Consumer Demand Analysis Essay

Submitted By kpfund
Words: 4347
Pages: 18
Open Document
Finance 30210: Managerial
Economics
Consumer Demand Analysis

We can begin our representation of the consumer with a demand function…
Is a function of…

Qd D P, I , Ps , Pc 
Quantity
demanded

Price

Income

Prices of
Substitutes

Price

40 D 20,100,40,10 

$20

D I 100, Ps 40, Pc 10 
40

Quantity

Prices of
Compliments

Given a demand function we can characterize the behavior of demand with elasticity.. p 
Price

%Qd
% P

Price elasticity will always be a negative number
p 

$20

50
 2
 25

$15

%P  25%

D I , Ps , Pc 
40

60

%Qd 50%

Quantity

Given a demand function we can characterize the behavior of demand with elasticity.. I 

Income elasticity will generally be a positive number 40
 I  4
10

Price

$20

D I 110 
D I 100 
40

56

%Qd 40%

%Qd
% I

Quantity

%I 10%

Given a demand function we can characterize the behavior of demand with elasticity..  Ps 

Cross price elasticity will be a positive number for substitutes 10
 Ps  .5
20

Price

$20

D Ps 48
D Ps 40
40

44

%Qd 10%

%Qd
%Ps

Quantity

%Ps 20%

Given a demand function we can characterize the behavior of demand with elasticity..  Pc 

 20
I 
.  5
40

Price

Cross price elasticity will be a negative number for compliments $20

D Ps 10 
D Pc 14
32

40

%Qd  20%

Quantity

%Qd
%Pc

%Ps 40%

Note that if the demand relationship is linear, elasticity is not constant

Qd a  bP  cI  dPs  ePc

%Qd
p 
%P
 Q  P 
 p 
 
 P  Q 
P
 p b 
Q

 Ps 
%Qd
 

 d p 
Ps
%I
Q
 Q  I 
 p 
 
 I  Q 
I
 I c 
Q

P 
 Pc e c 
Q

For example….

Qd 60  2 P  .0025 I

 30 
 p  2
  .6
 100 
 40,000 
 I .0025
 1
 100 

Price

$80

$30

D I 40,000 
100

Quantity

Let’s try something a little more complicated…a non-linear demand relationship 1
2

Qd 100  2 P  .02 I

2

1
2

1
2

 P 
 400  .29
P
 Q  P  
 p 

    P   
Q
68
 P  Q  
 Q 
1

2

Price

$2916
2
I
.04 I 2
.04 20 
 Q  I 
 I 

.24
  .04 I   
Q
68
 I   Q 
Q

$400

D I 20 
Quantity

68

Sometimes we use demand functions that are linear in logs…



LN  Qd  LN 150e  .15 P .012 I

Qd 150e

 .15 P .012 I



LN  Qd   LN  150   LN  e .15 P .012 I 
LN  Qd   5  .15 P  012 I

Price

Price

$12

$12

D I 40 
40

D I 40 

Quantity

3.7

LN(Quantity)

P
150e  .15 P .012 I P
 Q  P 
 .15 P .012 I
  .15   (.15)
 p 
 .15 P  .1512   1.8
  150e
 .15 P .012 I
Q
150 e  P  Q 
 

I 
150e  .15 P .012 I I
 Q   I 
 .15 P .012 I
 I 
.012  (.012)
.012 I .012 40 .48
  150e
 .15 P .012 I
Q
150 e  P  Q 
 
Price

Qd 150e

 .15 P .012 I

$12

D I 40 
40

Quantity

A little math trick…recall the derivative of the natural log

 ln x 1

x x  ln x 

x x This just says that the difference in logs is a percentage change

Therefore, if we start with elasticity

 %Q   ln Q   ln Q 
 p 


P
 %P  %P  P 

Sometimes we use demand functions that are linear in logs…

LN  Qd  5  .15P  012 I

 %Q    ln Q 
 p 
 
 P  .15 P  .1512   1.8
%

P

P

 


Price

 %Q    ln Q 
 I 
 
 I .012 I .012 40  .48
 %I   I 
$12

D I 40 
3.7

LN(Quantity)

Sometimes we use demand functions that are linear in logs…

 

LN e Qd LN 16 P  .65e.045 I 

e

Qd

16 P







Qd LN 16   LN P  .65  LN e.045 I

 .65 .045 I

e

Qd 2.7  .65LN  P   .045 I

Price

LN(Price)

$10

2.3

D I 40 
3

D I 40 

Quantity

3

Quantity



Sometimes we use demand functions that are linear in logs…

Qd 2.7  .65 LN  P   .045I

1
.65
 %Q   Q  1 
 p 
 .22
 
   .65  
Q
3
 %P    ln P  Q 
 

LN(Price)

I
 %Q   Q  I 
 40 
 I 
 
  .045  .045
Show More

Related Documents: Consumer Demand Analysis Essay

Demand management in fresh food value chains Essay

Demand management in fresh food value chains: a framework for analysis and improvement In this research paper, the author analyzed the problems of demand management in fresh food value chains and how to improved demand management. According to some case studies that were part of much larger VCA study concerned with the sustainability of the UK food industry, the author found two broad categories problems. They are characteristics of demand in agri-food chains, and operational features of demand…

Words 526 - Pages 3

Marketing: Economics and Price Essay

producing more of one good or service means producing less of another good or service. Opportunity cost: the highest-valued that must be given up to engage in an activity. Three fundamental questions:1. What goods and services will be produced? Consumers, firms, and the government face the problem of scarcity by trading off on good or service for another. 2. How will the goods and services be produced? Firms may need to choose between a production method in the united state that uses fewer workers…

Words 2215 - Pages 9

Capsim Situation Analysis Essay examples

A company situation analysis can be defined as “matching the company’s strategy to external market circumstances and to internal resources and competitive capabilities.” We believe that our company, Chester Electronic Sensors, is currently in a position to spring ahead in the Electronic Sensor market. The industry in 2011 (round 0) consists of six competitors in very similar positions, holding virtually equal market share. We will use indicators in the industry to help determine our position and…

Words 1211 - Pages 5

Charles and Keith Essay

2.1 About Charles & Keith 4 2.2 Reasons for Choosing Ireland 4 3.0 STEEP Analysis 5 3.1 Socio-cultural Factors 5 3.2 Political Factors 5 3.3 Economic Factors 6 3.4 Technological Factors 6 3.5 Ecological Factors 6 4.0 SWOT Analysis 7 4.1 Strengths 7 4.2 Weakness 7 4.3 Opportunities 7 4.4 Threats 8 5.0 Market Analysis 8 5.1 Bargaining Power of Buyers 8 5.2 Rivalry among competitors 8 5.3…

Words 2539 - Pages 11

Executive SummaryThe Consumer Electronics Home Appliances Essay

Executive Summary The consumer electronics, home appliances and mobile communications industry produces a wide range of products; from flat panel TVS, refrigerators, audio and video products and more. This industry is very predominant because of the lifestyle of people today rely on these technologies. The reliance on technology has made the consumer electronics, home appliances and mobile communications industry a very lucrative industry. LG Electronics Inc. is a subsidiary of LG Group (formerly…

Words 664 - Pages 3

Essay on Price Competition

flexibility and commitment Direct vs. strategic effects Incumbent weaknesses and entry to markets 1 Strategy is not a sequence of isolated decisions • • • • Strategy as a process Stage 1: Structure “Understanding the game” Demand analysis (location model) Cost analysis (economies of scale) Risk factors Key cognitive biases Threats & Opportunities Product positioning, Differentiation, Competitive convergence, proliferation & preemption, Consolidation, Signaling and punishment, Price protection…

Words 1364 - Pages 6

Essay about Econ 1 Sample Exam

perfectly competitive, constant cost, industry. The diagrams below show short run supply and demand for the industry as a whole and the marginal cost for a typical coffee grower (assume all firms are identical in this industry). Coffee Growing Industry Representative Coffee Growing Firm 100,000’s pounds of coffee beans per day pounds of coffee beans per day A) To the firm (grower) diagram, add the demand and MR curves faced by the firm. Assuming that this firm is in long run equilibrium, add the…

Words 831 - Pages 4

Bsbg402b Analysis Of Consumer Behaviour

BSBMKG402B Analyze consumer behavior for specific markets Assessment Task 2: Project – Consumer behavior analysis A summary of domestic consumer participation in Aboriginal tourism experiences. You should include: Key information about the demographics of domestic consumers participating in Aboriginal tourism experiences, as well as their general attitudes towards participating in Aboriginal tourism experiences.  Age: 15-65 years  Place of birth: Thailand,Vietnamese,Japanese,Chainese  Disability:…

Words 846 - Pages 4

Essay on determinants of demand report

Determinants of Demand Yiadom Adu Introduction to Microeconomics/ECO102 March 11, 2013 Alan Beideck Determinants demand This report will discuss about the determinants of demand and determine how they are shift in a demand curve. This report will also give definitions for the factors that are determinates of demand and also give a real life example. Demand can be describe as possessing a product or making use of a service, combined with the ability to purchase it. In other words, determinants…

Words 1007 - Pages 5

The Market Economy and Microeconomic Concepts Essay

individual producers and consumer through a system known as the price mechanism”. The market economy is a dynamic environment, where the consumers’ choices can influence the producers’ decisions. The producers are motivated by financial results, and tend to follow the consumers’ trends. The market economy has the advantage to rapidly allocate resources without the intervention of the government. The resources are scarce, and we cannot doubt it. This situation has imposed an analysis of the choices to…

Words 784 - Pages 4