MBA 1st sem Managerial Economics notes

2. SUMMARY variable change Demand Shift Income (Normal) Rise (fall) Rise (fall) Right (left) Income (Inferior) Rise (fall) Fall (rise) Left (right) Price of substitute Rise (fall) Rise (fall) Right (left) Price of complement Rise (fall) Fall (rise) Left (right) Taste Rise (fall) Rise (fall) Right (left) Expected Price Rise (fall) Rise (fall) Right (left) Number of buyers Rise (fall) Rise (fall) Right (left)

5. EXAMPLE OF SUPPLY SCHEDULE

7. Copyright©2003 Southwestern/Thomson Learning Price of Ice-Cream Cone 0 2.50 2.00 1.50 1.00 1 2 3 4 5 6 7 8 9 10 11 Quantity of Ice-Cream Cones $3.00 12 0.50 1. An increase in price ... 2. ... increases quantity of cones supplied.

11. CHANGE IN QUANTITY SUPPLIED 1 5 Price of Ice-Cream Cone Quantity of Ice-Cream Cones 0 S 1.00 A C A rise in the price of ice cream cones results in a movement along the supply curve. $3.00

13. FIGURE 7 SHIFTS IN THE SUPPLY CURVE Copyright©2003 Southwestern/Thomson Learning Price of Ice-Cream Cone Quantity of Ice-Cream Cones 0 Increase in supply Decrease in supply Supply curve, S 3 curve, Supply S 1 Supply curve, S 2

15. SUMMARY variable change Supply Shift Input (factor) price Rise (fall) Fall (rise) Left (right) Technology Rise (fall) Rise (fall) Right (left) Expected Price Rise (fall) Fall (rise) Left (right) Number of sellers Rise (fall) Rise (fall) Right (left)

18. Copyright©2003 Southwestern/Thomson Learning Price of Ice-Cream Cone 0 1 2 3 4 5 6 7 8 9 10 11 12 Quantity of Ice-Cream Cones 13 Equilibrium quantity Equilibrium price Equilibrium Supply Demand $2.00

20. ALTERNATIVE EXAMPLE: #2 LEAD PENCILS Price Quantity demanded Quantity supplied 0.05 1000 400 0.10 800 500 0.15 600 600 0.20 400 700 0.25 200 800

23. INCREASE IN DEMAND Copyright©2003 Southwestern/Thomson Learning Price of Ice-Cream Cone 0 Quantity of Ice-Cream Cones Supply Initial equilibrium D D 3. . . . and a higher quantity sold. 2. . . . resulting in a higher price . . . 1. Hot weather increases the demand for ice cream . . . 2.00 7 New equilibrium $2.50 10

24. DECREASE IN SUPPLY Copyright©2003 Southwestern/Thomson Learning Price of Ice-Cream Cone 0 Quantity of Ice-Cream Cones Initial equilibrium Demand New equilibrium S 1 S 2 2. . . . resulting in a higher price of ice cream . . . 1. An increase in the price of sugar reduces the supply of ice cream. . . 3. . . . and a lower quantity sold. 2.00 7 $2.50 4

25. SUMMARY