Economics (Supply And Demand) Flashcards
Price (P)
Most influential demand factor (negative exponential)
P(x)>C(x)
Price must always be greater than the production cost for each unit
Maximize revenue when Q(P)=S(P)
Where units sold is equal to units produced as a function of the price per unit
Eventually, increasing price temporarily makes product a ‘snob-good’, purchased for the idea that so few can afford it
Takes the form: Q(P)=-1(c1(P)^c2)+c3
Demand constant
Number of sales made regardless of any other demand factors
Average consumer income (i)
Positive Demand factor exponential
Increases by adding large clients and employees with families
Demand function takes the form
Q(i)=c1(a)^(c2)+c3
Scarcity-value (s)
Probability of a consumer coming to you for this service
Inverse of the number of competitors that offer this particular service
Positive demand factor (linear)
Demand formula takes the form Q(s)=c1(s)+c2
Varieties offered (v)
Bell-curve demand factor Offer too few, consumer feels trapped Offer too many, consumer becomes confused Demand function takes the form Q(v)=c1*e^-[((v)-c2)^2/c3]+c4
Awareness (a)
Approximate number of people who have heard of your service
Increased through marketing
Estimated as a=Σ[NΣ(rh)]+U
N- number of advertising Platfoms (including word of mouth and press)
r- estimated reach of each individual ad of that platform
h- estimated fraction of audience that already knew for each individual ad of that platform
U- total registered users
Positive demand factor (exponential)
Demand formula takes the form Q(a)= c1(a)^(c2)+c3
Standard Demand formula
Q=[Σ Q(x)]/n ±[(Σ |Qr-Qp|)/N]
Q- quantity sold
Q(x)- individual demand function for each demand factor
n- number of demand factors used
±[averageDifference], in demand from predicted numbers
Client-revenue
Net Revenue received from a specific client using your services for a period time (t)
Takes the form of a root function, they pay less and less each time. Making it cheaper for them to stay with you, and including companies looking to lower future costs in your target market
R(t)=c1*[t^(1/c2)]+c3
Only work if you’re constantly releasing new products and investing revenue, with a powerful marketing campaign
Price per unit
[First-DayCostFunction]/n
n- units purchased at one time
R(n)/n>C(n)/n
Must be greater than the production cost per unit for any size order
Describes how much you charge for each product given a number of products purchased
First-day cost function
Following the bulk pricing law
The higher quantity of a given product (greater number of months of service) the client/customer buys at one time, the less they pay per unit
Makes it easier to move high-volume subscriptions
Takes the form of a root function when seen as revenue from that client
R(n)=c1*[n^(1/c2)]+c3
Cost for increasing units purchased
Describes how much you would have to pay to provide ‘n’ number of services for the client
C(Σn)=Σ[(Cs+[ΣO/(cl+1)]/Σn)*n]
Cs- costs of providing that particular service to just one person
ΣO- total overhead
cl- number of current clients
Σn- total number of services requested by the client
n- ordered number of that particular service
Cost for increasing popularity
The cost it would take to support n-number of users and clients
Piecewise function, broken down by the bulk pricing tiers and additional cost items
Conveinence (E)
Positive demand factor (exponential)
Quantifies how easy it is for the client to subscribe given a number of factors
E=1/[time in seconds to fully subscribe]
Demand function takes the form Q(E)=c1(E)^(c2)+c3
Popularity-value (Pop)
Positive Demand factor
Quantified value for the company’s reputation in society
Pop=u/a
a- awareness factor, number of people who know about Tossome
u- number of registered users
Demand function takes the form Q(pop)=c1(pop)^(c2)+c3
Competing Price (Px)
The price of your competitor’s service
Negative demand factor (exponential)
Demand function takes the form Q(Px)=-1(c1(Px)^c2)+c3
Gratitude-coefficient (g)
Number of individual ways the company goes out of its way to satisfy a client, Quantifies the quality of your service
Positive demand factor, exponential
Q(g)=c1(g)^(c2)+c3
Total cost (monthly)
Sum of all cost items for the month
TC=ΣC
Net Cost
All of the money you’ve spent out of your revenue to keep the business running
∫TC(t)
Total area under the curve for the function that describes the total costs in the month ‘t’ since start-up
Total Revenue (monthly)
Sum of all income for the month
TR=ΣR
Net Revenue
All of the money thats come in since start up
∫TR(t)
Total area under the curve for the function that describes the total revenue in the month ‘t’ since start-up
Net profit
Difference in net revenue to net costs
∫P(t)=∫R(t)-∫C(t)
∫P(t), Area under the curve for the function that describes the profit earned just in the month ‘t’ since start-up
Overhead
Minimum money needed to perform a certain function,
Usually just keep the business running (assuming no accounts)
Supply formula
Determines the number of sales you can actually fulfill, depends on the price of the product
Q(P)=[(P*cl-ΣO)-$]/O
O- production cost for that service
ΣO- cost just to keep the company running
cl- number of clients
$- profit needed for that month
Minimum price
P=O+ΣO/cl
O- production cost for that service
ΣO- cost just to keep the company running
cl- number of clients
Market equilibrium
Price determination method in which you solve for P in Q(P)=S(P)
Use a linear function for demand (Q=mP+b) then
P=[b+ΣO/O]/[cl/ΣO-m]
Otherwise, just plot the points and pick the one shared by both Q(P) and S(P)
