4 - Demand and Elasticity - Benson (1)

4 - Demand and Elasticity - Benson (1) -...

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Demand and Elasticity MANEC 387 MANEC 387 Economics of Strategy Economics of Strategy David F. Benson
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Exercise I will name possible prices for a mini-Snickers I will name possible prices for a mini-Snickers As I name a price, please tell me how many  As I name a price, please tell me how many  Snickers you are willing to purchase at that  Snickers you are willing to purchase at that  price, right now. price, right now. This exercise is an offer to sell and it is real. I  This exercise is an offer to sell and it is real. I  reserve the right to call in the cash from any  reserve the right to call in the cash from any  individual at any time who indicates their  individual at any time who indicates their  willingness to buy (you can bring me the cash  willingness to buy (you can bring me the cash  later if you don’t have it on hand!). later if you don’t have it on hand!).
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Class Demand For Reese’s $0.00 $0.25 $0.50 $0.75 $1.00 0 50 100 150 200 Quantity Demanded Price
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Market Demand Curve Shows the amount of a good that will be  purchased at alternative prices. Law of Demand   The demand curve is downward sloping. Quantity D Price
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Determinants of Demand Income Prices of substitutes  Prices of complements Advertising Population changes Consumer expectations
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The Demand Function An equation representing the demand  curve Q x = f(P ,   P , M, H,) Q x = quantity demand of good  X P = price of good X. P Y   = price of a substitute good  Y . M  = income. H  = any other variable affecting demand
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Change in Quantity Demanded Price Quantity D A to  B :    Increase in  quantity  demanded 4 $10 A 7 $6 B
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What could lead to a change in  quantity demanded? Only a change in price Why?   Because a given demand curve simply reflects  preferences under a given set of conditions—it is a  picture of stationary preferences When conditions change, preferences often do as  well, so that the entire relationship of quantity to  price also changes (shift in demand)
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Price Quantity D Change in Demand 6 7 13 D 1
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What could lead to an increase in  demand (shift in demand)? A change in any of the determinants of  demand: Income Prices of substitutes  Prices of complements Advertising Population changes Consumer expectations A change in the quality or characteristics of a  product, even if the changes are small
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Changing Prices of Rival  Products Substitute goods  – an  increase  in the price of  good X leads to an  increase  in the  consumption of good Y (and  vice versa ).
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This note was uploaded on 04/01/2011 for the course MANEC 387 taught by Professor Crawford,l during the Spring '08 term at BYU.

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4 - Demand and Elasticity - Benson (1) -...

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