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× What are demand and supply
× What determines demand and supply
× What is the relationship between demand,
supply and price
× How does the price mechanism transmit
information to economic agents
× How do prices act as incentives
× How responsive are demand and supply to
those incentives

× ën decision making on price, use of existing
resources, planning for future resources usage,
advertising evaluation, manipulating demand,
determination of profit, predicting future trends
× Evaluating the impact of government price
controls, minimum wages, price support and
production incentives
× Determining how subsidies, taxes, tariffs and
import quotas affect consumers and producers

^ group of firms and individuals in touch
with each other in order to buy or sell some
goods, vary in their size, arrangement and

× Diet, caffeine free, diet caffeine free coke varieties
and also Sprite and Minute Maid Orange Juice
competing with Pepsi
× For carbonated cola soft drinks, Coke and Pepsi
share 80%
× Coke views as ³Stomach Share´ for its market for
potable liquids
× 64 ounces of fluids to be consumed to survive each
× Coke accounts for less than 2 ounces i.e. 3%
p  is defined as ± the amount of
money customers are willing to pay during
a specific period and under a given set of
economic conditions-demand which is
backed up by the ability to pay



6dx = f (Px) cet. Par.

× p   p   p 

×    p 


× | 60-^merican discarded an avg. of 2.6 pounds per
person per day (ppppd)
× Residents of Percasie, Penn paying annual fee of
$|20 per person
× 2.2 pound of trash pppd
× Percasie Municipality provided special bags for
× MC increased from 0-4% per pound
× Trash picked up in approved bags only
× Recycling for cans , bottles and newspapers
× Trash reduced by | ppppd, 40% less
× Paid 30% less

6dX = f(Px,Ox,^x,Stx,Pz,Oz,^z,Stz,Y,T,E,Cr,G,
Where 6dx = the qty. demanded of good x in a given
time period
Px = the own price of the product or service x
Ox = the number of outlets through which x is
^x= the level of advertising or promotion for x
Stx = the style or design of x
Pz = the price of a related good,a substitute or
Oz = the number of outlets for a competitor
^s = the level of advertising for the related product
Stz = the style or design of related product.
Y = the income of consumers and distribution.
T = the tastes or preferences of consumers
E = the expectations of consumers with regard to
price, etc.
Cr = the cost and availability of credit
G = government policy
Pop = the change in the population
W = weather conditions
Px, Ox, ^x, Stx - strategic variables
Pz, Oz,^zStz -_competitor¶s variables
Y, T, E - consumer variables
W, Pop, G, Cr - other variables
Dependent and independent variables
Govt. raises income tax

× ÿ


× # $  %  p  

× # $ p 

× ^n economic consultant for x corporation recently
provided the firm¶s marketing manager with this
estimate of demand function for the firm¶s product.
× 6dx = |2,000 ± 3Px + 4Py ± |Y + 2^x
× Suppose X sells for Rs.200 per unit,Y for Rs.|5 per
unit, the company utilizes Rs. 2,000 of advertising
and consumer income is Rs.|0,000. How much of
good X do consumer purchase? ^re goods X and Y
substitute or compliments? ës good X a normal or an
inferior good?


^ quantity of a commodity that a
producer or a supplier is willing to sell
at various given prices over a specific
time period.


6sx = f ( Px ) cet. Par.


when price of a good rises the

quantity supplied will also rise.


× Higher Cost
× Higher Profit Levels
× New Producers


6sx = f(Px,Fe,Fp,Po,G,W,E,Cn,N,C,T-------------)
6sx = quantity supplied of x
Px = product price
Fe = factor productivities (efficiencies) or the
state of technology
Fp = factor price
Po = prices of other related product
G = firm¶s goals
C = character of the firms in the industry
T = time lag
E = firm¶s expectations about future prospects for
prices, costs, sales and the state of economy in
Cn = Porter- Consumer¶s sophisticated and
knowledgeable demands at home (Japanese
cameras, Nokia of Finland, Ericsson of Sweden)
N = number of firms
Nr=natural shocks
(weather, diseases, wars, machine breakdown,
industrial disputes, fire, flood, earthquake)


å New oil fields start up in production
- the demand for central heating rises
- the price of gas falls
- oil companies anticipate an upsurge in
demand for central-heating oil
- the demand for petrol rises
- new technology decreases the costs of oil
- all oil products become more expensive
Find out possible reasons for increasing
supply of butter

Do you see the relationship between the

markets of nitrogen and butter?

6sx = 200 + 80P ± 20a| ± |5a2 + 30j
6sx - quantity supplied of X, P is price of X, a|, a2
are profitability of two alternative goods that could
be supplied instead, and j is the profitability of a
good in joint supply.

Explain why P and j terms have a positive sign,

whereas a| and a2 have a negative sign?

Monthly price Md (tons) Ms (tons)
(Rs. Per kg)
4 700 |00

8 500 | 5

|| 450 450

|6 400 540

| | 0 8|0

× Market equilibrium
× Shifts in demand and supply and their
effects on equilibrium conditions
× Demand and supply curves in wrong
Metastable equilibrium ± state of apparent
Walrasian and Marshallian stable and unstable
× Market with general equilibrium approach


price of nitrogen, technology, subsidies,

profit of skimmed milk powder and

other cream products, weather, prices in