QuantitativeDe emandAnalysis

Alvaredo Chris stN.Aritonang Ndaru Pri ihatmoko

TheElasticityCon ncept
Elastisitas :
Alat/Toolsuntuk menguku ur hubungan antara dua variabel. Perbandingan perubahan proporsional p dari sebuah variabel dengan perubahan variabe el lainnya. lainnya

EG ,S

% G = % S

IfEG,S ,thenSandGaredirectly yrelated. G S >0, IfEG,S <0,thenS andG areinverselyrelated. IfEG,S , =0,thenS andG areunrelated.

OwnPriceElastici ityofDemand
Ukuran U u a pe persentase se tase pe peru uba bahan a kuantitas ua t tas ya yang g diminta "disebabkan"oleh persentase perubahan harga. d

EQX , PX

%QX = %PX

LawofDemand Karenafungsipermintaa anadalahhubungan terbalikantarahargadankuantitas,koefisien elastisitas l i i harga h akan k se elalu l l negatif. if

OwnPriceElastici ityofDemand
ElasticDemand
Permintaan dikatakan Ela astisapabila nilai absolut dari elastisitas permintaan n > 1

InelasticDemand
Permintaan P i dik k Ine dikatakan I elastis l i apabila bil nilai il i absolut b l dari elastisitas permintaan n < 1

Unitary U i El Elastic i Deman D nd d

Permintaan dikatakan Un nitaryapabila nilai absolut dari elastisitas permintaan n = 1

PerfectlyElastic&InelasticDemand
Pi Price Price D D

Quantity
Perfectly Elastic ( EQX , PX = )

Quantity
Perfectly Inelastic ( EQX , PX = 0)

OwnPriceElastici ityandTotal Revenue

Elastic
Increase(adecrease)in npriceleadstoadecrease (anincrease)intotalre evenue.

Inelastic
Increase(adecrease)in npriceleadstoanincrease (adecrease)intotalrev venue.

Unitary
Totalrevenueismaxim mizedatthepointwhere demandisunitaryelast tic. tic

Elasticity, y,To otalRevenue andLinea arDemand

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Elasticity, y,To otalRevenue andLinea arDemand

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Elasticity, y,To otalRevenue andLinea arDemand

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Elasticity, y,To otalRevenue andLinea arDemand

P 100 Elastic 80 60 40 20 I l ti Inelastic 800 1200 TR

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Elasticity, y,To otalRevenue andLinea arDemand

P 100 Elastic 80 60 40 20 I l ti Inelastic 800 Unitelastic 1200 TR Unitelastic

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Demand,MarginalRevenue(MR)and Elast l ticity i i

P 100 Elastic 80 60 40 20 Inelastic Unitelastic l

Foralinearinverse demandfunction, MR(Q)=a+2bQ, 2bQ whereb<0. When

MR>0,demandis elastic; MR=0,demandisunit elastic; MR<0,demandis inelastic.

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FactorsAff fecting gthe OwnPrice eElasticity

AvailableSubstitutes
Themoresubstitutesavaila ableforthegood,themoreelastic thedemand.

Time
Demandtendstobemoreinelasticintheshorttermthanin thelongterm. s outavailablesubstitutes. Timeallowsconsumerstoseek

ExpenditureShare
Goodsthatcompriseasma allshareofconsumersbudgetstend tobemoreinelasticthango oodsforwhichconsumersspenda largeportionoftheirincom mes.

 Elastisitas akan besar bilam mana :

terdapat banyak barang subsitusi yangbaik harga relatif tinggi ada banyak kemungkinankemungkinan k penggunaan barang lain

Elastisitas umumnya akan kecil,bilamana :

b benda d tersebut t b t digunakan di k dengan d k bi i benda kombinasi b d lain l i barang yangbersangkutan terdapat dalam jumlah banyak, angrendah. dan dengan hargaharga ya Untuk k barang b tersebut b tida idak k terdapat d b barang barang b substitusi yangbaik,Danbenda tersebut sangat dibutuhkan.

CrossPriceElast ticityofDemand
EQX , PY %QX = %PY
d

If fEQX,PY >0,then h X and dY aresubst b titutes. IfEQX,P plements. PY <0,thenX andY arecomp

Predicting gRev venueChanges g fromTwo oProducts

Supposethatafirmsellstorelatedgoods.If thepriceofXchange es,thentotalrevenue willchangeby:

R = R X 1 + E Q X , PX + RY E QY , PX % PX

( (

IncomeElasticity E
% Q X = % M
d

EQX , M

IfEQX,M >0,thenX isanorma algood. IfEQX,M < 0,thenX isainferio orgood.

UsesofEl lasticities
Pricing. Managingcashflows. Impactofchangesincompetitors c prices. Impact p ofeconomicbooms b andrecessions. Impactofadvertisingcampaigns. Andlotsmore!

Example1:Pricin ngandCashFlows
According gtoanFTCRe eport p by yMichaelWard, , AT&Tsownpriceelast ticityofdemandforlong distanceservicesis8.6 64. AT&Tneedstoboostre evenuesinorderto meetitsmarketinggoals. Toaccomplishthisgoal,shouldAT&Traiseor loweritsprice? p

Answer:Lo owerprice!
Sincedemandiselastic c,areductioninprice willincreasequantitydemanded d byagreater percentagethanthepr ricedecline,resultingin morerevenuesforAT& &T.

Example2:Quan ntifyingtheChange
IfAT&Tloweredpriceby b 3percent,what wouldhappentothevolume v oflongdistance telephonecallsroutedthroughAT&T?

Answer:CallsIncrease!
Callswouldincreaseby y25.92percent!

EQX , PX

%QX = 8.64 6 = %PX

d

%QX 8.64 = 3% d 3% ( 8.64 6 ) = %QX %QX = 25 5.92%

d

Example p 3:Impac p ctofaChange g ina CompetitorsPrice

AccordingtoanFTCReportbyMichaelWard, AT&Tscrosspriceelast ticityofdemandforlong distanceservicesis9.06 6. Ifcompetitorsreducedtheirpricesby4percent, whatwouldhappentothedemandforAT&T services?

Answer:AT&T AT&T s sDemandFalls!

AT&T d AT&Ts demand dwould ldfall f llby b 36.24 36 24percent! t!
EQX , PY %QX = 9.06 0 = %PY
d d

%QX 9.06 = 4% d 4% 9.06 6 = %QX %QX = 36.24%

d

InterpretingDem mandFunctions
Mathematicalrepresen p ntationsofdemandcurves. Example:

L Lawof fdemand d dholds h ld (co ( oefficient ffi i of fPX is i negative). i ) XandYaresubstitutes(c coefficientofPY ispositive). Xisaninferiorgood(coefficientofMisnegative). negative)

Q X = 10 2 PX + 3PY 2 M
d

LinearDemandFunctionsandElasticities
GeneralLinearDemandFunctionandElasticities:

QX = 0 + X PX + Y PY + M M + H H
d

EQX , PX

PX =X QX

EQX , PY

PY = Y QX

EQX , M

M = M QX

OwnPrice Elasticity

CrossPrice P Elasticit ty

Income Elasticity

ExampleofLin nearDemand
Qd =10 2P. 2P OwnPriceElasticity:(2)P/Q. IfP=1, P 1 Q=8 Q 8(since10 2=8). 8) OwnpriceelasticityatP=1, P Q=8: (2)(1)/8= 0.25.

LogLinear rDemand
GeneralLogLinearDem mandFunction:
ln Q X d = 0 + X ln PX + Y ln PY + M ln M + H ln H

Own Price Elas sticity : Cross Price Ela asticity : Income Elastic city :

X Y M

ExampleofLogLinearDemand
ln(Qd)=10 2ln(P). ln(P) OwnPriceElasticity:2.

GraphicalRepresen ntationofLinearand LogLinea arDemand

P P

D Q Linear LogLinear

D Q

Regressio onAnalysis
Oneuseisforestimatingdemandfunctions functions. Importantterminology yandconcepts:
LeastSquaresRegression nmodel:Y=a+bX+e. X =a LeastSquaresRegression nline: Y +b ConfidenceIntervals. tstatistic. RsquareorCoefficientof o Determination. Fstatistic.

AnExa ample
Useaspreadsheettoestimate e thefollowing loglineardemandfunc ction.

ln Qx = 0 + x ln Px + e

Summary yOutput
Regression Statistics Multiple R 0 41 0.41 R Square 0.17 Adjusted R Square 0.15 Standard Error 0.68 Observations 41.00 ANOVA df Regression Residual Total 1.00 39.00 40.00 SS 3.65 18.13 21.78 t Stat 5.29 5 29 -2.80 MS 3.65 0.46 F Significance F 7.85 0.01

Intercept I t t ln(P)

Coefficients Standard Error 7 58 7.58 1 43 1.43 -0.84 0.30

P-value 0 000005 0.000005 0.007868

Lower 95% Upper 95% 4 68 4.68 10.48 10 48 -1.44 -0.23

InterpretingtheRe egressionOutput
Theestimatedloglinear rdemandfunctionis:
ln(Qx) =7.58 0.84ln(Px). Ownp priceelasticity: y 0.84(inelastic). ( )

Howgoodisourestimat te?
tstatisticsof5.29and2.80 0indicatethattheestimated coefficientsarestatistically ydifferentfromzero. Rsquareof0.17indicatesthe t ln(PX)variableexplainsonly 17percent tof fth thevariation i ti in i ln(Q l (Qx). ) Fstatisticsignificantatthe e1percentlevel.

Concl lusion
Elasticitiesaretoolsyoucanusetoquantify the i impact of fchanges h in i pri ices,income, i and d advertisingonsalesandrevenues. Givenmarketorsurveydata, d data regressionanalysis canbeusedtoestimate:
Demandfunctions. Elasticities. Ahostofotherthings,includingcostfunctions.

Managerscanquantifythe t impactofchangesin prices,income,advertisi ing,etc.

TERIMA AKASIH