WEEK 3

CHAPTER 2 :PRICING THEORIES

DEMAND

DEFINITION

Ability and willingness to buy specific quantities of goods in given  period of time at a particular price.

  DEMAND=WILLINGNESS TO BUY + ABILITY TO BUY
(CONSUMER MUST HAVE MONEY TO BUY THE PRODUCT)

LAW OF DEMAND

• Negative relationship between price of the product and quantity demanded
• when the price product increase, the quantity demanded decrease.

DEMAND SCHEDULE AND DEMAND CURVE

Demand schedule for a product is a list of the quantity that a buyer is willing to buy at difference prices at one particular time               

1. INDIVIDUAL DEMAND:
   

• Relationship between quantity of a product demanded by its single and its price

  

  2. MARKET DEMAND:

• Relationship between the total quantity of a product. additional all questity demanded by all consumer 

DETERMINANTS OF DEMAND

PRICE OF RELATED GOODS

• related goods fall into two categories :
  Subtitutes goods are goods or service that can be use in place another product or service. for example iphone and samsung. when the price of iphone increase, the quantity demand for iphone will fall (law of demand) and the people will look for another alternative.
  
  Complementary goods are goods that are use in conjunction with another product for example handphone and prepaid. when the price of handphone increase, the quantity demand for handphone will fall and demand for prepaid also decrease.

  

 2. CONSUMER'S INCOME

• Income increase ,consumer demand goods and services will increase,goods that  increase in demand as income increase arenormal good.goods that decrease in demand as income increases are inferior goods

  

 3. TASTE AND FASHION

• when the product is fashionable, the demand increases. If product becomes outdated, demand willdecreases

4. POPULATION

• when the Qd of product depends on the population size, If population size is big, then Qd of product increases

5. FESTIVE SEASON AND CLIMATIC CONDITION

• when the Qd of product depends on its season

Movement along and shift in the demand curve

SUPPLY

DEFINITION

Ability and willingness to sell a specific quantities of goods in given  period of time at a particular price.

  SUPPLY=WILLINGNESS TO SELL + ABILITY TO SELL

LAW OF SUPPLY

• Positive relationship between price of the product and quantity supplied
• when the price product increase, the quantity demanded increase.

MARKET SUPPLIED IS THE COMBINATION OF INDIVIDUAL SUPPLY

DETERMINANTS OF SUPPLY

• Price of related goods

Substitute goods:

Supply of product will decrease if there is an increase in the price of substitute product. 

Complementary goods :

An increase in P of a product will increase the Qs of complimentary product.

Cost of production:

 the cost of production increase, Qs will decrease. (vice versa)

• Expected future price is when the seller expects the P will increase in future, the current Qs will be decrease (vice versa)
• Technological advance is the existence of new technology will cut the cost of production.
• Number of sellers is when large firm supplying product, the Qs of the product will increase

Movement along and shift in the supply curve