5. Write short notes on the following:-
a) Market Demand Schedule
In economics, a market demand schedule is a table that lists the quantity of a good all consumers in a market will buy at every different price. A market demand schedule for a product indicates that there is an inverse relationship between price and quantity demanded. The graphical representation of a demand schedule is called a demand curve.
In economics, the demand curve is the graph depicting the relationship between the price of a certain commodity, and the amount of it that consumers are willing and able to purchase at that given price. It is a graphic representation of a demand schedule. The demand curve for all consumers together follows from the demand curve of every individual consumer: the individual demands at each price are added together. Despite its name, it is not always shown as a curve, but sometimes as a straight line, depending on the complexity of the scenario.
Demand curves are used to estimate behaviors in competitive markets, and are often combined with supply curves to estimate the equilibrium price (the price at which sellers together are willing to sell the same amount as buyers together are willing to buy, also known as market clearing price) and the equilibrium quantity (the amount of that good or service that will be produced and bought without surplus/excess supply or shortage/excess demand) of that market. In a monopolistic market, the demand curve facing the monopolist is simply the market demand curve.
b) Peak Load Pricing
Peak load pricing is a type of third-degree price discrimination in which the discrimination base is temporal. We single out this particular form of price discrimination in part because of its widespread use. But remember that all forms of third-degree price discrimination, including peak load pricing, involve a seller attempting to capitalize on the fact that buyers’ demand elasticities vary. In the case of peak load pricing, customer demand elasticities vary with time. Very few, if any, business economic activities are characterized by an absolutely constant demand during all seasons of the year and at all times of day. For many, the variations, or fluctuations, are not large enough to be of concern; but for some activities, fluctuations in demand are significant. These variations are sometimes relatively stable and predictable. Telephone calls provide one good example. Telephone companies and their competitors use a pricing scheme for long-distance calls that encourages people to make such calls at slack times when equipment and personnel are less busy.
Prices are the highest between 8:00 a.m. and 5:00 p.m., reduced between 5:00 p.m. and 11:00 p.m., and reduced still further from 11:00 p.m. to 8:00 a.m. The highest prices are charged during peak demand periods, and lower prices are charged at other times. This is an example of peak-load pricing. Consumers are encouraged to shift demand from peak to slack periods through the price mechanism, and those who use the phone system for long-distance calls during peak periods pay a relatively greater share of the cost of providing and maintaining the phone system. Whenever price discrimination is based on time differentials, the object of the selling firm is to charge a higher price for the product during the more inelastic period and a lower price during the more elastic interval.
c) Income Elasticity of Demand:
The income elasticity of demand measures the responsiveness of sales to changes in income, ceteris paribus. It is defined as the percentage change in sales divided by the corresponding percentage change in income. The methods used to calculate arc income elasticity (EI) and point income elasticity (eI) are as follows:
Given information on sales and income, the calculation of income elasticities is strictly analogous to the calculation of price elasticities. If the income elasticity of demand for a product is greater than one, the product is said to be income elastic; if it is less than one, the product is income inelastic. For normal goods, the income elasticity is greater than 0 because with rising incomes, consumers will purchase a greater quantity of such goods, ceteris paribus. If the income elasticity for a commodity is negative, the good is an inferior good; that is, people will choose to purchase less of the product when their income increases. Potatoes may represent examples of inferior goods for some households, as would purchases from the cheap stores. The reason is that some households consume certain goods only because of lack of purchasing power. As income increases it is possible the household will shift away from the purchase of these inferior goods.
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