Managerial Economics Lesson 2

DEMAND quantity of a good or service that customers willing and able to supply in a given period of time, all

are willing and able to purchase during a specified else held constant
period under a given set of economic conditions, all else
held constant. Remember � The profit motive determines the quantity
of a good or service that producers are willing and able
Remember: Goods and services have ready markets if
they directly satisfy consumer wants or help firms to sell during a given period of time.
produce products that satisfy consumer wants.
NON-PRICE FACTORS INFLUENCING SUPPLY
Non-price Factors Influencing Demand:
1. State of Technology - the process a firm uses to turn
1. Tastes and Preferences - consumers must first inputs into outputs.
desire or have tastes and preferences for a good.
Remember � Body of knowledge about how to combine
Remember � Tastes and preferences may vary due to the inputs of production, affects what output producers
socio-economic variables such as age, sex, race, marital
will supply because technology influences how the good
status and level of education.
or service is actually produced, which, in turn, affects the
2. Income - the level of person’s income affects demand costs of production.
because demand incorporates both willingness and
ability to pay for the good. 2. Input Prices - prices of all inputs or factors of
production - labor, land, capital and raw materials - used
Remember � NORMAL GOOD - the demand for good to produce the given product.
varies directly with income
Remember � Input prices affect the costs of production
INFERIOR GOOD - the demand varies inversely with
income and therefore, the prices at which producers are willing
to supply different amounts of output.
3. Prices of Related Goods - a change of price of one
good can change the demand for another good. 3. Prices of Goods Related in Production - Changes
in the prices of other goods cause the supply curve to
Remember � shift. A decrease in the price of a substitute good causes
SUBSTITUTE GOODS - goods that can be used in an increase in supply and a rightward shift of the supply
place of another. (t e a & coffee) curve. With the lower price, sellers sell less of the
substitute good and more of this good.
COMPLEMENTARY GOODS - products or services that
consumers use together (coffee & doughnut) Remember � Two goods are substitutes in production if
the same inputs can be used to produce either of the
4. Future Expectations - refer to the forecasts or views
goods. While goods are complementary in production, if
that decision makers hold about future prices, sales,
two commodities are often produced together.
incomes, taxes, or other key variables.
4. Future Expectations - The expectations that sellers
Remember � If consumers expect prices to be lower in
have concerning the future price of a good, which is
the future, they may have less current demand. If prices
assumed constant when a supply curve is constructed.
are expected to increase, consumers may demand more
of the good at the present. Remember � If sellers expect a higher price, then
supply decreases. If sellers expect a lower price, then
5. Number of Consumers - number of individuals that
supply increases.
buy goods for consumption and not for resale or
commercial purpose. They pay some amount of money 5. Number of Producers - are the group of persons
for the thing required to consume goods and services. who produce either goods or services for creating utility.
As such, consumers play a vital role in the economic
system of a nation. Remember � The number of producers may increase
because of perceived profitability in a given industry or
Remember � As more buyers enter the market, demand because of changes in laws or regulations such as trade
rises, even if prices don't change. barriers.
SUPPLY functional relationship between the price of a MARKET EQUILIBRIUM occurs when quantity
good or service and the quantity that producers are demanded and quantity supplied are in perfect balance
at a given price.
Equilibrium price - the price that actually exists in the
market or toward which the market is moving.

Equilibrium quantity - the quantity of a good,

determined by the equilibrium price, where the amount
of output that consumers demand is equal to the amount
that producers want to supply.
SURPLUS created when producers supply more of a

product at a given price than buyers demand
excess supply
SHORTAGE created when buyers demand more of a

product at a given price than producers are willing to
supply.
excess demand
REMEMBER: Neither surplus nor shortage will occur

when a market is in equilibrium.
The law of supply and demand is an economic theory

that explains how supply and demand are related to
each other and how that relationship affects the price of
goods and services . It' s a fundamental economic
principle that when supply exceeds demand for a good
or service, prices fall. When demand exceeds supply,
prices tend to rise.
There is an inverse relationship between the supply and

prices of goods and services when demand is
unchanged. If there is an increase in supply for goods
and services while demand remains the same, prices
tend to fall to a lower equilibrium price and a higher
equilibrium quantity of goods and services. If there is a
decrease in supply of goods and services while demand
remains the same, prices tend to rise to a higher
equilibrium price and a lower quantity of goods and
services.
The same inverse relationship holds for the demand for

goods and services. However, when demand increases
and supply remains the same, the higher demand leads
to a higher equilibrium price and vice versa.

Managerial Economics Lesson 2

Uploaded by

Copyright:

Available Formats

Managerial Economics Lesson 2

Uploaded by

Document Information

Original Description:

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Managerial Economics Lesson 2

Uploaded by

Copyright:

Available Formats

DEMAND quantity of a good or service that customers willing and able to supply in a given period of time, all

Equilibrium quantity - the quantity of a good,

SURPLUS created when producers supply more of a

SHORTAGE created when buyers demand more of a

REMEMBER: Neither surplus nor shortage will occur

The law of supply and demand is an economic theory

There is an inverse relationship between the supply and

The same inverse relationship holds for the demand for

You might also like