MEDIA ECONOMICS DEFINITION, CONCEPT AND NATUREAnurag Dave

DEFINITION OF ECONOMICS

The study of how societies use scarce resources to produce valuable commodities and distribute them among different groups.

Resources: inputs and factors of production that are used to produce goods and services.

Resources: both tangible and intangible. Resources: they are considered scarce because they are finite. Resources: they have alternative uses.

Wants: desires by households or individual consumers Wants: infinite and competing

Production: actual creation of goods (tangible) and services(intangible)

Consumption: utilization of goods and services to satisfy different wants and needs.

ECONOMICS

Economics is the science that studies how the economy allocates scarce resources, with alternative uses, between unlimited competing wants.

MEDIA ECONOMICS

Media Economics is the study of how media industry uses scarce resources to produce content that is distributed among consumers in a society to satisfy various wants and needs.

Media Economics helps us to understand the economic relationships of media producers to audiences, advertisers and society.

TWO BRANCHES OF ECONOMICS

Macro Economics: concerned with the behavior of economic aggregates; such as unemployment, GDP, inflation, etc.

Micro Economics: concerned with the behavior of individual economic units; such as a firm, consumer, household,

“ECONOMIC PROBLEM”

1. What and How much (which goods) to produce

2. How to produce them3. Who will consume them

TYPES OF ECONOMIES

CommandMarketMixed

Laissez-fairNon-interference by Gov. (“invisible hand”)

OPPORTUNITY COST

Explaining the basic relationship between scarcity and choice.

Cost of a best alternative that is foregone in order to pursue a certain action.

It is the sacrifice related to the second best choice available to some one, or group, who has picked among several mutually exclusive choices.

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PP CURVE In

du

stri

al R

ob

ots

(10

00’s

)

Pizzas (100, 000’s)

1

2

3

4

5

6

7

8

1 2 3 4 5 6 7 8

9

10A

B

C

D

E

Any point within the frontier isproductively inefficient

I

Any point on the frontier is Productively Efficient.It may or may not be Allocatively Efficient

SUPPLY & DEMAND

Demand Quantity of product or service consumers will

purchase at given price

Supply Amount of product a producer will offer at a certain

price

DEMAND Requisites:

a. Desire for specific commodity.b. Sufficient resources to purchase the desired

commodity.c. Willingness to spend the resources.d. Availability of the commodity at

(i) Certain price (ii) Certain place (iii) Certain time.

KINDS OF DEMAND1. Individual demand2. Market demand

3. Income demand- Demand for normal goods (price –ve, income +ve)- Demand for inferior goods (eg., coarse grain)

4. Cross demand- Demand for substitutes or competitive goods (eg.,tea &

coffee, bread and rice)- Demand for complementary goods (eg., pen & ink)

5. Joint demand (same as complementary, eg., pen & ink) 6. Composite demand (eg., coal & electricity) 7. Direct demand (eg., ice-creams) 8. Derived demand (eg., TV & TV mechanics) 9. Competitive demand (eg., desi ghee and vegetable oils) 10.Demand of unrelated goods

LAW OF DEMAND

Other thing being equal (ceteris paribus), the higher the price, the smaller the quantity demanded and vice versa (when prices goes low the quantity demanded will increase).

The Law of demand states that the quantity demanded and the price of a commodity are inversely related, other things remaining constant.

DEMAND SCHEDULE

Number of Movie Tickets Purchased at Various Ticket Prices

Price (INR) Quantity Demanded

150 90,000

200 80,000

250 70,000

300 60,000

350 50,000

DEMAND CURVE

Pri

ce (

IRS

/tic

ket)

DEMAND CURVE Movement along demand curve Vs. Shift in

demand curve: Distinction between change in quantity

demanded and change in demand.

A. Change in quantity demanded – When quantity demanded changes ( rise or fall ) as a result of change in price alone, other factors remaining the same.

The change is depicted/ represented by the movement up or down on a given demand curve. This does not require drawing a new demand curve.

A CHANGE IN DEMAND An increase in demand is represented by a rightward,

outward, shift in the demand curve,from D1to D2. A decrease in demand is represented by a leftward, or inward, shift in thedemand curve, from D1 to D3.

Quantity

Pri

ce

THE LAW OF DEMAND

P

Q

A

B

P

Q

D1D2

CHANGE IN PRICE=

change in quantity demanded

CHANGE IN OTHER=change in demand

P1

P2

Q1 Q2

ELASTICITY OF DEMAND

Definition: “Elasticity of demand is defined as the responsiveness of the quantity demanded of a good to changes in one of the variables on which demand depends.”

These variables are price of the commodity, prices of the related commodities, income of the consumer & other various factors on which demand depends. Thus, we have Price Elasticity, Cross Elasticity, Elasticity of Substitution & Income Elasticity. It is always price elasticity of demand which is referred to as elasticity of demand

A.Price Elasticity

Measures how much the quantity demanded of a good changes when its price changes.

Or It may be defined as “Percentage Change in Quantity demanded

over percentage change in price”

CALCULATING PRICE ELASTICITY PED = % Change in Qty Demanded

% Change in Price

Points to Remember:• We drop the minus sign from the numbers by treating

all % changes as positive. That means all elasticity’s are positive, even though prices and quantities move in the opposite direction because of the law of downward sloping demand.

• Definition of elasticity uses percentage changes in price and demand rather than actual changes. That means that a change in the units of measurement does not affect the elasticity. So whether we measure price in Rupees or paisa, the price elasticity stays the same.

PRICE ELASTICITY OF DEMAND Price Elasticity • Elastic Demand or more than 1 – When quantity

demanded responds greatly to price changes• Inelastic Demand or less than 1 – When quantity

demanded responds little to price changes.• Unitary Elastic – When quantity demanded

responds equally to the price changes.• Perfectly inelastic or 0 elastic demand• Perfectly elastic or infinite elastic demand

Economic factors determine the size of price elasticity for individual goods. Elasticity tends to be higher when the goods are luxuries, when substitutes are available and when consumer have more time to adjust their behavior.

2. PERFECTLY INELASTIC

p1

OX

Y

p

d

Ed = 0

3. UNITARY ELASTIC

p1

OX

Y

p

d1

Ed = 1

d

4. RELATIVELY MORE ELASTIC

p1

OX

Y

p

d1

Ed > 1

d

5. RELATIVELY LESS ELASTIC

p1

OX

Y

p

d1

Ed < 1

d

SOME BUSINESS APPLICATIONS OF PRICE ELASTICITY

• Price discrimination• Public utility pricing (electricity, railway)• Super markets • Use of machines (lower cost of production for

elastic)• Factor pricing (workers producing inelastic

demand products)• International trade (devalue when exports

are price-elastic)• Shifting of tax burden (shift commodity tax

when demand is inelastic)• Taxation policy

ELASTICITY & REVENUE:• When demand is price inelastic, marginal

revenue is negative and a price decrease reduces total revenue.

• When demand is price elastic, marginal revenue is positive and a price decrease increases total revenue.

• In the borderline case of unit elastic demand, marginal revenue is 0 and a price change leads to no change in the total revenue.