TRƯỜNG ĐẠI HỌC NGOẠI NGỮ - TIN HỌC TP.

HỒ CHÍ MINH
HO CHI MINH CITY UNIVERSITY OF FOREIGN LANGUAGES - INFORMATION TECHNOLOGY

ECONOMIC PRINCILPLES &

DEMAND FORECASTING

www.huflit.edu.vn
Table of contents

Scarcity & Supply & Demand

opportunity costs

Substitutes, Price Elasticity

Complements, and
Inferior Goods
01
Scarcity & Opportunity Costs
Life is all about choices
✓Everyone has their own needs, demands or
wants. Could we be able to get all of them to
satisfy ourselves? Or we need to trade-off an
alternative to keep another?
✓Resources are limited or scarcity -> People are
still continually forced to make choices.
Opportunity cost, also known as
alternative cost, is the potential
benefits that is foregone if a decision
is made in favor of a particular option
and other alternatives are therefore
excluded.

It is one of the key principles of

Economies.
• Opportunity cost is also a key concept in the
study of revenue management. Consumers must
decide which product or service is worthy of
their time and money.

• They have to determine the opportunity cost of

selecting choice A over choice B. Organizations
use sales and marketing techniques to help
educate customers and persuade them to buy
the organization’s products and services.
• Value to one person is different from the other

Ex: cheap and expensive tickets -> saving money to buy gifts

• A business must understand the costs involved with pricing and supply decisions made
internally and their possible impact upon each market segment.

Q1: What will be the opportunity cost of raising the price?

Q2: Will the cost be a loss of some customers, a loss of overall revenue, or both?

Q3: Or will the cost be the loss of some customers, but the gain of new customers at the higher
price, corresponding to an increase of revenue overall?
 What am I going to TAKE and what am I going to GIVE UP?

WOULD YOU RATHER? SHARK TANK

02
Supply & Demand
The amount of a good or service The amount of a good or service
that a seller is willing and able to that a buyer is willing and able to
sell for any given price at any buy for any given price at any
given time. given time.
If you were a seller, would you like to sell more or less when the price of
goods or service increases?

The law of supply states that

as price rises, the quantity
supplied increases and as the
price falls, the quantity
supplied decreases.
How about the demand?

The law of demand states that the

quantity of a good or service
demanded by buyers tends to
increase as the price of that good
or service decreases, and tends to
decrease as the price increases.
 Market equilibrium

Market equilibrium occurs

when the quantity supplied is
exactly equal to the
quantity demanded at that point
in time
Surplus and Shortage
A surplus occurs when the quantity supplied
exceeds the quantity demanded.
A shortage occurs when the quantity
demanded exceeds the quantity supplied
04
Price Elasticity
Substitutes
 Sometimes the price of one item may
SUBSTITUTES
affect the demand for another. If the
price of one item goes up causing the
increase in the demand for another
similar item, those two items are
referred to as substitutes for one
another .

Substitute goods are products that can

replace each other in consumption
because they serve similar purposes.
COMPLEMENTS
Complementary goods are
products that are typically
consumed together . When the
increase in the price of one good
causes a decrease in the quantity
demanded of another good, the
goods are considered to be
complements of one another.
Conversely, if the price of one
increases, the demand for both
may decrease.
INFERIOR GOODS

Some goods and services

are impacted by changes
in income. As consumers’
incomes rise, they will
purchase the same or
more of normal goods.
 Price Elasticity

Price elasticity is an economic

concept that measures how much the
quantity demanded (or supplied) of a
good responds to changes in its price.
Price elasticity of supply

Price elasticity of supply (PES) is an

economic measure that indicates how
responsive the quantity supplied of a
good or service is to a change in its
price or showing how much the supply
of a product will change when its price
changes
It is calculated by dividing the
percentage change in quantity
supplied by the percentage change in
price.
Price elasticity of demand

It measures how the quantity

demanded of a good or service
responds to changes in its price.
Specifically, it is the percentage change
in quantity demanded divided by the
percentage change in price.
• If price elasticity is greater than 1, the good is elastic
(luxury goods, Non-Essential Goods (airline tickets for
travel, entertainment tickets, dining out, substitute goods).
• If PE less than 1, it is inelastic (gas, essential goods,
medications, tobacco or alcohol).
• If a good's price elasticity is 0, there is no amount of price
change that produces a change in demand, and it is
perfectly inelastic (Life-saving medications in critical
situations)
• The supply or demand of a good would change without a
change in price (=∞), the supply or demand of that good
would be considered to be perfectly elastic.
• If a price change leads to an equal percentage change in
demand, the price elasticity is exactly 1, known as unitary
elasticity (rarely happens)
How does PED work?

https://www.thoughtco.co
m/price-elasticity-of-
demand-overview-1146254
 Factors Impacting the Elasticity of Demand

• The first factor is whether the product or service is considered to be a

luxury or a necessity.
• A second factor affecting the elasticity of demand is the availability of
substitutes and complements.
• A third factor affecting the elasticity of demand is the time factor. The
longer the time period, the more elastic will be the demand. For example,
the demand for air conditioning will tend to be inelastic in July, when
temperatures hit 100°. In January, air-conditioning prices tend to be more
elastic as people do not feel the need to rush their purchase.
• A final factor affecting the elasticity of demand is the price relative to a
consumer’s budget.
 The Impact of Price Elasticity on Revenue
If a product’s demand is elastic and an organization raises prices too high, it may in
practice eliminate a substantial portion of the demand for its product. Remember
that when demand for a product is elastic, consumers are very sensitive to its price.

Conversely, if the demand for a product is inelastic, an organization may be able to

increase price without impacting customer demand, as customers are less sensitive
to changes in price.
 Managing demand
• Controlling: reservation process (limited seats in a restaurant)
• Directing: happy hours, vouchers for slower period
• Influencing: advertising, PR
• Creating: Promotions or events
05
Demand Forecasting
Forecasting is the act of estimating, calculating or predicting conditions in the future.
Historical Data
No-shows

Walk-ins

ADR achieved

Occ% achieved

• By the property
• By room type

Average nº of guests per room

Average length of stay