ECO CHP 2 SLIDES - Managerial Economics Managerial...

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Unformatted text preview: Managerial Economics Managerial Economics Chapter 2 Demand, Supply, & Market Equilibrium Dr. Chen’s notes: In this chapter, we will review Economics 101. All topics in this chapter are fundamental and important. The following demand and supply functions will help you to keep the determinants in mind • ( , , , , , ) d R e Q f P M P P N = ℑ • ( , , , , , ) d R e Q f P M P P N = ℑ ( , , , , , ) s I r e Q f P P P T P F = Managerial Economics Managerial Economics 2-2 Demand vs. Quantity Demanded • Quantity demanded ( Q d ) • Amount of a good or service consumers are willing & able to purchase at a given price Dr. Chen’s notes: If someone asks, “Do you have demand on apple?” I believe your answer is “Yes.” You are supposed to have enough money to buy. Another immediate question follows, “How many pounds will you buy?” We cannot determine the exact quantity demanded without knowing the price per pound. See the difference b/w demand and quantity demanded? Demand is like a schedule or a plan to purchase (consume) the product at varied prices; quantity demanded is an exact amount at a given price . Therefore, your answer might be “Give me 5 pounds if the price is $1/lb.” Your quantity demanded ( Q d ) is 5 lbs associated with the price ( P )=$1/lb. Managerial Economics Managerial Economics 2-3 General Demand Function • Six variables that influence Q d • Price of good or service (P) • Incomes of consumers (M) • • Expected future price of product (P ) • Number of consumers in market (N) • General demand function • ( ) ℑ Tast e pat t er ns of consumer s • ( ) ℑ Tast e pat t er ns of consumer s • ( , , , , , ) d R e Q f P M P P N = ℑ • ( , , , , , ) d R e Q f P M P P N = ℑ Managerial Economics Managerial Economics 2-4 General Demand Function • b, c, d, e, f, & g are slope parameters • Measure effect on Q d of changing one of the variables while holding the others constant • Sign of parameter shows how variable is related to Q d • Positive sign indicates direct relationship • Negative sign indicates inverse relationship d R e Q a bP cM dP e fP gN = + + + + ℑ + + Dr. Chen’s notes: How to measure ℑ (consumer taste)? In reality, economists use “advertising expenditures” as a feasible measure for consumer tastes. The more ads expenditures; the stronger demand on the product. Managerial Economics Managerial Economics 2-5 General Demand Function Variable Relation to Q d Sign of Slope Parameter P P e N M P R Inverse Direct Direct Direct Direct for normal goods Inverse for inferior goods Direct for substitutes Inverse for complements ℑ ℑ Managerial Economics Managerial Economics 2-6 Direct Demand Function • The direct demand function , or simply demand , shows how quantity demanded, Q d , is related to product price, P , when all other variables are held constant. P is the indep. variable and Q d ,is dep....
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This note was uploaded on 11/29/2010 for the course ACC 3332 taught by Professor Nina during the Spring '10 term at University of Houston.

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ECO CHP 2 SLIDES - Managerial Economics Managerial...

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