Demand and Supply
A. Introduction and Overview.
1. Overview
2. The structure of the supply and demand model.
B. The Demand Side.
1. Motivation: Diminishing marginal utility:
2. Definition of Demand Curve
3. Determinants of Demand.
4. Changes in demand vs.
I. Chapter 1. The Fundamentals of Managerial Economics
A. Definition of Topic.
1. Economics
2. Managerial Decisions
B. Components of Effective Decision Making
1. Identify Goals and Constraints:
2. Recognize the Nature and Social Role of Profits:
a. Defini
Continuous Decisions. Notice that in some circumstances, it is possible to make
adjustments more continuously
Notice in my graphical analysis that my graphs are always a bit off. This is a problem of
discreteness.
More generally, we might consider a situa
Components of Effective Decision Making
Recognize the Time Value of Money.
a. Discounting the Future.
b. Calculating Net Present Value of a Project
Comment: Recall problem 1. A student asked if in deciding whether to
undertake a project, it made a differe
Comparative Statics. Given the tendency of markets to converge to competitive
predictions in an unfettered and competitive market, we can use this model to predict the
effects of changes in the world.
1. Single market changes.
Strategy: To find the new eq
Changes in demand vs. changes in qty demanded. When one of the non-price
determinants of demand changes, it is necessary to draw a new demand schedule. This is
known as a change in demand (schedule). When there is a change in price, other things
held cons
The Supply Side. In output market, this defines the behavior of sellers,
1. Initial assumption. Firms are motivated by the profit incentive, but constrained by
increasing marginal costs (or, better yet, the law of diminishing returns (crowding).
Example,
Quantitative Demand Analysis
Introduction: In the preceding chapter we reviewed the basic supply and demand model
used to predict price and quantity outcomes. This model is an extremely useful device
for making qualitative predictions. An important limita
The present value of a firm. The discounting equation used last lecture can be generalized
to value the profitability of a firm, simply by substituting for FV
PV
=
t
(1+i)t
Accounting for indefinite life. There is, however, one important complication. Un
Incremental analysis: For many (if not most) decisions, the manager must make a binary
(yes or no) choice. In that case, the tools described above are appropriate. However,
rather than considering the entire set of possibilities, consider only the changes
A Graphical Interpretation of Price Elasticity.
a. Intuition: One way to consider the problem of sensitivity is to ask the
following question: What happens to total revenue (TR) when price is changed?
Consider a price increase. If TR increases, then we wi