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Chapter 2 Tutorial Notes

Chapter 2 Tutorial Notes - Managerial Economics Chapter 2...

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Managerial Economics Chapter 2: Demand Theory The majority of this chapter is devoted to the concept of demand from the market side, what factors affect the demand for a product from the customer perspective, the responsiveness of demand to different factors and the different steps that managers can take to better anticipate the change in demand. The Market Demand Curve Factors that affect demand: Price of the good Non-price factors: o Income o Tastes o Price of other goods (substitutes or complements) o Advertising o Population Demand Curve Example: We can plot this function with P on the vertical axis and Q on the horizontal axis: The function follows economic demand logic as it is downward sloping to the right.
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Shifts in the Demand curve: Upward/Right Shift Downward/Left Shift Causes of Upward/Right Shift: Increase in income Change in tastes that positively affects the demand of the product Increase in price of substitute goods Decrease in price of complementary goods Increase in advertising (limited) Increase in population Causes of Downward/Left Shift: Decrease in income Changes in tastes that negatively affect the demand of the product Decrease in price of substitute goods Increase in price of complementary goods Decrease in advertising (limited) Decrease in population If the manager decides to change the price of the product it will NOT cause a shift in the demand curve, but rather a MOVEMENT ALONG the curve.
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