ManEconCh02 - MANAGERIAL ECONOMICS: THEORY, APPLICATIONS,...

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MANAGERIAL ECONOMICS: THEORY, APPLICATIONS, AND CASES W. Bruce Allen | Keith Weigelt | Neil Doherty | Edwin Mansfield CHAPTER  2 Demand Theory
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OBJECTIVES Explain the importance of market demand in the  determination of profit. Understand the many factors that influence  demand. Elasticity: Measures the percentage change in one  factor given a small (marginal) percentage change in  another factor Demand elasticity: Measures the percentage change in  quantity demanded given a small (marginal) percentage  change in another factor that is related to demand
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OBJECTIVES Explain the role of managers in controlling  and predicting market demand. Managers can influence demand by controlling,  price, advertising, product quality, and  distribution strategies.
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OBJECTIVES Role of managers (Continued) Managers cannot control, but need to understand,  elements of the competitive environment that influence  demand. This includes the availability of substitute goods, their pricing,  and advertising strategies employed by sellers. Managers cannot control, but need to understand how  the macroeconomic environment influences demand. This includes interest rates, taxes, and both local and global  levels of economic activity.
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THE MARKET DEMAND CURVE Market demand schedule: Table showing  the total quantity of the good purchased at  each price Market demand curve: Plot of the market  demand schedule on a graph Price (the X variable) is on the vertical and  quantity demanded (the Y variable) is on the  horizontal axis.
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THE MARKET DEMAND CURVE Characteristics of the market demand curve Quantity demanded is for output of the entire  market, not of a single firm. For most products and services, the market  demand curve slopes downward and to the  right. Quantity demanded is defined with regard to a  particular time period.
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THE MARKET DEMAND CURVE Determinants of the position and shape of  the market demand curve Consumer tastes Example: Increase in preference for laptop  computers causes an increase in demand for laptop  computers.
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THE MARKET DEMAND CURVE Consumer income Normal and inferior goods Example: Increase in income causes an  increase in demand for laptop computers. Population size in the market
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INDUSTRY AND FIRM DEMAND  FUNCTIONS Market demand function: The relationship between  the quantity demanded and the various factors  that influence this quantity Quantity of X (Q) = f(factors) Factors include price of X incomes of consumers tastes of consumers prices of other goods population advertising expenditures
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This note was uploaded on 03/30/2011 for the course ECON 3020 taught by Professor Lucas during the Spring '10 term at Hawaii Pacific.

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ManEconCh02 - MANAGERIAL ECONOMICS: THEORY, APPLICATIONS,...

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