1. MEDIA ECONOMICS
DEFINITION, CONCEPT AND NATURE
Anurag Dave

2. 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.

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

4. 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.

5. 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,

6. “ECONOMIC PROBLEM”
1. What and How much
(which goods) to produce
2. How to produce them
3. Who will consume them

7. TYPES OF ECONOMIES
Command
Market
Mixed
Laissez-fair
Non-interference by Gov.
(“invisible hand”)

8. 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.

9. 9
PP CURVE
IndustrialRobots(1000’s)
Pizzas (100, 000’s)
1
2
3
4
5
6
7
8
1 2 3 4 5 6 7 8
9
10
A
B
C
D
E
Any point within the frontier is
productively inefficient
I
Any point on the frontier is
Productively Efficient.
It may or may not be Allocatively
Efficient

10. 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

11. 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.

12. KINDS OF DEMAND
1. Individual demand
2. 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

13. 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.

14. 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

15. DEMAND CURVE
Price(IRS/ticket)

16. 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.

17. 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 the
demand curve, from D1 to D3.
Quantity
Price

18. THE LAW OF DEMAND
P
Q
A
B
P
Q
D1
D2
CHANGE IN PRICE=
change in quantity
demanded
CHANGE IN OTHER=
change in demand
P1
P2
Q1 Q2

19. 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”

20. 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.

21. 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.

22. 2. PERFECTLY INELASTIC
p1
O
X
Y
p
d
Ed = 0

23. 3. UNITARY ELASTIC
p1
O
X
Y
p
d1
Ed = 1
d

24. 4. RELATIVELY MORE ELASTIC
p1
O
X
Y
p
d1
Ed > 1
d

25. 5. RELATIVELY LESS ELASTIC
p1
O
X
Y
p
d1
Ed < 1
d

26. 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

27. 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.