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Supply and demand in managerial economics

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Supply and demand in managerial economics
CHAPTER

2

DEMAND AND SUPPLY

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2– 1

DEFINITION OF DEMAND

Demand is defined as the ability and willingness to buy specific quantities of goods in a given period of time at a particular price, ceteris paribus.

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2– 2

CLASSIFICATION OF GOODS
AND SERVICES


Free goods are goods that have no production cost.  Public goods are goods that are for common use and will benefit everyone.
 Economic goods are goods of value that can be seen and touched. Economic services are intangible things (with value) that cannot been seen or touched.

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2– 3

LAW OF DEMAND
Law of demand states that the higher the price of a good, the lower is the quantity demanded for that good and the lower the price, the higher is the quantity demanded, ceteris paribus.

P ↑ Qdd ↓

P ↓ Qdd ↑

NEGATIVE RELATIONSHIP
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2– 4

DEMAND SCHEDULE AND
CURVE
Demand Schedule

Demand Curve
12

Price

Quantity

5

2

4

4

3

6

6

2

8

4

1

10

2

10
8
DD

0
2

4

6

8

10

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2– 5

INDIVIDUAL AND MARKET
DEMAND
INDIVIDUAL DEMAND
The relationship between the quantity of a good demanded by a single individual and its price.
MARKET DEMAND
The relationship between the total quantity of a good demanded by adding all the quantities demanded by all consumers in the market and its price.

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2– 6

Consumers’ income Tastes and trends Price of related goods

Supply of money in circulation Level of taxation

Population or number of buyers DETERMINANTS
OF DEMAND

Festive seasons and climate Expectation about future prices Advertisement

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2– 7

CHANGES IN QUANTITY DEMANDED
VS. CHANGES IN DEMAND
CHANGES IN QUANTITY DEMANDED

CHANGES IN DEMAND
Price

Price

DD





D0

Quantity

Movement along DD
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