Managerial Economics - Unit 2 Notes

Demand

• Meaning of Demand: The need or desire for anything. Example: Demand for money, house, clothes etc.
• Conditions of Demand:
  • Desire: Having the desire to obtain something.
  • Willingness to pay: The ability to spend money for it.
  • Ability: Availability of necessary funds.

Types of Demand

1. Direct Demand: When a consumer directly purchases a product.
   • Example: Buying bread for oneself.
2. Indirect Demand: When someone buys a product for someone else.
   • Example: Buying buttermilk.
3. Joint Demand: A product cannot be used without another product.
   • Example: Charger and mobile phone.
4. Composite Demand: Different uses of a single product.
   • Example: Using a torch for various purposes.
5. Competitive Demand: If one product is unavailable, demand for another product.
   • Example: Different brands of biscuits.

Determinants of Demand

• Price: As the price decreases, demand increases.
• Income: Increase in income leads to increase in demand.
• Weather: Like demand for an umbrella in rain.
• Population Growth: More population leads to more demand.
• Consumer Preference: Like when the popularity of a product increases.

Demand Function

• Graphical representation of demand.
• Demand Curve: The relationship between price and demand.
• Shifting of Demand: Like increase in demand for products during festivals.

Types of Demand

1. Demand Schedule: Graphical representation of demand with price.
2. Demand Curve: Graphical representation of demand.

Causes of Change in Demand

• Change in Income:
  • Inferior Goods: Like flour.
  • Normal Goods: Like high-quality products.

Elasticity of Demand

• Price Elasticity: Effect on demand due to change in price.
• Income Elasticity: Effect on demand due to income.
• Cross Elasticity: Effect on demand for one product due to price change of another product.

Supply

• Meaning of Supply: Delivering a product to consumers.
• Determinants of Supply:
  • Increase in supply due to price increase.
  • Change in production costs.
  • Taxes imposed by the government.
  • Weather conditions.

Supply Function

• Law of Supply: Relationship between price and supply.
• Supply Curve: Increase in supply as price increases.

Equilibrium Price

• The price at which demand and supply are equal.

Demand Forecasting

• Predicting future demand.
• Metrics:
  • Historical sales data.
  • Quantitative and qualitative methods.

Conclusion

• Studying demand and supply is crucial for making business decisions.
• Making decisions by understanding consumer behavior and market dynamics.