Managerial Economics Chap 3

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Managerial Economics Chap 3

  1. 1. Chapter 3 Demand Theory www.slideshare.net/themhk
  2. 2. <ul><li>There is an inverse relationship between the price of a good and the quantity of the good demanded per time period. </li></ul><ul><li>Substitution Effect </li></ul><ul><li>Income Effect </li></ul>www.slideshare.net/themhk
  3. 3. www.slideshare.net/themhk Individual Consumer’s Demand Qd X = f(P X , I, P Y , T) quantity demanded of commodity X by an individual per time period price per unit of commodity X consumer’s income price of related (substitute or complementary) commodity tastes of the consumer Qd X = P X = I = P Y = T =
  4. 4. www.slideshare.net/themhk Qd X = f(P X , I, P Y , T)  Qd X /  P X < 0  Qd X /  I > 0 if a good is normal  Qd X /  I < 0 if a good is inferior  Qd X /  P Y > 0 if X and Y are substitutes  Qd X /  P Y < 0 if X and Y are complements
  5. 5. <ul><li>Horizontal summation of demand curves of individual consumers </li></ul><ul><li>Bandwagon Effect </li></ul><ul><li>Snob Effect </li></ul>www.slideshare.net/themhk
  6. 6. www.slideshare.net/themhk
  7. 7. www.slideshare.net/themhk Market Demand Function QD X = f(P X , N, I, P Y , T) quantity demanded of commodity X price per unit of commodity X number of consumers on the market consumer income price of related (substitute or complementary) commodity consumer tastes QD X = P X = N = I = P Y = T =
  8. 8. <ul><li>Market Structure </li></ul><ul><ul><li>Monopoly </li></ul></ul><ul><ul><li>Oligopoly </li></ul></ul><ul><ul><li>Monopolistic Competition </li></ul></ul><ul><ul><li>Perfect Competition </li></ul></ul><ul><li>Type of Good </li></ul><ul><ul><li>Durable Goods </li></ul></ul><ul><ul><li>Nondurable Goods </li></ul></ul><ul><ul><li>Producers’ Goods - Derived Demand </li></ul></ul>www.slideshare.net/themhk
  9. 9. www.slideshare.net/themhk Q X = a 0 + a 1 P X + a 2 N + a 3 I + a 4 P Y + a 5 T P X Q X Intercept: a 0 + a 2 N + a 3 I + a 4 P Y + a 5 T Slope:  Q X /  P X = a 1
  10. 10. www.slideshare.net/themhk Linear Function Point Definition
  11. 11. www.slideshare.net/themhk Arc Definition
  12. 12. www.slideshare.net/themhk
  13. 13. www.slideshare.net/themhk P X Q X MR X
  14. 14. www.slideshare.net/themhk TR Q X MR<0 MR>0 MR=0
  15. 15. <ul><li>Demand for a commodity will be more elastic if: </li></ul><ul><li>It has many close substitutes </li></ul><ul><li>It is narrowly defined </li></ul><ul><li>More time is available to adjust to a price change </li></ul>www.slideshare.net/themhk
  16. 16. <ul><li>Demand for a commodity will be less elastic if: </li></ul><ul><li>It has few substitutes </li></ul><ul><li>It is broadly defined </li></ul><ul><li>Less time is available to adjust to a price change </li></ul>www.slideshare.net/themhk
  17. 17. www.slideshare.net/themhk Linear Function Point Definition
  18. 18. www.slideshare.net/themhk Arc Definition Normal Good Inferior Good
  19. 19. www.slideshare.net/themhk Linear Function Point Definition
  20. 20. www.slideshare.net/themhk Arc Definition Substitutes Complements
  21. 21. <ul><li>International Convergence of Tastes </li></ul><ul><ul><li>Globalization of Markets </li></ul></ul><ul><ul><li>Influence of International Preferences on Market Demand </li></ul></ul><ul><li>Growth of Electronic Commerce </li></ul><ul><ul><li>Cost of Sales </li></ul></ul><ul><ul><li>Supply Chains and Logistics </li></ul></ul><ul><ul><li>Customer Relationship Management </li></ul></ul>www.slideshare.net/themhk

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