Wednesday, September 26, 2007

Management Lite & Ezy 45 – Economics 103

At a particular price-point, demand for a product is affected by many factors. For example, if the price of crude oil increases from US$40 to US$60 per barrel, Toyota Prius, the fuel-efficient hybrid vehicle is likely to sell better, as shown below:

Factors affecting demand:

Income effect Demand for normal good increases as income of consumers rise. Conversely, demand for inferior good decline as consumers have more disposable income.

Prices of substitutes E.g. palm oil is the substitute of soybean oil. If the price of palm oil increases, its demand will drop, but the demand for soybean will rise.

Prices of complements E.g. computer software is the complement of PC. Drop in PC price increases demand for software.

Advertising and consumer tastes Effective advertising could increase the demand of one product at the expense of its competitions.

Population Demand increases inline with population.

Expectation (future) changes in price Consumers are more likely to stock up (durable) goods if they anticipate price hike in the near future.

Related posts:

Economics 101

Economics 102


  1. How come sounds like my job, from datas analyse results.. muahaha.. maybe I can do MBA after all...

  2. princess,
    Since you know so much you can guide me a bit. Perhaps I need to call you Master Eileen, hahaha...

  3. haha... dun want... I still wanna be princess :P We do a lot of datas collecting, tabulating and draw into graphs.. then we need to write drivers, restraints & challenges, then come out with solutions & recommendations kind of stuffs.