Sei sulla pagina 1di 30

MANAGERIAL

th
ECONOMICS 11 Edition
By
Mark Hirschey
Demand and Supply
Chapter 3
Chapter 3
OVERVIEW
 Basis for Demand
 Market Demand Function
 Demand Curve
 Basis For Supply
 Market Supply Function
 Supply Curve
 Market Equilibrium
Chapter 3
KEY CONCEPTS
 demand  supply function
 direct demand  supply curve
 change in the quantity
 utility supplied
 derived demand  shift in supply
 demand function  equilibrium
 demand curve  market equilibrium price
 surplus
 change in the quantity  shortage
demanded  comparative statics
 shift in demand analysis
 Supply
Basis for Demand
 Direct Demand
 Demand is the quantity customers are willing
to buy under current market conditions.
 Direct demand is demand for consumption.
 Derived Demand
 Derived demand is input demand.
 Firms demand inputs that can be profitably
employed.
Market Demand Function
 Determinants of Demand
 Demand is determined by price, prices of
other goods, income, and so on.
 Industry Demand Versus Firm Demand
 Industry demand is subject to general
economic conditions.
 Firm demand is determined by economic
conditions and competition.
Demand Curve
 Demand Curve Determination
 The price-quantity demanded relation.
 All non-price variables are held constant.
Relation Between the Demand
Curve and Demand Function
 Move along demand curve when price
changes.
 Shift to another demand curve when non-
price variables change.
Basis For Supply
 How Output Prices Affect Supply
 Firms offer supply to make profits.
 Higherprices boost the quantity supplied.
 Lower prices cut the quantity supplied.

 Other Factors That Influence Supply


 Everything that affects marginal
production costs affects supply.
 If MC falls, supply rises.
 If MC rises, supply falls.
Market Supply Function
 Determinants of Supply
 Supply is determined by price, prices of
other goods, technology, and so on.
 Industry Supply Versus Firm Supply
 Firm supply is determined by economic
conditions and competition.
 Industry supply is the horizontal sum of
firm supply.
Supply Curve
 Supply Curve Determination
 The price-quantity supplied relation.

 All non-price variables are held


constant.
Relation Between Supply Curve
and Supply Function
 Move along supply curve when price
changes.
 Shift to another curve when non-price
variables change.
Market Equilibrium
 Surplus and Shortage
 Surplus is excess supply.
 Shortage is excess demand.
Comparative Statics: Changing
Demand
Equilibrium changes with demand shifts.
 Comparative Statics: Changing Supply
 Equilibrium changes with supply shifts.
 Comparative Statics: Changing
Demand and Supply
Measuring Market Demand
 Graphing the Market Demand Curve
 Market demand is total demand.
 Evaluating Market Demand
 Demand differs among market
segments.
 Add segment demand to get market
demand.
Demand Sensitivity Analysis:
Elasticity
 Elasticity Concept
 Elasticity measures sensitivity.
 Point and Arc Elasticity
 Point elasticity reflects sensitivity of Y to
small changes in X, εX = ∂Y/Y ÷ ∂X/X.
 Arc elasticity reflects sensitivity of Y to
big changes in X, EX = (Y2–Y1)/(Y2+Y1)
÷ (X2-X1)/(X2+X1).
 Advertising Elasticity Example
Price Elasticity of Demand
 Price Elasticity Formula
 Point price elasticity, εP = ∂Q/Q ÷ ∂P/P.
 In all cases, εP < 0 .

 Price Elasticity and Total Revenue


 Price cut increases revenue if │εP│> 1.
 Revenue constant if │εP│= 1.

 Price cut decreases revenue if │εP│< 1.

 Uses of Price Elasticity Information


Price Elasticity and Marginal
Revenue
 How Elasticity Varies along a Demand
Curve
 As price rises, so does │εP│.
 As price falls, so does│εP│.

 Price Elasticity and Price Changes


 MR > 0 if │εP│> 1.
 MR = 0 if │εP│= 1.

 MR < 0 if │εP│< 1.
Price Elasticity and Optimal
Pricing Policy
 Optimal Price Formula
 MR and εP are directly related.
 MR = P/[1+(1/ εP)].

 Optimal P* = MC/[1+(1/ εP)].

 Optimal Pricing Policy Example


 Determinants of Price Elasticity
 Essential goods have low│εP│.
 Nonessential goods have high│εP│.
Cross-price Elasticity of Demand
 Substitutes and Complements
 Cross-price elasticity shows demand
sensitivity to changes in other prices.
 εPX = ∂QY/QY ÷ ∂PX/PX.
 Substitutes
have εPX > 0.
 Complements have εPX > 0.

 Independent goods have εPX > 0.

 Cross-price Elasticity Example


Income Elasticity
 Normal Versus Inferior Goods
 Income elasticity shows demand
sensitivity to changes in income.
 εI = ∂Q/Q ÷ ∂I/I.
 Normal goods have εI > 0.
 Inferior goods have εI < 0.

 Types of Normal Goods


 Noncyclical goods have 0 < εI < 1.
 Cyclical goods have εI > 1.

Potrebbero piacerti anche