Chapter7

# Chapter7 - MANAGERIAL ECONOMICS An Analysis of Business...

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1 MANAGERIAL ECONOMICS An Analysis of Business Issues Howard Davies and Pun-Lee Lam Published by FT Prentice Hall

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2 Chapter 7: Demand and Elasticity Objectives: After studying the chapter, you should understand: 1. The determinants of demand and its elasticity 2. The relationship between revenue and elasticity 3. The link between elasticity and the power of buyers
3 The Determinants of Demand Demand is the quantity of a product that purchasers are willing and able to purchase in a specified period It is determined by – Own Price - P o Price of other products, especially close substitutes and complements, P c,s – Consumers’ disposable incomes, Y d Consumers’ tastes, T – The amount spent on advertising the product, A o The amount spent on advertising complements and substitutes, A c,s Interest rates (i) and credit availability (C) Expectations of future prices and supply conditions(E)

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4 These Relationships May be Represented As: A ‘demand function’ - the general mathematical form • Q d = f(P o, P o ,P s ,Y d ,A o ,A c ,A s ,I,C,E) A ‘demand curve’ Price Quantity Demanded The demand curve shows the quantity that would be bought at each price, for some fixed combination of all other factors
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## This note was uploaded on 08/07/2011 for the course PMBA 2963.2 taught by Professor Stephenchiu during the Spring '03 term at HKU.

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Chapter7 - MANAGERIAL ECONOMICS An Analysis of Business...

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