Demand,Supply forecasting and Equilibrium

1. Demand forecasting

2. Meaning Of Demand Forecasting:
• It is the activity of estimating the quantity of a
product or service that consumers will
purchase in the future period of time.
Demand forecasting is based on the statistical
data about past behaviour and empirical
relationships of the demand determinants.

3. Levels Of Forecasting
Micro
Macro
Industry

4. Significance Of Forecasting
1) Production Planning.
2) Sales Forecasting.
3) Control of Business.
4) Inventory Control.
5) Stability.
6) Economic Planning & Policy Making.
7) Growth & Long Term Investment
Programmes.

5. Types of demand forecasting
Long Term
Forecasting Short Term
Forecasting

6. Methods Of Forecasting
Opinion Survey Expert Opinion
Delphi Method
Consumers Interview
Method
Survey
Method

7. Methods Of Forecasting
Statistical
Method
Time
Series
Barometric
Regression
&
Correlation

8. supply
Willing to offer to the
market at various
prices during period
of time
Able to offer to the
market at various
prices during period
of time

9. Definition of supply
• The supply of goods is the quantity offered for
sale in a given market at a given time at
various prices.
By : Thomas
• Supply refers to the amount of a goods that
producer in a given market desire to sell,
during a given time period at various prices,
ceteris paribus.
By : Samuelson

10. Determinates of supply
1. Price of the Product (Own Price).
2. Price of Related Products.
3. Cost of Factors of Production.
4. Change in Technology.
5. Time Periods.
6. Government Policy.
7. The Nature.
8. Self Consumption.
9. Seller’s Expectations.
10.Motives of Producer.

11. Law of supply
• The Law of Supply simply expresses the
relation between the quantity of product
supplied & its price and other things
remaining constant.
According to S.E.Thomas, “ a rise in price
tends to increase supply and a fall in price
tends to reduce it.”

12. Assumptions to law of supply
• Law of supply holds goods when “other things
remain the same” meaning thereby, the factors
affecting supply, other than price, are assumed to be
constant.
1. Cost of production is unchanged.
2. Fixed scale of production.
3. Government policies are unchanged.
4. No change in the technique of production.
5. No speculation.
6. No change in transportation cost.
7. The prices of all other goods remains constant.

13. Supply functions
• The supply of a product can be mathematically
expressed as:
• Total supply of product x.
• Price of product x.
• Price of related products.
• Prices of inputs.
• Change in technology.
• Time periods etc….

14. Individual supply schedule
• It is defined as a table which shows quantities
of a given commodity which an individual
producer will sell at all possible prices at a
given time.
Price (Rs) (Per Kg) Quantity Supplied (Kg)
1 10
2 30
3 50
4 70
5 80

15. Market Supply Schedule
• It is defined as the quantities of a given
commodity which all producers will sell at all
possible prices at a given moment of time.
Price of
commodity
‘X’ (In Rs)
A B Market
Supply (Units)
100 40 50 40+50=90
200 60 70 60+70=130
300 65 80 65+80=145
400 80 100 80+100=180

16. Supply curve
• A supply curve is a locus
of points showing
various price-quantity
combination of a
sellers.
• it shows a direct
relationship between
price & quantity
supplied.
• It slopes upward from
right to left.
S
S
P
R
I
C
E
QTY. SUPPLIED

17. Exceptions to the law of supply
Labor Supply
Immediate
Need For
Cash
Rare Goods
Self
Consumption
Future
Expectation
Hoardings

18. Elasticity of supply
• Elasticity of supply is defined as the
responsiveness of the quantity supplied of a
good to change in its price.
Es = % Change in Q. Supplied
% Change in Price
Es = Change in Q. Supplied Original Price
Change in Price Q. Supplied

19. TYPES OF ELASTICITY OF
SUPPLY
Perfectly
Elastic Supply
Perfectly
Inelastic
Supply
Unitary
Elastic Supply
Relatively
Elastic Supply
Relatively
Inelastic
Supply

20. 1. Perfectly Elastic Supply
• e = ∞
S
Q Q
S
P
r
i
c
e
Quantity Supplied
When the supply
for a product changes
…… increases or
decreases even when
there is no change in
price, it is known as
perfectly elastic supply.

21. 2. Perfectly Inelastic Supply
P
P
S
S
Quantity Supplied
P
r
i
c
e
e = 0
When there is a
heavy change in price
level, but ……there is
no change in quantity
supplied, it is known
as perfectly inelastic
supply.

22. 3. Unitary Elastic Supply
e = 1
P
P
S
S
QQ
Quantity Supplied
P
r
i
c
e
When the
proportionate change
in supply is exactly
equal to proportionate
changes in price, it is
known as unitary
elastic supply.

23. 4. Relatively Elastic Supply
e > 1
S
S
Q Q
P
P
Quantity Supplied
P
r
i
c
e
When the proportionate
change in supply is
greater than the
proportionate changes
in price, it is known as
relatively elastic supply.

24. 5. Relatively Inelastic Supply
e < 1
S
S
P
P
Q Q
Quantity Supplied
P
r
i
c
e
When the
proportionate change
in supply is less than
the proportionate
changes in price, it is
known as relatively
inelastic supply.

25. Determinants of Elasticity of
Supply
1. Time Period.
2. Scale of Production.
3. Nature of Commodities.
4. Technique of Production.
5. Natural Factors.
6. Nature of Production.
7. Mobility of Factors.
8. Size of Firm & number of products produced.

26. Market Equilibrium
Definition:
• A situation in which the supply of an item
is exactly equal to its demand. Since there
is neither surplus nor shortage in the
market, price tends to remain stable in this
situation.

27. Examples of market equilibrium
• Recall the demand and supply schedules for
pizza delivered in Oswego in a week:
Price Quantity of pizza
demanded
Quantity of pizza
supplied
25 100 800
20 210 700
15 300 625
10 500 500
5 650 300

28. Diagram of market equilibrium
The supply and demand curves intersect
at the point where quantity supplied =
quantity demanded. This intersection is
what we call an equilibrium price. This
is the price where the intentions of both
the buyer and seller are compatible:
Buyers want to buy the exact amount
the sellers want to sell.

29. Meaning :
• A state of the market that exists when the opposing
forces of demand and supply do not balance out and
there is an inherent tendency for change.For the market,
disequilibrium is indicated by the existence of either a
surplus or a shortage. The inherent tendency to change
occurs because a surplus causes the price to decline and a
shortage causes the price to rise. So long as market
disequilibrium persists, the price will be induced to
change.
Market disequilibrium

30. Revenue concept
Meaning :

31. Types of revenue concept
Average
revenue
Marginal
revenue
Total
revenue

32. (i) Total Revenue (TR)
Definition:
• By 'total revenue' of a firm is meant the total amount of sale proceeds
or the total receipts of the firm.
•
Example:
If a firm producing cloth sells one hundred meters of cloth in the market at $4
per meter, the sale proceeds or the receipts of the firm win be $400. This
total sale proceed which a firm has received by selling 100 meters of cloth
is called its total revenue. The total revenue varies with the sales of a firm.
Formula:
Total Revenue(TR) = Price(p) x Quantity Sold(q)
TR = 4 x 100
Ans: TR = $400

33. (ii) Marginal Revenue (MR)
Definition:
• Marginal revenue is the addition made to the total revenue by a
one unit increase in the volume of sales by the firm in the market.
Example:
• For example, if a firm sells 100 meters of cloth at $4 per meters, the total
revenue of the firm is $400. If it increases the volume of sale from 100 meters
to 101 meters, i.e., by one meter, the total revenue of the firm goes up to
$404. The addition of $4 which has taken place in the total revenue by a one
unit increase in the rate of sales per period of time is known as marginal
revenue. MR can be expressed as follows.
• Formula:
• MR = ΔTR
Δq

34. (iii) Average Revenue (AR)
Definition:
• Average revenue is revenue earned per unit of output. Average revenue is obtained by
dividing the total revenue by the number of units sold in the market.
• Example:
For example, a firm sells 200 meters of cloth for $600, then the average, revenue will be 600 /
200 = $3 only. Average revenue represents the average sale price per unit of the commodity.
Average revenue curve can also be called demand curve.
• Formula:
Average Revenue(TR) = Total Revenue (TR)
Total Output Sold(O)