Weeks 78

1
(No Transcript)
2
Structure
Weeks 7-8 Competition, market structures and
business decisions
Week 9 Pricing strategies and practices
Week 10 Business and Government.
Weeks 5 - 6 Production and Costs
Managerial Economics
Week 11 Capital budgeting
Weeks 3-4 Demand analysis and estimation
Week. 12 Research question Business and current
economic situation.
Week 2 Basic economics principles demand and
supply.
Week1 Introduction. The nature of managerial
economic decision making
3
Study materials
http//www-mugc.cc.monash.edu.au/gbus/gkazwww.htm
Under the subject name and code, the link to
the site other than WebCT
4
Reading

• M. Hirschey. Managerial Economics, Revised
  edition, Chapters 3.

5
Learning objectives

• We are looking at the already familiar concepts
  of market demand, market supply and market
  equilibrium.
• In this topic, like in all further ones, the aim
  is not just to revise elements of microeconomic
  theory you have studied in Introductory
  Microeconomics or in a comparable unit. They are
  complemented with some spreadsheet analysis of
  product demand and supply conditions from the
  perspective of a manager, working towards
  production and price decisions.

6
Basic economics principles demand and supply
Market demand
Market supply
Market equilibrium
7
Basic economics principles demand and supply
Market demand
8
Basic economics principles demand and supply
Market demand
Demand Total quantity customers are willing to
purchase
Direct demand Demand for consumption product
Derived demand Demand for inputs used in
production
f(Price of X, Prices of related goods,
expectations of price changes, Consumer incomes,
Tastes and preferences, Advertising expenditures,
etic)
Quantity of product X demanded

9
Basic economics principles demand and supply
Market demand
f(Price of X, Prices of related goods,
expectations of price changes, Consumer incomes,
Interest rate, Tastes and preferences,
Advertising expenditures, etc)
Quantity of product X demanded

Revise The shape of demand curve. Which of the
above mentioned factors is an independent
variable of the basic demand model? How other
factors affect the shape or the position of the
demand curve? Which of the factors of demand can
be affected by the manager?
10
Figure 3.1
Basic economics principles demand and supply
Market demand
Average Price per Auto ( thousands)
40

35
DEMAND CURVE
30
Q
18,000,000 500P, drawn as,
P
36,000 2,000Q
25
20
15
10
5
0
0
2
4
6
8
10
12
14
16
18
20
Quantity of New Automobiles (millions)
11
Figure 3.2
Basic economics principles demand and supply
Market demand
Average Price per
DA(6) Q 20,000,000 500P, drawn as, P
40,000 0.002Q
Auto ( thousands)
45


40
D (8) Q 18,000,000 500P, drawn as, P
36,000 0.002Q
35
DB(10) Q 16,000,000 500P, drawn as, P
32,000 0.002Q
30
25
(8, 24)
(6, 24)
(8, 20)
(10, 20)
(6, 20)
20
(8, 16)
(10, 16)
15
D
(at 6 interest)

A
10
D
(at 8 interest)
5
D
(at 10 interest)

B
0
0
2
4
6
8
10
12
14
16
Quantity of New Automobiles (millions)
12
Basic economics principles demand and supply
Market supply
Supply Total quantity offered for sale
f(Price of X, Prices of related goods, Current
state of technology, Input prices, Interest rate,
Weather, etc.)
Quantity of product X supplied

Revise The shape of supply curve. Which of the
above mentioned factors is an independent
variable of the basic supply model? How other
factors affect the shape or the position of the
supply curve? Which of the factors of supply
can be affected by the manager?
13
Figure 3.3
Basic economics principles demand and supply
Market supply
Average Price per Auto ( thousands)
40
35
30
25
20
SUPPLY CURVE
15
Q


32,000,000 2,000P, drawn as,
P
16,000 0.0005Q
10
5
0
0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
5
Quantity of New Automobiles (millions)
14
Figure 3.4
Basic economics principles demand and supply
Market supply
Average Price per
Auto ( thousands)
SB (10) Q 34,000,000 2,000P, drawn as, P
17,000 0.005Q
40
38
36
S (8) Q 32,000,000 2,000P, drawn as, P
16,000 0.005Q
34
32
SA (6) Q 30,000,000 2,000P, drawn as, P
15,000 0.005Q
30
28
26
(22, 12)
24
(8, 20)
SB

S
22
(6, 20)
SA

20
18
(10, 20)
16
(4, 18)
14
Demand
12
0
2
4
6
8
10
12
14
Quantity of New Automobiles (millions)
15
Figure 3.5
Basic economics principles demand and supply
Market equilibrium
SUPPLY CURVE
Average Price per
S Q


32,000,000 2,000P, drawn as,
Auto ( thousands)
P
16,000 0.0005Q
40
DEMAND CURVE
35
D Q
18,000,000 500P, drawn as,
(4, 28)
30
P
36,000 0.002Q
SURPLUS
25
Supply
(8, 20)
(7, 22)
(12, 22)
20
(9, 18)
(4, 18)
15
SHORTAGE
10
Demand
5
0
0
16
8
10
12
2
4
6
14
Quantity of New Automobiles (millions)

16
Figure 3.6 (a)
Basic economics principles demand and supply
Market equilibrium
Average Price per Auto ( thousands)
40
35
30
(9.6, 20.8)
25
(8, 20)
Supply
20
DA(at 6 interest)

15
(6.4, 19.2)
D (at 8 interest)
10
DB(at 10 interest)

5
0
0
8
10
12
2
4
6
14
Quantity of New Automobiles (millions)
17
Figure 3.6 (b)
Basic economics principles demand and supply
Market equilibrium
Average Price per
Auto ( thousands)
40
35
30
(7.6, 20.8)
SB(at 10 interest)
(8, 20)
25
S(at 8 interest)
20
SA (at 6 interest)
15
Demand
(8.4, 19.2)
10
5
0
0
8
10
12
2
4
6
14
Quantity of New Automobiles (millions)
18
Figure 3.7
Basic economics principles demand and supply
Market equilibrium
Average Price per
Auto ( thousands)
45
40
35
(10, 20)
30
(6, 20)
(8, 20)
S
(at 10 interest)

25
B
S
(at 8 interest)
20
S
(at 6 interest)

A
D
(at 6 interest)

15
A
D
(at 8 interest)
10
D
(at 10 interest)

B
5
0
0
8
10
12
2
4
6
14
Quantity of New Automobiles (millions)
19
Basic economics principles demand and supply
Practicing in Excel
Reconstruct the data used for Figure 3.7 (Price
data is in Table 3.3) Reconstruct the graph on
Figure 3.7 in Excel Calculate and graph the
impact of the of 10 GST on demand, supply and
equilibrium
SB (10) Q 34,000,000 2,000P, drawn as, P
17,000 0.005Q
S (8) Q 32,000,000 2,000P, drawn as, P
16,000 0.005Q
SA (6) Q 30,000,000 2,000P, drawn as, P
15,000 0.005Q