ECO202

SUSS

Singapore University of Social Sciences

ECO202 Economic Ideas and Models for Business

Seminar Information

Seminar 1: Market and Elasticity Analysis

  • Instructor: Tan Khay Boon

  • Email: kbtan010@suss.edu.sg

Discussion Topics

  • The specific discussion topics for this seminar are confidential and will be introduced during the session to foster focused engagement among participants.

Key Concepts

  1. Demand and Supply Definitions:

    • Demand: The quantity of a good or service that consumers are willing and able to purchase at various prices over a specific time period.

    • Supply: The quantity of a good or service that producers are willing and able to offer at different price levels over a specified period.

  2. Changes in Demand and Supply:

    • Changes in Demand/Supply: Refers to factors that can lead to shifts of the entire demand or supply curve, such as consumer income, tastes, and preferences, while changes in quantity demanded/supplied refer only to movements along the existing curve due to price changes.

  3. Market Demand/Supply Derivation: Understand how to aggregate individual demands to determine market demand through horizontal summation and vice versa for market supply.

  4. Influential Factors:

    • Various factors can affect demand, such as consumer income levels, prices of related goods (complements and substitutes), consumer preferences, population demographics, and expectations regarding future prices. Conversely, supply can be influenced by production costs, technology advancements, input prices, and the number of suppliers in the market.

  5. Market Equilibrium:

    • Market equilibrium is achieved when the quantity demanded equals the quantity supplied, leading to a stable market price and quantity. The dynamics of demand and supply curves will determine fluctuations in equilibrium price and quantity due to various external and internal changes in market conditions.

Further Discussion Topics

  • Equilibrium Price and Quantity Predictions: Employ supply-demand models to anticipate market movements. Consider how shifting curves affect price and quantity in the market.

  • Elasticity Calculations:

    • Price Elasticity of Demand (PED): Evaluates sensitivity of quantity demanded to price changes.

    • Income Elasticity of Demand: Measures changes in quantity demanded as consumer income changes.

    • Cross Elasticity of Demand: Assesses substitutes and complements in demand analysis.

    • Price Elasticity of Supply (PES): Examines how much the quantity supplied responds to price changes.

  1. Elasticity Relationships: Explore connections between price elasticity of demand and total revenue, revealing strategies for maximizing revenue in response to price changes.

Group Activity

  • Form a group of 4 students for Seminar 1. Establish a group leader to synchronize activities necessary for the Group Business Activity (GBA). Each member is required to actively engage in all assigned questions of the GBA. Ensure that the GBA is thoroughly discussed and finalized for submission by the stipulated due date.

Academic Integrity Guidelines

  • Strive to maintain honest and ethical academic standards. Avoid collusion or plagiarism by giving proper credit to all sources referenced. Use quotation marks as needed and succinctly rephrase content where direct referencing is not feasible. Sharing your GBA with other groups is prohibited to promote individual learning integrity.

Understanding Demand

Demand: Definition and Principles

  • Demand is defined as the relationship between the price of a good/service and the quantity demanded at that price, emphasizing the Law of Demand, which states that there is an inverse relationship between price and quantity demanded—when the price rises, the quantity demanded lowers and vice versa. The mathematical representation of this relationship can be expressed through the demand equation:

    Demand Equation: P = a - bQ_d (with a negative slope).

Demand Equation and Visualization

  • Detailed definition of the demand equation (P being price, Q_d being quantity demanded) alongside the intercept (a) and slope (-b). Graphical illustrations can aid in visualizing shifts and movements along the demand curve based on price changes.

Individual vs. Market Demand

  • Recognize that every consumer has their individual preference structure, leading to unique demand curves. The market demand curve is derived by horizontally summing these individual demand curves.

Changes in Demand Dynamics

  • Distinguish between price-induced movements along the demand curve (changes in quantity demanded) and shifts of the demand curve due to other factors (changes in overall demand). Shifts to the right indicate an increase in demand, while shifts to the left indicate a decrease.

Visual Representation of Demand Changes

Includes graphical evaluations demonstrating how demand increases or decreases impact prices and overall quantity demanded in market scenarios.

Factors Influencing Demand

  • Key factors that directly influence demand include consumer income variations, shifts in prices of related goods—both complements and substitutes—alterations in consumer tastes and preferences, changes in population size, and anticipatory expectations regarding future pricing trends.

Further Discussion on Demand Changes

  • Evaluate how an increase in consumer income positively influences demand for normal goods, while decreasing demand for inferior goods. Understand that price hikes for complementary goods tend to lower demand, whereas price increases for substitute goods generally raise demand. A greater population and optimistic future price predictions can concurrently elevate demand levels in the market.

Discussion Questions and Guide

  • Pose thought-provoking questions on demand dynamics (e.g., what happens to demand if there is a rise in consumer income or decrease in prices of substitute goods). Guides will be issued to promote analytic discussion and engagement during the session.