Professional Documents
Culture Documents
pay pay
Complementary substitutes
Goods
competing goods
Exceptions
Inferior goods IT ddt
e
g As income level increases demand for
street food decreases person can now
Necessity It Od const
e
g salt water etc
Iv Other factors
size
of population
Demographics
age distribution of
y population
level of national income
and it's distribution
a Size of population
majority t
ofnational Uneven distribution
income comes dd t
of national income
from small
no
of households
like in India
Govt
introducing policy Adt
unfavourable for product
e
g T in tax rates on
cigarette etc
V Tastes and preferences of buyers
if Demonstration effect Dekha Dekhi kina
o
term coined by James Dusenberry
Mr X mu X's
Mr friend
I phone 13
already
y
Purchased latest
hai uske paas I phone 14 max
pro
tf Mr purchased a smartphone
Raj
and because of this 3 of his friends
out of to also purchased the same
Smartphone
Here Conversion rate 30
X 100
30
It is a qualitative statement
Coke Pepsi
100 persons n
Initially 20 persons
were
consuming coke
shift to Pepsi
Now price increases
Price of Rice
May month hg 2301kg
Qty demanded
3310 10kg
purchase it
Priced Qty demanded I
e
g Electricity
Geyser
Wen
Refrigerator
Fang light
unit decreases
Electricity charges
consumption of electricity increases
electricity for
Earlier we were using
fan light refrigerator only but now
as charges unit decreases we start
using it for geyser Acf owen also
ing Utility maximising behaviour of consumers
Consumption P MU I
law of diminishing marginal
utility
Amt ready Consumer Total
No of units Price unit to surplus
pay
1 10 12 2 2
e
Stock market
mix
4 in
future Essig Essig
price
Demand T
pre poned
current future
Mr Y infuture 3013
Demand I
2271kg
prat post pored
Iu Incomplete information and irrational
behaviour
Mr prevailing price
25 hg
no knowledge of
price prevailing in But he purchased goods
market at price of 2301kg
Price 4 Demand T
since here utility is attached to it's value
Demand function
In f Pr Pr M
dependent
where In X
Qty demanded of commodity variable
Poe Price
of commodity independent
Pr Price
of related goods variable
M Income level f
F On 100 2 Pre
assuming otherfactors
Here In depends only on Pa remains const
Price.fi te downward
Slope
sloping
of demand curve is
a
negative
100145demanded
Od
NOTE Demand curve can be linear straight line
or it can be curvilinear
Demand curve for necessaries
Slope es
is s
Otg demanded
Market Demand Schedule
Commodity Apple Market consistof only two
persons
Raj Simran
Simran
Price Raj Mkt
kg Demond Demond Demand
150 0 T O 0
120 3 4 7
100 5 T 6 11
90 6 7 13
Price
of commodity t change
other factors remains constant
Pt Idt
It is an example
of Expansion of Demand
Expansion of demand
Price 25
1
downward movement
Qty demanded along the demand curve
Contraction
of demand
Price
It
30
do 00
upward
t
movement along
the demand curve
aty demanded
Price
of commodity const
other factors t change
G
It Od A
P D Here demand curve will
shift to the tight baz
Id of increase in incomelevel
Do t demand curve before increase in incomelevel
D demand curve after increase in income level
f Commodity
Coke
substitute t Pepsi
Elasticity of demand ed
14 Price
elasticity of demand
For necessaries
closeto
price elasticity of demand is
very
Zero
Ignoring sign of ed
ve
2 Cross demand
price elasticity of
1 5
cross price
elasticity of demand x
Pg
ILY
where a du change in qty demanded
of se
A
Py change in price of related commodity
y
Py initial price of related commodity
y
On initial qty demanded of se
Income
3
elasticity of demand
I change in
qty demanded of commodity
change in income level of consumer
Type of Goods
Income
elasticity
demand
of
E
where all change in qty demanded
A I change in income level
I initial incomelevel
of initial qty demanded
Arc elasticity
Price elasticity
of demand Ffp
x
Ipf Pt
here Pp aug price of commodity
demanded
Y
On avg qty of commodity X
demanded
Ychangeingty
change in advt expenditure
If
here a 4 change in qty demanded
A A change in advt expenditure
A initial advt expenditure
Q initial qty demanded
Promotional of demand
elasticity
Arc Elasticity method
x
If Aq
here A avg advt expenditure
9 avg qty demanded
Measurement
of elasticity on a linear demand
curve
ed at
Afed
O
any point
lowersigment
Price
weded 17 uppersegment
Medal
Bled o
Qty
7
Point elasticity
Price
elasticity of demand
dgp
x
Pq
et q 80 3p
Find price elasticity of demand at p is
80 3p 3
I
At p 15
9 80 3115 35
ed dgp
f
3
3153
1 285
Total
outlay method for calculating
price
elasticity
ed s inelastic
P H Total outlay I relation
P t Total outlay T direct
ed t elastic relation
Total outlay A inverse
If Total outlay I
ed unitary elastic
PRI Total
outlay remains same
The above
summary applies in case
of Total
Revenue also
Total Revenue
Important points
2 more the no
of substitutes lower will be
the cross
price elasticity of demand
6 habitual consumer of
commodity then
a demand
Demand curve
8 fornecessaries
Price
ed 0 perfectly inelash
Slope as
Qty demanded
psia ed P
perfectly elastic
o
Slope O
Qty demanded
k.fi fp.P.d1
Pzdz
then ed I
unitary
elastic
ed 1 Sox 1700
It final
Pm
Eto 1200
24
30
Final so 1200
Units Law of Supply Elasticity
of Supply
Meaning of Supply
ex post Actual X
Supply
1
Willingness Ability to supply
supply ofwheat I P t
II
Print
labour
cost t supply f
labour
p a Pitt supply t
Price of land T then it will affect more
the production
on
of pulses like wheat and
less effect on the production of smartphones
in State of technology
Technology t supply T
Y Gout policy
Raw material
g firm
Tax rate 5 f
Tax rate 8 f cost of raw materials 4
Irrecoverable fax supply I
Vil No
of sellers No of sellers t supply t
no
of sellers f supply I
Vii Nature of competition size
of industry
2 market structures
EI monopity I oligopoly
Viii Expectations
pity site't
Price I supply
Other factorsix
labour strikes T supply I
Communiol riots T supply I
Infrastructional development t supply A
Law of Supply
If price of the commodity increases then qty
supplied of the commodity also increases and vice
versa
Price A Supply T
Price t supply 1
ie direct relationship btw price and qty supplied
Supply Curve
F
upward sloping
Price
slope of supply curve tve
Ofy supplied
Supply curve can be linear or curvilinear
t
pace
Market supply curve
upwardsloping
slopeof curve tue
Qty Supplied
Price supplied
1kg Qty
30 500
32 530
PT Is t
It is an example of expansion of supply
Expansion of supply
upward movement along the
price
supply curve
Qty supplied
Contraction
of supply
2
Downward movement
along the
Price
supply curve
g g
Qty supplied
5 45 to 6 45
Increase Decrease in
Supply
S
Price
Qty Supplied
Elasticity of Supply Price elasticity of supply
Is Is
where all change in qty supplied
A P change in price
P initial price
As initial qty supplied
es o perfectly inelastic
Price Td As Const
Supply curveO
Price 5 so
when es
10 slope ofsupplycurve as
soo
vertical straightline parallel
Qty supplied to Y axis Price axis
es e es perfectly elastic
Prices negligible change Is high change
When es es
Price
slope 0
horizontalstraight line parallel
qty supplied to X axis Qty supplied axis
Are elasticity
es
IF Is
where P Aug price
Is aug qty Supplied
Relative price
of Commodity A 20
hg
commodity B E
101kg
Relative price
of B as compared to A
10 20 1 2
Relative price of A as compared to B
20 10 2 1
Important Points
to steepen curve
Unit 2
Theory of Consumer Behaviour
Human warts are unlimited but the resources
available to
satisfy these human warts are
limited
Goods
Utility
want
satisfying power of a commodity
I 75 75
2 140 65
3 1 90 50
6 230 40
5 265 35
6 280 15
7 280 0
8 270 10
Observations
as we consume more and more of a commodity
total utility Tu rises but at a diminishing rate
Mu is either negative
O
zero or positive
Assumptions for MU
Analysis
Qty
Imax utility
At any point
sloping slopeof tu curve
marginalutility
Qty
if Mu of money is constant
in fact Mu of is increasing
money
are unrelated
ily goods
infact goods can be related
Consumer Surplus
20160
at all points A BandC
c
same
product utility is derived
Indifference Curve
Product
y slope of IC
Mrs of over X
y
Product X
Mrs
of y our X
It
or
Mffy
NOTE When we upward
are or
moving
downward along the IC
utility
remains constant
IC is downward sloping
Slope of IC Mrs
of y over X
or
EY Mitty
Exceptions to Indifference Curve
If Stock A Stock B
Risk 15 121
Expected Rehm 247 201
ActualReturn 181 181
Rett
INA
IC is upward
Exp sloping in case of
speculative goods
Risk
ily
x
Product
y
y
substitutes
are
perfect
Ic is downward sloping
Product X
straight line
Product X Product
20 30
Y 3
21 2,33
1 22 2473
I 23 2133
In case
of perfect substitutes MRS
of Y over X
is constant
In
ing case
of perfect complementary goods
IC is L shaped
L shaped IC
for perfect
complementary goods
Budget line
Product X Product
Y
Price
Qty On se
y
Money Income level of consumer
MO
M se Pat
y Py
se put M
YPy
y KAFI
y Py
set
By
it with mate
Comparing
y
Slope
Ppg
slope of budget line
is ve
intercept
Y Mpg
If y o Ff n o
then M se Pu then M YPy
in
Mp Y My
O Slope Pyp
My
downward
sloping
Straight line
Y
Int
Consumer equilibrium will occur at the point
when the I C is tangent to the budget line
point of equilibrium
I I
Is
re equilibrium qty of
y act product X
Y equilibrium qty of
productY
Mun
Bep
Fu
law of equi marginal
My My utility
Important Points