CONCEPT OF ELASTICITY,SUPPLY,DEMAND ESTIMATION

1-

ELASTICITY AND INELASTICITY OF DEMAND

PRICE ELASTICITY OF DEMAND

It is a percent change in quantity demanded by percent change in price of a good.

We can determine whether good is elastic or inelastic by formula.

Price Elasticity of Demand= (% Change in quantity demanded)/ (%change in price)

If Price Elasticity Of Demand >1 Good Is Elastic
If Price Elasticity Of Demand =1 Unit Elastic
If Price Elasticity Of Demand <1 Good is Inelastic

For example

Inelastic
If you increase the price of rice by 10% then quantity demand  may decrease by 2% or 3%.If we calculate this

Price Elasticity Of Demand = (2%/10%)
                                                   =0.2
Here 0.2 is less than 1 it means goods is inelastic. It means if we increase the price of rice there will be very little effect on quantity demanded. Because it is a necessity. Price change is not going to affect too much on quantity demanded.
Petrol is also an example of inelasticity.

Elastic

If you increase the price of speakers by 10% then quantity demand may decrease by  20% to 30%.If we calculate this

Price Elasticity of Demand = (30%/10%)=3

Here 3 is greater than 1 it means good is elastic. It means if we increase the price of speaker there will be decrease in quantity demanded. Because it is not a primary necessity of once. Hike in price effects quantity demand.

2-

Demand Estimation and Forecasting

In this topic first we should know about demand estimation and forecasting

What is demand estimation?
Demand Estimation - It means the level of demand and variables which determines it.

What is demand forecasting?
Demand forecasting means it is the prediction of future demand or we can say that it is the prediction of over all future demands.

Demand Estimation and forecasting is the process of finding the current values of demand for various values of prices and other determining variables.

The current demand should be known for determining pricing and promotion policies so that it is able to secure optimum sales or maximum profit. It can also be estimates from consumer’s point of view or serves.

Example 
We can take example of FACEBOOK.
Facebook estimates from public what people actually  wants. What are the features they require in Facebook? They collect data from past records and on that basis estimates and forecast the demands to customers by providing features.

3-

SUPPLY

The amount of a good that sellers are willing and able to sell in the market at various prices.

Law of Supply

When the price of a good rises, the quantity supplied of the good also rises, and when the prise falls, the quantity supplied also falls as well. The law of supply says that as the price of an item goes up, suppliers will attempt to maximize their profits by increasing the quantity offered for sale.

For Example-1

I had a printer in my under graduate and I use to print documents at high cost in my hostel. When I got Rs 10/page I use to print more and more. I increase the supply because price increases therefore supply increases. Sometimes student did not want to pay this amount therefore I use to print less than earlier, because prise decreases supply also decrease.

 For Example- 2

When I was in B. Tech Students specialized in Mechanical branch get placed with high package than other specialization; due to this supply of students specialized in mechanical engineering was increased because pay was more in mechanical branch.

4-

Law of diminishing return

Diminishing returns is the decrease in the marginal output of a production process. It states that in a production process as one input variable is increased there will be a point at which the marginal per unit output will start to decrease, holding all factors constant.

Diminishing returns means that the extra labour causes output to fall which means that the marginal product is negative. In other words, the change in output per unit increase in labour is negative and total output is falling.

we can understand by graph-                 

Stage 1- Total production and Average production increase; Marginal Production is first increasing and then decreasing.

Stage 2- Total Production is increasing, Average production and Marginal production both decreases.

Stage 3- Total production is diminishing, Average production and Marginal production both decreases.

For example

I am having a farm. I take 5 kilogram of seed and applied to a 2 acres of land which produces 1 ton of crop. I expect that an additional kilogram of seed would produce an additional ton of output. But the additional kg of seed will produce less than one additional ton of crop. The 2^nd kg of seed may only produce a half ton of extra output. Diminishing marginal return also implies that a 3^rd kg of seed will produce an additional crop that is even less than a half ton of additional output.

# A little effort helps a lot.

# A lot of efforts only helps a little.

5-

UTILIYTY

Want satisfying property of any product.

The power of the commodity that satisfy the wants of consumer.

Example- I purchased a Samsung mobile. I am using it for past 6 months, its performance is great, never hang, battery is good, camera is good. I am totally satisfied with the product.

Example- Recently I purchased Pulsar 160 NS bike. It is comfortable, smooth ride, less vibration, Engine power is amazing, mileage is pretty good. Whenever I ride I feel comfortable and satisfactory. It satisfies my wants and needs.

CARDINAL UTILITY

Assigning numerical values to the amount of satisfaction

ORDINAL UTILITY

Not assigning numerical values to the amount of satisfaction but indicating the order of preferences, that is what is preferred to what.