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Monday, September 8
Course Outline Review of Supply and Demand Readings: Brickley et. al, Chapters 1-2,4:96-114; Hoyt, Lectures 1:1-10
Next Class (Monday, September 15)
Demand and Supply; Market Equilibrium (continued); Pricing with Market Power Readings
Course Description
From the University Bulletin, 2001-2002 (p. 216) "Analysis of applications of economic theory to management decision making. Such problems as demand and cost determination, pricing, and capital budgeting are treated." Narrow goal: Using the tools of economics, a number of business practices and strategies including pricing, cost determination, compensation, entry and exit, and output decisions. Broader goal: Acquaint the student with and help the student learn to use economic analysis in his or her professional, business pursuits.
Brickley, James; Smith, Clifford; and Zimmerman, Jerold, Managerial Economics and Organizational Architecture, McGraw Hill Irwin, 2007, 4th Edition.
Additionally chapters from: Hoyt, William H. Lectures in Managerial Economics, 2008.
Lectures in Managerial Economics is an unpublished manuscript that will be available (by lecture) at the website. Material used in a number of sections of the course and complements the material in your text. Not a substitute for the lecture nor are they a verbatim summary of the lecture. Do not use them as a substitute for class or taking notes in class.
Extended Assignments:
Homework:
Participation:
Important component of the course At the end of the term, I award bonuses for class participation. The maximum bonus is small, but can matter for your grade in borderline cases.
No explicit attendance policy for the course, but good attendance is important for doing well in the course. If you miss a class, it is your responsibility to obtain notes and other material from that class period (from some source other than me).
Most of this material will be on the website.
Make-up Exams
Students who have a University-excused absence for missing an exam may take a make-up. Arrangements for a make-up must be made with the instructor as soon as possible. Make-up for missed homework is allowed only in extraordinary circumstances.
Information on Grades
After the first 2 exams I shall calculate a grade distribution based on the scores of graded material up to that point
Grievance Procedure
Incorrectly added your points or have appeared not to see some material on the exam, simply bring it to my attention sometime outside of class. If you believe that your answer is correct and I have incorrectly interpreted or misunderstood it or my answer is incorrect, then I will ask you to make a written appeal. Homework assignments will not be regraded other than errors in totaling scores.
Cheating
Dont Cheat.
Tardiness
Tardiness is discouraged Try as much as possible to arrive on or before the class starts.
Classroom Behavior
No cellular telephones should be on or on vibrate Limit entrances and exits from room Extended discussions between students during lecture are very disruptive to the rest of the class No Classroom Computer Use
Office Hours
Encourage you to come to my office during office hours. If office hours are not convenient and you would like to talk to me, please make an appointment (e-mail is probably best) to schedule a meeting at a more convenient time. If you are having difficulty in the course, please come to see me as early as possible rather than waiting until a few days before the exam or, worse, after the exam.
Factors that we expect to affect the demand for the good include: Population (n) Price of the good (pi) Price of other goods (pj) Income (y) Expectations of future prices Tastes (T)
Figure 5
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Price ($)
0 0 10 20 30 40 50 Quantity 60 70 80 90 100
The demand curve gives the relationship between price and the quantity consumers will desire to purchase at that price.
Note the demand curve is drawn given that no other factors affecting the demand for the product, such as income, population, or tastes, change. Demand for the product is based on specific, unchanging values for the other factors that affect demand.
Figure 6
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Price ($/lb)
D1
D4
1
0 0 100 200 300 400 500 600 700 800 900 1000 1100 1200 1300 1400 1500 1600 1700 1800 1900 2000 Quantity (lbs of Steak/Day)
Figure 1
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Price ($)
0 0 10 20 30 40 50 Quantity 60 70 80 90 100
Algebraic Representation
The preceding figure that follows is given by QD = 100 - 10P Linear relationship we can graph by choosing two points. Easiest points: Q = 0 0 = 100 - 10P or P = 10, Q = 0 P = 0 implying Q = 100 - 10(0) = 100 and therefore P = 0, Q = 100 Slope, dQ/dP = -10
Figure 3
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0 0 10 20 30 40 50 Q 60 70 80
Supply of Steaks
The supply curve represents the supply (lbs/day) given that there are 5 grocery stores and butchers are paid $12 an hour. Then we might expect the following: An increase in supply if another grocery store opens. This is shown by a shift in supply from S1 to S2. A decrease in supply if the wage rate for butchers increases from $12 an hour to $14 an hour. This is shown by a shift from S1 to S3.
Figure 4
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S3 S2 S1
$
2.5 2 1.5 1 0.5 0 0 100 200 300 400 500 600
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Equilibrium
What do we mean by equilibrium price and quantity? At the equilibrium price, the quantity demanded by consumers is exactly equal to the quantity supplied by producers. Why do we care about equilibrium? Expected Prices Predictable Prices (can be modeled) Stable Prices
Figure 5
16 15 14 13 12 11 10 9 8 7 6 5 4 3 2 1 0 0 5 10 15 20 25 30 35 40 45 50 Q 55 60 65 70 75 80 85
S=-50+10P
D=100-10P
Comparative Statics
What happens to Price & Quantity when: Incomes increase Wages fall Prices of other goods change Making predictions of the impact on the market of these types of changes is referred to as Comparative Statics
Table 1: The Impact of Market Condition Changes on Equilibrium Price and Quantity Market Impact on Impact on Examples Change Equilibrium Equilibrium Price Quantity Increase in + + Increase in Income (normal Demand good); increase in price of substitute; decrease in price of complements; increase in population Decrease Opposite of increase in in Demand demand Increase in + Technological innovation; Supply increase in suppliers; decreases in costs Decrease + Increase in costs or wages; in Supply increase in price of alternative product produced by firms
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0 0 -2 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 100
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