all consumer in the market at all possible prices within a
given period of time.
Types of Demand3
The various types of demand are discuss as follows:

i. Individual and Market Demand:
Individual demand can be define as a quantity demanded by an person for a product

at a particular price and within the specific period of time. For example, Mr. L
demands 200 units of a product on Rs. 50 per unit in a week.
The individual demand of a product is partial by the price of a product, income of

customers, and their tastes and preferences.
In simple language, market demand is the aggregate of individual demands of all the
consumers of a product over a period of time at a specific price, while other factors
are constant. on behalf of example, there are four consumers of oil (having a certain
price). There are four consumers consume 30 liters, 40 liters, 50 liters, and 60 liters
of oil respectively in a month. Hence, the market demand for oil is 180 liters in a
month.
ii. Organization and Industry Demand:
The demand for the product of an organization at given price above a point of time
is known as organization demand. On behalf of example, the demand for Toyota cars
is organization demand. The total of demand for products of all organizations in a
particular industry is known as industry demand.
For example, the demand for cars of various brands, like Toyota, Maruti Suzuki, Tata,
and Hyundai, in India constitutes the industry’ demand.
iii. Autonomous and Derived Demand:
The demand of a product that is not associate with the demand of other products is
known as autonomous or direct demand. The autonomous demand arises due to the
natural desire of an individual to consume the product.
On behalf of example, the demand for food, shelter, clothes, and vehicles is
autonomous as it increases due to biological, physical, and other personal needs of
consumers. On the other hand, derived demand refers to the demand for a product
that increases due to the demand for other products.
On behalf of example, the demand for petrol, diesel, and other lubricants depends
on the demand of vehicles.

iv. Demand for Perishable and Durable Goods:
The goods are separated into two categories, perishable goods and durable goods.
Perishable or non-durable goods ask the products that have one use. For example,
cement, coal, fuel, and eatables. On the opposite hand, durables ask goods which
will be used repeatedly.
On behalf of example, clothes, shoes, machines, and buildings. Perishable goods
satisfy this demand of people . However, durables satisfy both present also as future
demand of people . Therefore, consumers purchase durable items by considering its
durability.
v. Short-term and Long-term Demand:
Short-term demand means to the demand for products that are used for a shorter
duration of time or for current period. This demand depends on the present tastes
and preferences of consumers.
On behalf of example, demand for umbrellas, raincoats, sweaters, long boots is short
term and seasonal in nature. On the opposite hand, long-term demand refers to the
demand for products over a extended period of your time.
Generally, durable goods have long-term demand. The long-term demand of a
product depends on variety of things , like change in technology, sort of competition,
promotional activities, and availability of substitutes. The short-term and long-term
concepts of demand are essential for an business to design a new product.
References:-
1. https://www.chegg.com/learn/economics/introductiontoeconomics/
demandschedule
2. https://www.economicsdiscussion.net/demand/5typesofdemandexp
lained/3355
3. Brickley. Managerial Economics & Organizational Architecture. Tata
McGraw-Hill.

LECTURE 7
DETERMINANTS OF DEMAND
Determinants of Demand1
A determinant of Demand means factor’s that effects the demand.
Demand for a commodity or service is decided by variety of things. All such factors
are called as demand determinants. Price of the given commodity, prices of other
substitutes and/or complements, future expected trend in prices etc.
i. Price of the commodity
ii. Price of related commodities

 Complementary goods
 Competing/ substitute goods

iii. Income of the consumer
 Normal goods
 Inferior goods
iv. Tastes & preference of buyers(Demonstration effect )
v. Consumer’s expectation
vi. Other factors

 Size of the population
 Composition of population
 Level of national income & its distribution
 Consumer credit facility & interest rates
Thus, several factors are responsible for bringing changes in the demand for a
product in the market. A corporate executive should have the knowledge and

knowledge about of these factors and forces so as to finalize his own production
marketing and other business strategies.
1] Price of the Product
People use price as a parameter to form decisions if all other factors remain
constant or equal. consistent with the law of demand, this suggests a rise in demand
follows a discount in price and a decrease in demand follows a rise within
the price of comparable goods.
The demand curve and the demand schedule help determine the demand quantity
at a price level. An elastic demand implies a robust change quantity accompanied by
a change in price. Similarly, an inelastic demand implies that volume doesn't change
much even when there's a change in price.
2] Income of the Consumers
Rising incomes cause an increase within the number of products demanded by

consumers. Similarly, a drop by income is amid reduced consumption levels. The link
between income and demand is not linear in character. Marginal utility determine the
proportion of change in the demand levels.
3] Prices of related goods or services
 Complementary products – An increase in the price of one product will cause a

decrease in the quantity demanded of a complementary product. Example:
Increase in the price of bread will reduce the demand for butter. This arises
because the products are complementary in nature.

 Substitute Product – An increase in the price of one product will reason an

increase in the demand for a substitute product. Example: Increase in price of tea
will increase the demand for coffee and decrease the demand for tea.
4] Consumer Expectations
Expectations of a better income or expecting a rise in prices of products will cause a

rise the number demanded. Similarly, expectations of a reduced income or a lowering
in prices of goods will decrease the quantity demanded.
5] Number of Buyers in the Market
The number of buyer has a major outcome on the total or net demand. As the number
increases, the demand rises. Besides, this is true irrespective of changes in the price of
commodities.
6] Taste and preference
Taste and preference also affect demand of a commodity. Favorable taste results
in increase in demand and unfavorable taste results in decrease in demand.
7] Government policy
Government policy also affect demand of a commodity. If government imposes tax
then price of a product will increase and as a result demand will decrease.
And if government provide rebate then price of a product will decrease and demand
of a product will increase.

8] Distribution of income
If there is equal distribution of income then there will be more demand for a product
And if there's unequal distribution of income ,then there'll be less demand for a
product.
References:-
1. http://saurabhjaitly.weebly.com/uploads/1/0/1/9/10195001/maneg
erial_economics_for_quick_revision.doc
2. https://www.scribd.com/document/425841371/ManagerialEconomi
cspdf
McGraw-Hill.

LECTURE -8
DEMAND FUNCTION & ELASTICITY OF DEMAND
Demand function1
A function is a symbolic statement of a relationship between the dependent and
independent variables.
Demand function -It states the relationship between the demand of a product
(the dependent variable) and it’s determinants (the independent variable)
Dx= Quantity demanded of product X
Px= Price of the commodity
M= Money income of the consumer
Ps= Price of it’s substitutes
Pc= Price of it’s Complementary goods
T= Consumer tastes & preferences
A= Advertisement expenditure
Meaning and Definition of Elasticity
Meaning and Definition of Elasticity of Demand
The term elasticity is borrowed from physics. It shows the response of one variable
with value to a change in other variables on which it is dependent. Elasticity is an
index of reaction.
In economics the term elasticity refers to a percentage of the relative changes in two
quantities. It measures the reaction of one variable to the changes in another
variable.
Definition: The Elasticity of Demand is a compute of change in the quantity

demanded in reaction to the change in the price of the commodity. Simply, the
effect of a change of price on the quantity demanded is called as the elasticity of
demand.
Marshall, a renowned economist, has suggested a mathematical method to

measure the elasticity of demand:

According to this formula, the elasticity of demand can be define as a percentage

change in demand as a outcome of the percentage change in price. Numerically, it
can be written as:
Where,
ΔQ= Q1 –Q0
ΔP = P1 – P0
Q1= New quantity
Q2= Original quantity
P1 = New price
P0 = Original price
According to Marshall,” The elasticity (or reaction) of demand in a market is great or

small according to as the amount demanded much or little for a given fall in price,
and diminish much or small for a given increase in price”
KINDS OF ELASTICITY OF DEMAND2
Price Elasticity Of Demand

Prof. .Stonier and Hague, price elasticity of demand is a scientific term used by
economists to explain the degree of reaction of the demand for a product to a
change in its price .
Different degree of price elasticity of demand
1. Perfectly Elastic Demand:

In this case, a very small change in price lead to an continuous change in
demand. The demand cure is a straight line and parallel to OX axis. The
numerical co-efficient of perfectly elastic demand is infinity .
2. Perfectly Inelastic Demand:
In this case, whatever may be the vary in price, quantity demanded will
remain perfectly stable. The demand curve is a vertical straight line and
parallel to OY axis. Quantity demanded would be 10 units, irrespective
of price changes from Rs. 10.00 to Rs. 2.00. Hence, the numerical co-
efficient of perfectly inelastic demand is zero. ED = 0
3. Relatively Elastic Demand:
In this case, a minor change in price leads to more than proportionate

change in demand. One can observe here that a change in demand is
more than that of change in price. Thus, the elasticity is greater than one.

4. Relatively Inelastic Demand
In this case, a large change in price, say 8 % fall price, leads to less than in
proportion change in demand, state 4 % rise in demand. One can observe
here that change in demand is less than that of change in price. This can be
represent by a steeper demand curve. Hence, elasticity is less than one.
5. Unitary elastic demand:

In this case, proportionate change in price lead to equal proportionate change in
demand. For e.g., 5 % fall in price lead to exactly 5 % increase in demand. Thus,
elasticity is equal to unity.

Income elasticity of demand
Income elasticity of demand may be defined as the ratio or proportionate change in

the quantity demanded of a commodity to a known proportionate change in the
income. In short, it indicate the point to which demand changes with a variation in
consumers income. The following formula help to measure.
Ex. Original demand = 400 units Original Income = 4000-00 New demand = 700 units
New Income = 6000-00
Ey is positive. This is for the reason that there is a direct relationship between
income and demand, i.e. higher the revenue; higher would be the demand and vice-
versa. On the basis of the mathematical value of the co-efficient, Ey is classified as
greater than one, less than one, equal to one, equal to zero, and negative. The
concept of Ey helps us in classifying commodities into different categories.
 When Ey is positive, the commodity is normal [used in day-to-day life]

 When Ey is negative, the commodity is inferior. .For example Jowar etc.
 When Ey is positive and greater than one, the commodity is luxury.
 When Ey is positive, but less than one, the commodity is essential.
 When Ey is zero, the commodity is neutral e.g. salt, match box etc.
Practical application of income elasticity of demand
1. Helps in determining the rate of growth of the firm.
 If the growth rate of the economy and income growth of the people is
logically forecasted, in that case it is possible to forecast expected increase in
the sales of a firm and vice-versa.
2. Helps in the demand forecasting of a firm.
 It can be use in estimate future demand provided the rate of increase in

income and Ey for the products are known. Thus, it helps in demand
forecasting activities of a firm.
3. Helps in production planning and marketing

 The knowledge of Ey is essential for production planning, formulating

marketing strategy, deciding advertising expenditure and nature of
distribution channel etc in the long run.
4. Helps in ensuring stability in production
 Proper estimation of different degrees of income elasticity of demand for

different types of products helps in avoiding over-production or under
production of a firm. One should also know whether rise or fall income is
permanent or temporary.
5. Helps in estimating construction of houses.
 The rate of growth in incomes of the people also helps in housing program in
a Country. Thus, it helps a lot in managerial decisions of a firm.
Cross Elasticity of Demand3
It may be defined as the proportionate change in the quantity demanded of a

particular commodity in response to a change in the price of another related
commodity. In the words of Prof. Watson cross elasticity of demand is the
percentage change in quantity associated with a percentage change in the price of
related goods. Generally speaking, it arises in case of substitutes and complements.
The formula for calculating cross elasticity of demand is as follows.
Ec = Percentage change in quantity demanded commodity X
Percentage change in the price of Y
Price of Tea rises from Rs. 4-00 to 6 -00 per cup
Demand for coffee rises from 50 cups to 80 cups.
Cross elasticity of coffee in this case is 1.6.

It is to be noted that-
 Cross elasticity of demand is positive in case of good substitutes e.g. coffee

and tea.
 High cross elasticity of demand exists for those commodities which are close
substitutes. In other words, if commodities are perfect substitutes For
example Bata or Corona Shoes, close up or pepsodent tooth paste, Beans and
ladies finger, Pepsi and coca cola etc.
 The cross elasticity is zero when commodities are independent of each other.
For example, stainless steel, aluminum vessels etc.
 Cross elasticity between two goods is negative when they are
complementary. In these cases, increase in the price of one will lead to fall in
the quantity demanded of another commodity For example, car and petrol,
pen and ink.etc.
Practical application of cross elasticity of demand
1. Helps at the firm level
Knowledge of cross elasticity of demand is important to study the impact of change

in the price of a commodity which possesses either substitutes or complementary. If
accurate measures of cross elasticity‟s are available, a firm can forecast the demand
for its product and can adopt necessary safe guard against fluctuating prices of
substitutes and complements. The pricing and marketing strategy of a firm would
depend on the extent of cross elasticity’s between different alternative goods.
2. Helps at the industry level
Knowledge of cross elasticity would help the industry to know whether an industry
has any substitutes or complementariness in the market. This helps in formulating
various substitute business strategies to support different items in the market.
References:-
1. https://gurujionlinestudy.com/elasticitydemandstudymaterialnotes
mcomisemester/
2. https://businessjargons.com/elasticityofdemand.Html

McGraw-Hill.

LECTURE 9
DEMAND FORECASTING – PURPOSE, DETERMINANTS AND
METHODS
Demand Forecasting refers to the process of predict the future demand for the
firm’s product. In other words, demand forecasting is comprised of a series of steps
that involves the anticipation of demand for a product in future under both
controllable and non-controllable factors.
Definition:- within the words of Cundiff and Still, “Demand forecasting is an

estimate of sales during a particular future period supported proposed marketing
plan and a group of particular uncontrollable and competitive forces.”
DEMAND FORECASTING – PURPOSE/ OBJECTIVES1
1. Short-term Objectives:
a. Formulating production policy:
Helps in covering the gap between the demand and provide supply of the
product. The demand forecasting helps in estimate the requirement of raw
material in future, so that the normal supply of raw material can be
maintained. It further helps in maximum utilization of resources as operations
are planned consistent with forecasts. Similarly, human resource
requirements are easily met with the assistance of demand forecasting.
b. Formulating price policy:
Refers to one of the most important objectives of demand forecasting. An

organization set prices of its products consistent with demand. For example,

if an economy enter into depression or recession phase, the demand for

products falls. In such a case, the organization sets low prices of its products.
c. Controlling sales:
Helps in setting sales targets, which act as a basis for evaluating sales
performance. An organization make demand forecasts for various regions and
join sales targets for every region accordingly.
d. Arranging finance:
Implies that the financial requirements of the enterprise are estimated with
the help of demand forecasting. This helps in ensuring proper liquidity within
the organization.
2. Long-term Objectives:
a. Deciding the production capacity:
Implies that with the help of demand forecasting, an organization can

determine the size of the plant required for production. The size of the plant
should conform to the sales requirement of the organization.
b. Planning long-term activities:
Implies that demand forecasting helps in planning for long term. For example,
if the forecasted demand for the organization’s products is high, it's going
to decide to invest in various increase and development projects within the
future.

Determinants and Method of demand forecasting2
To invest money and others factors in business; we require an inexpensive accurate

forecast of demand. Starting with qualitative methods like survey of collective
opinions, buyers' intention, Delphi approach and its variant, a number of
quantitative methods are used for computing demand forecasts as detailed below:
I. Opinion polling method
a) Collective opinion Survey:

Sales personnel are closest to the purchasers and have an intimate feel of the
market. Thus they're most suited to assess consumer’s reaction to company's
products. Here each salesperson makes an estimate of the expected sales in their
area, territory, state and/or region; These estimates are collated, reviewed and
revised. Taking in to account product design features and price is decided and made.
Thus, "collective opinion survey forms the idea of marketing research and demand
forecasting.

b) Survey of Customers Intention
Another method of demand forecasting is to hold out a survey of what consumers

prefer and shall buy. If the merchandise is sold to a couple of large industrial buyers,
survey would involve interviewing them.
c) Delphi Method
The Delphi technique was developed at RAND Corporation in the 1950s. Delphi
method is a group (members) process and aims at achieving a `single opinion of the
members on the subject. Herein experts in the field of marketing research
and demand forecasting are engaged in
 analyzing economic conditions

 carrying out sample surveys of market
 conducting opinion polls
Based on the above, demand forecast is worked out in following steps:

1. Administrator sends out a group of questions in writing to all or any the experts
on the panel, who are requested to write down back a quick predication.
2. Written predictions of experts are collected and combined, edited and
summarized together by the administrator.
3. Based on the summary, administrator designs a new set of questions and gives
them to the same experts who answer back again in writing.
4. Administrator repeats the method of collecting, combining, editing and
summarizing the responses.
5. Steps 3 and 4 are repeated by the administrator to experts with diverse
backgrounds until they are available to at least one single opinion.
If there's divergence of opinions and hence conclusions, administrator has got
to sort it out through mutual discussions. Administrator has got to have the
required experience and background as he plays a key role in designing structured
'questionnaires and synthesizing the info.

d) Nominal Group Technique
This technique was originally developed by Delbecq and VandeVen. This is an

extra modification of Delphi method of forecasting. A panel of 3-4 groups of up to 10
experts are formed and allowed to interact, discuss 'and rank all the suggestions in
descending (highest to lowest) order as per the following procedure:
Experts sit around a table fully view of 1 another and are asked to talk to
every other. An administrator fork over copies of questionnaire needing a
forecast and every expert is predicted to write down down an inventory of ideas
about the questions. After everyone has written down their ideas, administrator asks
each expert to share one idea, out of own list. The idea shared is written on the `flip
chart' which everyone can see. Experts give ideas in rotation until all of them are
written on the `flip chart'. No discussion takes place during this phase and
typically 15 to 25 ideas emerge from this format.
Within the next phase, experts discuss ideas presented by them. Administrator
ensures that each one ideas are adequately discussed. During discussions similar
ideas are combined. This reduces the number of ideas. After completing group
discussions, experts are asked to offer in writing ranks to ideas consistent with their
perception of priority
II. Statistical methods
Trend projection method
This technique assumes that whatever past years demand pattern will be continued
in the future also. Basing on the historical data that means previous year’s data is
used to predict the demand for the future. In this trend projection method, previous
year’s data is presented on the graph and future demand is estimated.

Regression Analysis3
Past data is used to establish a functional relationship between two variables. For
Example, demand for consumer goods has a relationship with income of Individuals
and family; demand for tractors is linked to the agriculture income and demand for
cement, bricks etc. are dependent upon value of construction contracts at any time.
Forecasters collect data and build relationship through co-relation and regression
analysis of variables.

Econometric Models
Econometric models are more complex and comprehensive as this model uses
mathematical and statistical tools to forecast demand. This model takes various
factors which affect the demand. For example, demand for passenger transport is
not only dependent upon the population of the city, geographical area, industrial
units, their location etc.
It is not easy to locate one single economic indicator for determining the demand
forecast of a product. Invariably, a multi-factor situation applies Econometric
Models, although complex, are being increasingly used for market analysis and
demand forecasts.
Simple Average Method
Among the quantitative techniques for demand analysis, simple Average Method is
the first one that comes to one's mind. Herein, we take simple average of all past
periods - simple monthly average of all consumption figures collected every month
for the last twelve months or simple quarterly average of consumption figures
collected for several quarters in the immediate past. Thus,
Sum of Demands of all periods =

References:-
mcomisemester/
McGraw-Hill.

LECTURE 10
SUPPLY-DETERMINANTS OF SUPPLY
MEANING AND LAW OF SUPPLY1
According to Thomas, “The supply of products is that the quantity

offered purchasable during a given market at a given time at various prices” supply
of a product refers to the various amounts which are offered purchasable at a
specific price during a given period of your time .
Supply is also different from stock. Stock is that the total volume of a
commodity which may be brought into the marketplace for sale at a brief notice and
provide means the number which is really brought in the market. For perishable
commodities, like fish and fruits, supply and stock are an equivalent because they
can't be stored. The commodities which are not perishable can be held back, if prices
are not favorable and released in large quantities when prices are favorable. In
short, stock is potential supply.
Supply schedule
Supply schedule may be a tabular representation of various quantities of a
commodity supplied at varying prices. It represents the functional relationship
between quantity supplied and price. It is strictly prepared with regard to the worth.
The following imaginary supply schedule shows that as price rises, supply extends
and as price falls, supply contracts. Supply schedule is never absolute. It varies with
different prices and at different times. 0.75 paisa is that the minimum price to be
charged per unit because it equals cost of production. No producer would really
like to charge cost price to customers. Hence, supply is zero at this price. It is called
as reserve price.
Law of Supply
It states that “Other things remaining constant, the quantity supplied varies directly
with the price i.e. when the worth falls, supply will contract and when price rises,
supply will extend“. According to S.E.Thomas, “a rise in price tends to extend supply
and a fall in price tends to reduce it.” there's a functional relationship between
supply and price.
Mathematically S= F (P). The law of supply is based on a number of assumptions
 Number of firms, the scale of production and the speed of production.
 Availability of other inputs.
 Techniques of production.
 Cost of production.
 Market prices of other related goods.
 Climate and weather conditions.
2
Exceptions To The Law Of Supply
Generally supply expands with the increase in price and contract with the autumn in
price. But under certain exceptional circumstances, in spite of rise in price
supply might not expand or at a lower rate more quantity could also be sold. This
will happen under exceptional situation. In this case supply curve will slope
downward. Following are some of the exception of law of supply.
1. If the seller is badly in need of money, he will sell more even at lower prices.
2. If the seller wants to get rid of his products, then also he will sell more at
reduced rates.
3. When further heavy fall in price is anticipated the seller may become
panicky and sell more at a current lower price.
4. In case of auction, the auctioneer is not interested in maximizing profits by
selling more units at a higher price. Here, the price is determined by the
bidder while selling an item in an auction, the auctioner may have some other
motives to sell the product. Thus, an auction sale is an exception to the law of
supply.
Changes Or Shifts In Supply

When supply of a product changes only thanks to a change within the price of that
product alone, it's called as either expansion or contraction in supply. Expansion in

supply means, more quantity is supplied at a better price and contraction in supply
means, less quantity is supplied at a lower cost .
This tendency are often represented through one supply curve. In this case, the
vendor are going to be moving either within the upward or downward
direction along side an equivalent supply curve.
Rising costs
If costs rise, less can be produced at any given price, and the supply curve will
shift to the left.
Falling costs
If costs fall, more can be produced, and the supply curve will shift to the right.

DETERMINANTS OF SUPPLY3
Apart from price, many factors bring about changes in supply. Among
them the important factors are .
 Natural factors Favorable natural factors like good climatic conditions, timely,
adequate, well distributed rainfall results is higher production and expansion
in supply. On the other hand, adverse factors like bad weather conditions,
earthquakes, droughts, untimely, ill-distributed, inadequate rainfall, pests
etc., may cause decline in production and contraction techniques of
production An improvement in techniques of production and use of modern
highly sophisticated machines and equipments will go a long way in raising
the output and expansion in supply. On the contrary, primitive techniques are
responsible for lower output and hence lower supply.
 Cost of production given the market price of a product, if the cost of
production rises due to higher wages, interest and price of inputs, supply
decreases. If the cost of production falls, on account of lower wages, interest
and price of inputs, supply rises.
 Prices of related goods If prices of related goods fall, the seller of a given
commodity offer more units in the market even though, the price of his
product has not gone up. Opposite will be the case when the price of related
goods rise.
 Government policy When the government follows a positive policy, it
encourages production in the private sector. Consequently, supply expands.
For example granting of subsidies, development rebates, tax concession,
etc,. On the other hand, output and supply cripples when the government
adopts a negative policy. For example withdrawal of all concessions and
incentives, imposition of high taxes, introduction of controls and quota
system etc.

 Monopoly power Supply tends to be low, when the market is controlled

by monopolists, or a few sellers as in the case of oligopoly. Generally
supply would be more under competitive conditions.
 Number of sellers or firms Supply would be more when there are a large
number of sellers. Similarly production and supply tends to be more when
production is organized on large scale basis. If rate or speed of production
is high supply expands. Opposite will be the case when number of sellers is
less, small scale production and low rate of production.
 Complementary goods In case of joint demand, the production & sale of
one product may lead to production and sale of other product also.
 Discovery of new source of inputs Discovery of new sources of inputs helps
the producers to supply more at the same price & vice-versa.
 Improvements in transport and communication This will facilitate free and
quick movements of goods and services from production centers to
marketing centers.
 Future rise in prices when sellers anticipate a further rise in price, in
that case current supply tends to fall. Opposite will be the case when,
the seller expect a fall in price.

Thus, many factors influence the supply of a product in the market. A firm
should have a thorough knowledge of all these factors because it helps in
preparing its production plan and sales strategy.
References:-
mcomisemester/
McGraw-Hill.

LECTURE 11
SUPPLY FUNCTION, ELASTICITY OF SUPPLY
SUPPLY FUNCTION1
The law of supply and provide schedule explains only the direct relationship
between price and provide . Mathematically S = f (P). Both analyses the impact of
change in price on quantity supplied. Supply of a product, apart from price change
also depend upon many factors. When we analyze the influence of these factors on
supply, supply schedule will be converted into supply function.
Supply function may be a comprehensive one because it analyses the causes for
changes in supply during a detailed manner. Mathematically a supply function can
be represented in the following manners.
Sx = f (Pf, T, Cp,Gp,N………etc)
Where ,
Sx = supply of a given product x
Pf = price of factor input
T = Technology
Cp = cost of production
Gp = Government policy
N = Number of firms etc

ELASTICITY OF SUPPLY2
It is a parallel concept to elasticity of demand. It refers to the sensitiveness or

responsiveness of supply to a given change in price. In short, it measures the degree
of adjustability of supply to a given change in price of a product
It implies that at this level with every change in price just one occasion , there'll be a
change in supply fourfold directly.
Factors Determining Elasticity of Supply (Determinants)
1. Time period -Time features a greater influence on elasticity of supply than on

demand. Generally supply tends to be inelastic within the short run because time
available to arrange and adjust supply to demand is insufficient. Supply would be
more elastic within the end of the day.
2. Availability and mobility of factors of production -When factors of

production are available in plenty and freely mobile from one occupation to another
supply tends to be elastic and vice versa.
3. Technological improvements -Modern methods of production expands

output and hence supply tends to be elastic. Old methods reduce output and
provide tends to be inelastic.
4. Cost of production-If cost of production rise rapidly as output expands,

then there'll not be much incentive to extend output because the extra
benefit are going to be choked off by increase in cost. Hence supply tends to be
inelastic.
5. Kinds and nature of markets -If the vendor is selling his product in
several markets, supply tends to be elastic in anybody of the market because, a
fall within the price in one market will induce him to sell in another market. Again,
if he's producing several sorts of goods and may switch easily from one to a
different , then each of his products are going to be elastic in supply.

6. Political conditions: -Political conditions may disrupt production of a product.

In that case supply tends to become inelastic.
7. Number of sellers: Supply tends to become more elastic if there are more
sellers freely selling their products.
8. Prices of related goods: A firm can charge a better price for its products, if
prices of other products are higher.
9. Goals of the firm: If the vendor is proud of small output, supply tends to be
inelastic and vice-versa.
3
Types of elasticity of supply
 Perfectly elastic supply
Supply is claimed to be perfectly elastic when a small change in price results
in immeasurable Changes in supply. Hence supply curve would be a
horizontal or parallel line to OX axis.
 Perfectly inelastic supply

When supply of a commodity remains constant and does not change
whatever may be the change in price, it is said to be absolutely or perfectly
inelastic supply. Here the availability curve tends to be a vertical line. ES = 00
(zero) .

 Relatively elastic supply

If change within the supply is quite proportionate to the change in price,
elasticity of supply is bigger than one. In that case, the availability curve is
flatter and is more inclined to x axis
 Relatively inelastic demand

If the change in supply is smaller amount than proportionate to a given
change in price, then, elasticity of supply is claimed to be less than one. Here
availability may be steeply rising one.
 Unitary elastic supply

If proportionate change in supply is strictly equal and proportionate to the

change in price, then elasticity of supply is adequate to one.
References:-
mcomisemester/
McGraw-Hill.


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UNIT 2 B.

Tech 3 SEM MANAGERIAL ECONOMICS AND FINANCIAL ACCOUNTING (MEFA)

Demand schedule is that the tabular statement show various amount of a

INDIVIDUAL DEMAND SCHEDULE

BY: RAJESH KUMAR (ASSISTANT PROFESSOR) 28

least possible price within a given period of your time .

MARKET DEMAND SCHEDULE

The various types of demand are discuss as follows:

BY: RAJESH KUMAR (ASSISTANT PROFESSOR) 29

i. Individual and Market Demand:

Individual demand can be define as a quantity demanded by an person for a product

The individual demand of a product is partial by the price of a product, income of

ii. Organization and Industry Demand:

iii. Autonomous and Derived Demand:

BY: RAJESH KUMAR (ASSISTANT PROFESSOR) 30

iv. Demand for Perishable and Durable Goods:

BY: RAJESH KUMAR (ASSISTANT PROFESSOR) 31

ii. Price of related commodities

 Competing/ substitute goods

iv. Tastes & preference of buyers(Demonstration effect )

vi. Other factors

 Level of national income & its distribution

 Consumer credit facility & interest rates

BY: RAJESH KUMAR (ASSISTANT PROFESSOR) 32

1] Price of the Product

2] Income of the Consumers

Rising incomes cause an increase within the number of products demanded by

3] Prices of related goods or services

 Complementary products – An increase in the price of one product will cause a

BY: RAJESH KUMAR (ASSISTANT PROFESSOR) 33

 Substitute Product – An increase in the price of one product will reason an

Expectations of a better income or expecting a rise in prices of products will cause a

5] Number of Buyers in the Market

6] Taste and preference

BY: RAJESH KUMAR (ASSISTANT PROFESSOR) 34

BY: RAJESH KUMAR (ASSISTANT PROFESSOR) 35

Meaning and Definition of Elasticity

Meaning and Definition of Elasticity of Demand

Definition: The Elasticity of Demand is a compute of change in the quantity

Marshall, a renowned economist, has suggested a mathematical method to

BY: RAJESH KUMAR (ASSISTANT PROFESSOR) 36

According to this formula, the elasticity of demand can be define as a percentage

According to Marshall,” The elasticity (or reaction) of demand in a market is great or

KINDS OF ELASTICITY OF DEMAND2

Price Elasticity Of Demand

Different degree of price elasticity of demand

1. Perfectly Elastic Demand:

2. Perfectly Inelastic Demand:

3. Relatively Elastic Demand:

In this case, a minor change in price leads to more than proportionate

BY: RAJESH KUMAR (ASSISTANT PROFESSOR) 38

4. Relatively Inelastic Demand

5. Unitary elastic demand:

BY: RAJESH KUMAR (ASSISTANT PROFESSOR) 39

Income elasticity of demand

Income elasticity of demand may be defined as the ratio or proportionate change in

 When Ey is positive, the commodity is normal [used in day-to-day life]

Practical application of income elasticity of demand

1. Helps in determining the rate of growth of the firm.

2. Helps in the demand forecasting of a firm.

 It can be use in estimate future demand provided the rate of increase in

3. Helps in production planning and marketing

BY: RAJESH KUMAR (ASSISTANT PROFESSOR) 40