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http://managerialandeconomics.wordpress.com/. Turn Off HP. Market Forces: Demand And Supply. Demand. Market demand curve:

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  1. http://managerialandeconomics.wordpress.com/

  2. Turn Off HP

  3. Market Forces: Demand And Supply

  4. Demand • Market demand curve: a curve indicating the total quantity of a good all consumers are willing and able to purchase at each possible price, holding the price of related goods, income, advertising, and other variables constant.

  5. Demand (continued) • Change in quantity demanded: changes in the price of a good lead to a change in the quantity demanded of that good. This corresponds to a movement along a given demand curve.

  6. Demand (continued) • Change in demand: changes in variables other than the price of a good, such as income or price of another good, lead to a change in demand. This corresponds to a shift of entire demand curve.

  7. Demand Shifter: Because: - Income, - Prices of related goods, - Advertising and consumer tastes, - Population, - Consumer expectations.

  8. Demand Shifter (continued): Income: - Normal good: a good for which an increase (decrease) in income leads to an increase (decrease) in the demand for that good. - Inferior good: a good for which an increase (decrease) in income leads to a decrease (increase) in the demand for that good.

  9. Demand Shifter (continued): Prices of related goods: - Substitutes: goods for which an increase (decrease) in the price of one good leads to an increase (decrease) in the demand for the other good. - Complements: goods for which an increase (decrease) in the price of one good leads to a decrease (increase) in the demand for the other good.

  10. The Demand Function Qdx =f (Px, Py, M, H) Qdx : the quantity demanded of good X f : function Px: the price of good X Py: the price of a related good M: income H: value of any other variable that affects demand

  11. Linear Demand Function Qdx = a0 + a1Px + a2Py + a3M + a4H

  12. Case: Qdx = 12000 – 3 Px + 4 Py – 1 M + 2 A M: income A: advertising Px = 200 Py = 15 A = 2000 M = 10000 - How much of good X do consumers purchase? - Are good X and Y substitutes or complements? - Is good X a normal or an inferior good?

  13. Case: Qdx = 12000 – 3(200) + 4(15) – 1 (10000) + 2 (2000) = 5460

  14. Consumer Surplus: The value consumers get from a good but do not have to pay for. Figure 2-5 Page 44.

  15. Supply • Market supply: a curve indicating the total quantity of a good that all producers in a competitive market would produce at each price, holding input prices, technology, and other variables affecting supply constant.

  16. Supply (continued) • Change in quantity supplied: changes in the price of a good lead to a change in the quantity supplied of that good. This corresponds to a movement along a given supply curve.

  17. Supply (continued) • Change in supply: changes in variables other than the price of a good, such as input prices or technological advances, lead to a change in supply. This corresponds to a shift of the entire supply curve.

  18. Supply Shifters Affected by: - Input prices, - Technology or government regulations, - Number of firms, - Substitutes in production, - Taxes, - Producer expectations.

  19. Supply Shifters (continued) A per unit tax Figure 2-7 Page 48

  20. The Supply Function Qsx = f (Px, Pr, W, H) Qsx: the quantity supplied of a good f: function Px: price of the good Pr: price of technologically related goods W: price of an input H: the value of some other variable that affects supply

  21. Linear Supply Function Qsx = b0 + b1 Px + b2 Pr + b3 W + b4 H

  22. Producer Surplus: The amount producers receive in excess of the amount necessary to induce them to produce the good. Figure 2-9 Page 51

  23. Market Equilibrium Qd = Qs

  24. Case: Qd = 10 – 2P Qs = 2 + 2P Determine the competitive equilibrium?

  25. Price Restrictions And Market Equilibrium • Price ceiling: the maximum legal price that can be charged in a market. Figure 2-11 Page 55

  26. Price Restrictions And Market Equilibrium (continued) • Price floor: the minimum legal price that can be charged in a market. Figure 2-12 Page 58

  27. Comparative Statics (changes In Demand) • Effect the increase in demand of rental cars. Figure 2-13 Page 60.

  28. Comparative Statics (changes In Supply) • Effect higher input prices Figure 2-14 Page 62.

  29. Homework: The demand for good X is given by: Qx = 1200 – 0.5 Px + 0.25 Py – 8 Pz + 0.1M Py = 5900 Pz = 90 M = 55000 a. Indicate whether goods Y and Z are substitutes or complements for good X. b. Is X an inferior or normal good? c. How many units of good X will be purchased when Px = 4910

  30. http://managerialandeconomics.wordpress.com/

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