Managerial Economics: Analyzing Strategic Behavior in Business
MANAGERIAL ECONOMICS: Analyzing Strategic Behavior in Business
Chapter 2 Demand and Supply
MANAGERIAL ECONOMICS: Analyzing Strategic Behavior in Business Thomas J. Webster
1
Lecture Overview
• • • • • • • • • • Introduction Law of demand Demand determinants Estimating the market demand equation Consumer surplus Law of supply Supply determinants Producer surplus Market equilibrium Changes in demand and supply: Price and output determination
2
Introduction
• In this lecture, we will examine the forces of supply and demand in perfectly competitive markets, and how the interaction of buyers and sellers in the marketplace determine the price and availability of goods and services. The perfectly competitive market mechanism presented makes several simplifying assumptions: – Markets are comprised of a large number of buyers and sellers—each without market power. – Buyers and sellers have perfect and symmetric information—optimal decisions. – Only purely private goods are transacted—no externalities.
3
•
1
Demand
• • The objective of consumers is to maximize utility (satisfaction). The market demand for good x (Qd) depends on a variety of factors, including, but not limited to: – The price of good x (Px); – consumers’ money income; – consumer tastes and preferences; – number of consumers in the market; – price of related good y (Py);
4
Demand
• Law of demand The quantity demanded of a good or service is inversely related to its selling price, ceteris paribus. • • • This relationship is depicted by the downward-sloping demand curve. A decline in price from P1 to P2 results in an increase in the quantity demanded from Q1 to Q2. The relationship between the decline in price and the increase in quantity demanded is depicted as a movement along the demand curve from point A to point B.
5
Demand
Market Demand Curve
Price A An change in quantity demanded is depicted as a movement along a fixed demand curve
P1
B P2
D
0 Q1 Q2
Chapter 2 Demand and Supply
MANAGERIAL ECONOMICS: Analyzing Strategic Behavior in Business Thomas J. Webster
1
Lecture Overview
• • • • • • • • • • Introduction Law of demand Demand determinants Estimating the market demand equation Consumer surplus Law of supply Supply determinants Producer surplus Market equilibrium Changes in demand and supply: Price and output determination
2
Introduction
• In this lecture, we will examine the forces of supply and demand in perfectly competitive markets, and how the interaction of buyers and sellers in the marketplace determine the price and availability of goods and services. The perfectly competitive market mechanism presented makes several simplifying assumptions: – Markets are comprised of a large number of buyers and sellers—each without market power. – Buyers and sellers have perfect and symmetric information—optimal decisions. – Only purely private goods are transacted—no externalities.
3
•
1
Demand
• • The objective of consumers is to maximize utility (satisfaction). The market demand for good x (Qd) depends on a variety of factors, including, but not limited to: – The price of good x (Px); – consumers’ money income; – consumer tastes and preferences; – number of consumers in the market; – price of related good y (Py);
4
Demand
• Law of demand The quantity demanded of a good or service is inversely related to its selling price, ceteris paribus. • • • This relationship is depicted by the downward-sloping demand curve. A decline in price from P1 to P2 results in an increase in the quantity demanded from Q1 to Q2. The relationship between the decline in price and the increase in quantity demanded is depicted as a movement along the demand curve from point A to point B.
5
Demand
Market Demand Curve
Price A An change in quantity demanded is depicted as a movement along a fixed demand curve
P1
B P2
D
0 Q1 Q2