Incomemore leads to an increase in demand less leads

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Unformatted text preview: ease in demand; less leads to a decrease in demand for normal goods. (The rare case of goods whose demand varies inversely with income is called inferior goods) varies inversely with income is called inferior goods). Prices of related goods also affect demand. Substitute goods (those that can be used in place of each other): The price of the substitute good and demand for the other good are directly related. If the price of Coke rises (because of a supply decrease), demand for Pepsi should increase. Complementary goods (those that are used together like tennis balls and rackets): When goods are complements, there is an inverse relationship between the price of one and the demand for the other. Expectations—consumer views about future prices, product 10 availability, and income can shift demand. Managerial Economics Managerial Economics GRAPHING DEMAND Price of Corn Increase in Quantity Demanded P CORN P $5 4 3 2 1 QD 10 30 20 40 35 60 55 80 80 + $5 4 3 2 1 o Increase in Demand 10 20 30 40 50 60 70 80 Quantity of Corn Managerial Economics D’ D GRAPHING DEMAND Price of Corn P CORN P $5 4 3 2 1 QD 10 -20 10 35 20 55 40 80 60 4 3 2 1 o Q 11 Decrease in Quantity Demanded $5 Decrease in Demand 10 20 30 40 50 60 70 80 Quantity of Corn D D’ Q 12 Managerial Economics 3 Shifts in the demand curve Changes in Quantity Demanded vs Changes in Demand Changes in price result in changes in the quantity demanded. This is shown as movement along the demand curve. along Changes in nonprice determinants result in changes in Changes in nonprice determinants result in changes in demand. demand. This is shown as a shift in the demand curve. shift Movement along the demand curve indicates the “quantity demanded” increased. The controllable factors (such as price, advertising, warranties, product quality, distribution speed, service quality, and prices of substitute or complementary products also owned by the company) result in changes in the quantity demanded, which is shown as movement along the demand curve movement along the demand curve. The uncontrollable The uncontrollable factors (non-price determinants) such as taste, (nonexpectations, income, weather, interest rates, and prices of substitute and complementary products owned by OTHER companies result in CHANGES in DEMAND, which is shown as a shift in the demand curve. 13 14 Managerial Economics SUPPLY Shifts in the demand curve Changes in Demand (shifts in demand curve) can occur for multiple reasons Uncontrollable factor – affects demand and is out of a company’s control. Income, Income, weather, interest rates, and prices of substitute and complementary products owned by other companies. Changes Changes in the quantity demanded (movement along the demand curve) Controllable Controllable factor – affects demand but can be controlled by a company Price, advertising, warranties, product quality, distribution speed, service quality, and prices of substitute or complementary products also owned by the company Supply is a schedule that shows amounts of a product a producer is willing and able to produce and sell at each specific price in a series of possible prices during a specified time period. 15 16 Managerial Economics 4 SUPPLY GRAPHING...
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