Chapter 4 Micro economic factors

1. Chapter 4 Micro economic factors Qiang Jiang School of Business Sichuan University, China jiang.qiang@outlook.com

2. Topic list 1 The micro-environment 2 Internal and external micro and macro environments 3 The concept of a market 4 The demand schedule 5 The supply schedule 6 The equilibrium price 7 Demand and supply analysis 8 Maximum and minimum prices 9 Competition and restrictive practices

3. 1 The micro-environment • The micro environment refers to the immediate operational environment including suppliers, competitors, customer, stakeholders and intermediaries

4. 1 The micro-environment • Supply and demand

5. 2 Internal and external micro and macro environments • 5 inputs that an organisation requires on order to function • Materials • Money • Men • Machines • Management

6. 2 Internal and external micro and macro environments • Four factors are required by all organisations in order to function • People • Objectives • Structure • Management

7. 3 The concept of a market • A market is a situation in which potential buyers and sellers of good or service come for the purpose of exchange

8. 3 The concept of a market • Price theoryand the market • Price theory is concerned with how market prices for goods are arrived at, through the interaction of demand and supply.

9. 3 The concept of a market • Utility • Utility is the word used to describe the pleasure or satisfaction or benefit derived by a person from the consumption of goods. • Total utility • Marginal utility

10. 3 The concept of a market • Assumptions abut consumer rationality • Generally the consumer prefers more goods to less • Generally the consumer is willing to substitute one good for another provided its price is right • Choices are transitive

11. 4 The demand schedule • The demand schedule and the demand curve • The relationship between demand and price can be shown graphically as a demand curve

12. 4 The demand schedule • The market demand curve • Expresses the expected total quantity of the good that would be demanded by all consumers together. • Factors determining demand for a good • Price • Household’s income • Tastes • Expectations • Distribution of income

13. 4 The demand schedule • Substitutes and complements • Substitute goods are goods that are alternatives to each other, so that an increase in the demand for one is likely to cause s decrease in the demand for another. • Complements are goods that tend to be bought and used together, so that an increase in the demand for one is likely to cause an increase in the demand for the other.

14. 4 The demand schedule • The prices elasticity of demand • Price elasticity of demand explains the relationship between change in quantity demanded and changes in price

15. 4 The demand schedule • Income elasticity of demand • measures the responsiveness of demand to changes in household income • Cross elasticity of demand • determined by the availability of substitute products

16. 4 The demand schedule • Income elasticity of demand • measures the responsiveness of demand to changes in household income • Cross elasticity of demand • determined by the availability of substitute products

17. 4 The demand schedule • Household income and demand: normal goods and inferior goods • Goods for which demand rises as household income increases are called normal goods • Goods whose demand eventually falls as income rises are called inferior goods.

18. 4 The demand schedule • Shifts of demand curve • Demand, fashion expectations

19. 5 The supply schedule • Supply is the quantity of a good that existing suppliers or would-be suppliers would want to produce for the market at a given price • A supply curve shows the quantity suppliers are willing to produce at different price levels. • Short run supply curve • Long run supply curve

20. 5 The supply schedule • 固定成本（fixed cost)是指在一定的范围内不随产品产量或商品流转量变动的那部分成本。 • 变动成本(variable cost)与固定成本相反，变动成本是指那些成本的总发生额在相关范围内随着业务量的变动而呈线性变动的成本。直接人工、直接材料都是典型的变动成本，在一定期间内它们的发生总额随着业务量的增减而成正比例变动，但单位产品的耗费则保持不变。

21. 5 The supply schedule • 单位变动成本(Unit Variable Cost)是指单位商品所包含的变动成本（注意是Variable Cost）平均分摊额，即总变动成本与销量之比。 • 边际成本(Marginal cost):增加一单位的产量(Output)随即而产生的成本增加量即称为边际成本。

22. 5 The supply schedule • 总边际收益或贡献(Total Marginal Contribution ，TCM)等于总销售收入(Total Revenue，TR or Sales)减去总变动成本(Total Variable Cost，TVC，TC)： 总边际收益 = 总销售收入 − 总变动成本 • 单位边际收益(Unit Marginal Contribution ，C)等于单位销售收入(Unit Revenue or Price，P)减去单位成本(Unit Variable Cost，V)： 单位边际收益 = 单位销售收入 − 单位变动成本

23. 5 The supply schedule

24. 5 The supply schedule • 边际利润（marginal profit 或 margin of profit ），是指厂商每增加一单位的产出所带来纯利润的增量。 • 边际收入 （marginal revenue）指增加或减少一个单位的销售量所引起销售收入总额的变动数。

25. 5 The supply schedule • Why MC=SUPPLY? • Price=Average Revenue=Marginal Revenue • MC=MR to maximize profit • Cost-plus pricing • A firm adds a profit margin to its average cost at any level of output in order to establish its selling price.

26. 5 The supply schedule • Factors influencing the supply quantity • Costs of making the good • Prices of other goods • Expectations of price changes • Changes in technology • Other factors • Shifts of the market supply curve

27. 6 The equilibrium price • Functions of the price mechanism • The price mechanism and the equilibrium price • Consumer surplus and producer surplus

28. 7 Demand and supply analysis • Case example • Analysis • Price as signal

29. 8 Maximum and minimum prices • Price regulation • Maximum prices • Minimum prices • Minimum wages