chapter2B - Part 2 Demand and Forecasting Norton Media...

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Unformatted text preview: Part 2 Demand and Forecasting Norton Media Library Firms are constrained by consumer choices. These choices are formalized in the market demand curve, which is mostly under the control of consumers as we have said. Here is a definition. The Market Demand Curve is the total quantity that is purchased at each price. Conversely, it is the maximum price that will be paid at every quantity. The Market Demand Curve 1. Market demand shows total (not firms) demand at each possible price 2. Slopes downward because of the substitution and income effects 3. Pertains to a particular period of time Figure 3.1 reduces a more complicated situation to a simpler one, all the other factors that would affect demand besides price are being held constant. Qd x = f (P x ,I, A, T&P,P 1 ,,P n, N, Other) The Demand for Personal Computers Predicting and Explaining Changes In Prices and Demand Factors That Cause an Increase (rightward or upward shift) in Demand 1. A decrease in the price of complements to the good or service 2. An increase in the price of substitutes for the good or service 3. An increase in income (for a normal good) 4. An increased preference by demanders for the good or service 5. An increase in the population of potential buyers 6. An expectation of higher prices in the future Effect of an Increase in the Price of Software (S) Example of A Demand Curve Moschini and Meilke (1992) published an analysis of the demand for pork in Canada. They estimated the linear demand function shown just below I P P P Q C B 2 3 20 20 171 ) 1 ( + + +- = Q=quantity of pork in millions of kg/yr P=price of pork PB=price of beef (substitute) PC=price of chicken (substitute) I=income in thousands Let all the right-hand variables in (1) take their average values...
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chapter2B - Part 2 Demand and Forecasting Norton Media...

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