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    Economics For Managers: Kavi B. Nowbutsing

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    Ashley Mungra
    This document provides an overview of demand analysis in managerial economics. It defines demand and discusses why understanding demand is important for a firm's profitability. It also introduces key demand concepts like the demand curve and demand equation. A simple example demand equation of Q=180-2P is provided and explained. The document notes the difference between the graphical and equation representations of demand and what this implies. It then discusses consumer theory, the utility maximization approach using indifference curves, and assumptions of consumer behavior.

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    Economics For Managers: Kavi B. Nowbutsing

    Uploaded by

    Ashley Mungra
    49 views19 pages
    This document provides an overview of demand analysis in managerial economics. It defines demand and discusses why understanding demand is important for a firm's profitability. It also introduces key demand concepts like the demand curve and demand equation. A simple example demand equation of Q=180-2P is provided and explained. The document notes the difference between the graphical and equation representations of demand and what this implies. It then discusses consumer theory, the utility maximization approach using indifference curves, and assumptions of consumer behavior.

    Original Title

    Demand Analysis I

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    This document provides an overview of demand analysis in managerial economics. It defines demand and discusses why understanding demand is important for a firm's profitability. It also introduces key demand concepts like the demand curve and demand equation. A simple example demand equation of Q=180-2P is provided and explained. The document notes the difference between the graphical and equation representations of demand and what this implies. It then discusses consumer theory, the utility maximization approach using indifference curves, and assumptions of consumer behavior.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    49 views19 pages

    Economics For Managers: Kavi B. Nowbutsing

    Uploaded by

    Ashley Mungra
    This document provides an overview of demand analysis in managerial economics. It defines demand and discusses why understanding demand is important for a firm's profitability. It also introduces key demand concepts like the demand curve and demand equation. A simple example demand equation of Q=180-2P is provided and explained. The document notes the difference between the graphical and equation representations of demand and what this implies. It then discusses consumer theory, the utility maximization approach using indifference curves, and assumptions of consumer behavior.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    of 19

    Economics for Managers

    Lecture I: Demand Analysis

    Kavi B. Nowbutsing
    Importance
    • Managerial economics, meaning the
    application of economic methods to the
    managerial decision-making process, is a
    fundamental part of any business or
    management course.
    Why study Demand?
    • Understanding of demand is fundamental to a
    firm’s profitability
    • However, Jean Baptiste Say argues that “Supply
    creates demand”
    • Demand refers to the quantities that people
    are or would be willing to buy at different
    prices during a given time period, assuming
    that other factors affecting these quantities
    remain the same.
    Important terms
    • It involves three parameters – price, quantity
    and time.
    • It refers to quantities that is the whole
    relationship and not a single quantity.
    • It involves the ceteris paribus (other things
    being equal) assumption.
    Example
    Graph
    Equation
    • General form
    Q= f(P)
    Expansion
    Q= f(P, A, Y, Ps,…)
    For P = price, A = Advertising, Y = Average
    income, Ps = price of a related good
    Simple example
    • The two-variable function is given as
    Q= a + bP
    Where a is the intercept and b is the slope
    Calculation using above yields
    Q = 180 – 2P
    Can you understand why?
    Puzzle
    • What is difference between the graph and
    equation?
    • What does the difference imply?
    Justification
    • In the graph the price variable is treated as the
    dependent variable, with quantity as the
    independent variable, while in the equation it is
    the reverse.
    • The purpose of graphical analysis is to show how
    equilibrium prices were determined in markets,
    in terms of the interaction of both demand and
    supply.
    • The equation form is set for estimation purposes
    Consumer Theory
    • This area of economic theory is concerned
    with explaining why consumers behave in
    certain ways, in particular with how the
    variables of price and income affect what
    consumers buy and how much.
    Utility Maximisation
    • Utility is defined in terms of value or satisfaction.
    This is derived from consuming combinations of
    different products.
    • These products are purchased from what is assumed
    to be a fixed amount of money available; thus there
    is a budget constraint the amount spent.
    • Note Budget is largely determined by current
    income, including other factors like past saving,
    expectations of future income and the availability
    and cost of credit.
    Indifference Curve Analysis
    • Assume a two-good model
    • Indifference curve gives combinations of two
    products between which the consumer is
    indifferent because they give the same total
    utility.
    Hot dog Vs Hamburgers
    Interpretation
    • Each indifference curve can be regarded as an
    ‘iso-utility’ curve; this means that any
    combination of products on I1 gives the same
    total utility to the consumer.
    • Thus combination C gives more total utility
    than A or B.
    • And, A yields the same utility as B
    Assumptions
    Fundamental assumptions
    • Non-satiation (prefer more to less)
    • Convexity (This means that the slopes of the
    curves are decreasing as one moves to the right)
    Hint: Diminishing Marginal Rate of Substitution
    (MRS) as one moves to right
    • Transitivity implying non intersection of
    indifference curves, i..e. if combination A > B and
    B > C, then A > C.
    Diminishing MRS

    Slope =
    MUhot/MUham
    Equilibrium
    • Budget constraint consideration
    To be continued…
    • Income and substitution effects
    • Factors determining demand
    • Elasticity (Case Studies)

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