MICROECONOMICS

Market Analysis

Dr. Pallavi Mody

Email: pallavimody@spjimr.org

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 Growth of Telecom Sector in India

• A phone has transformed from a

In million Mar-00 Mar-06 Mar-09 Mar-16 Mar-19
“luxury” good to a “necessity” and
“fixed line” to “wireless”
connecting millions of people
Wire 32 50 38 25 22 everywhere and anywhere.
lines

Wireless 2 102 390 1033 1161

• Teledensity at the end of March
Total 34 152 427 1058 1183 19 reached 90% with urban at
160% and rural at 57%.
Numbers in Million (Rounded) Source: TRAI

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 Data Consumption in response to fall in price

Average data Price March of each year

Monthly data per user
$5 a gigabyte 10 gigabytes a month
4 8

3 6

2 4

1 2

2014 2015 2016 2017 2018 2014 2015 2016 2017 2018 2019 (P)
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 Basics of Demand and Supply

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 What is the demand?

Willingness to buy + Ability to buy

Law of Demand is ‘The inverse relationship

between price of a product and its quantity
demanded’.

The relationship shows that one can sell larger

quantity by lowering the price.

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 What is the supply?

Willingness to sell + Ability to sell

Law of Supply: There is direct relationship

between price of a product and its quantity
supplied.

The supply curve slopes upwards, suggesting

that the sellers would be willing to sell larger
output at higher prices.

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 What is the Market?

• A market is a place (real or virtual) where

buyers and sellers enter into transactions

• The buyers as a group determine the demand

for a product and sellers as a group determine
the supply of the product

• Supply and Demand are the two forces that

make market economies work. They
determine the quantity of each good
produced and the price at which it is sold.

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 Demand Analysis
Behaviour of the Buyers

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 What are the determinants of demand?

• Price of the product

• Income of the consumer
• Demography
• Fashion that drives the Tastes and Preferences
• Advertising
• Complimentary/substitute goods

The Law of Demand is applicable for most normal goods except:

• Inferior goods
• Snob effects
• Speculative demand

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 The law of diminishing marginal utility explain
buyers behavior.
Units of Total Utility Marginal Utility Price of coke
consumption
(coke)

1 30 30 10

2 50 20 10

3 60 10 10

4 65 5 10

5 65 0 10

MUnth unit = TUnth Unit – TU(n-1)th Unit

What is consumer surplus (CS)? CS=MU-Price

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 Diminishing MU is the basis for an individual
demand curve

• The consumer equates Price with Marginal

Utility to make his purchase decision. He is in
equilibrium MU=Price

• If price rises, he will reduce his consumption in

order to equate new price with MU as a result
the demand will fall.

• If price falls, he will increase his consumption in

order to equate new price with MU as a result
the demand will rise.

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 What is market demand curve?

• Market demand is lateral summation of

Price of individual demand curves. It is also
(X)
downward sloping.

• Market demand curve continues to slope

downwards as more and more consumers
find the product affordable when the price
falls.

Units of
(X)

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 Change in Demand: In response to Change in Price
of the product and in response to other factors
Shift in the demand curve

When demand increases/decreases as a

When demand increases /decreases as a
result of changes in the other factors viz.
result of change in price there is movement
income, consumer taste, prices of other
along the demand curve.
products the demand curve shifts.

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 What is demand function?

The equation that describes the demand curve is called the demand function.

It allows precise prediction of change in quantity demanded when the price is changed. The
practical use of the demand function is for “Demand Forecasting”.

• Q = a - bP
• Q = 5 - 0.15P

P is price of the product, Q is quantity demanded. The negative sign indicates the inverse
relation between the two variables. b indicates the degree of responsive of quantity to
change in price and a sums up the effect of other factors.

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 Learnings from Demand Analysis

• How do I use the information given by the demand

function?

• What can drive the consumer to change his purchase

decision?

• How do I formulate my pricing policy?

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 Takeaways?

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