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Managerial Economics: Demand Analysis
Managerial Economics: Demand Analysis
Managerial Economics: Demand Analysis
Managerial Economics:
Demand Analysis
Demand
Demand is the quantity of good and services that customers are willing and
able purchase during a specified period under a given set of economic
conditions. The period here could be an hour, a day, a month, or a year.
The conditions to be considered include the price of good, consumer’s
income, the price of the related goods, consumer’s preferences, advertising
expenditures and so on. The amount of the product that the costumers are
willing to by, or the demand, depends on these factors.
There are two types of demand. The first of these is called direct
demand. This model of demand analysis individual demand for goods and
services that directly satisfy consumers desires. The prime determinant of
direct demand is the utility gained by consumption of goods and services.
Consumers budget, product characteristics, individuals preferences are all
important determinants of direct demand.
The other type of demand is called “derived demand”. Derived
demand is the demand resulting from the need to provide the final goods
and services to the consumers. Intermediate goods, office machines are
examples of derived demand. An other good example is mortgage credit.
Mortgage credit demand is not demanded directly, but derived from the
demand for housing.
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IKT434 Topics in Economics
Q = a 1 P + a 2 PI + a 3 I + a 4 POP + a 5 i + a 6 A
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IKT434 Topics in Economics
dQ
= 200 (a $1 increase in the average price of luxury cars,
dPX
Demand Curve
The demand function specifies the relation between the quantity demanded
and all factors that determine demand. But the demand curve expresses the
relation between the price of a product and the quantity demanded, holding
constant all the other factors affecting demand. This can be written as
follows:
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IKT434 Topics in Economics
Q = f (P) Q : demand
P : price
40
35
30
25
20
15
10
0 Q
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22
4
IKT434 Topics in Economics
40
35 A
30
25
B
20
15
10
0 Q
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22
Shift in demand; is the switch from one demand curve to another. Shift in
demand reflects a change in one or more nonprice variables affecting
demand. Example: change in interest rate.
Average oto
price
45
40
35
30
25
20
%6
15
10 %8
5
%10
0 Q
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22
5
IKT434 Topics in Economics