LECTURE 2 : Organizations and the Economic Environment

Chapter 3

The Firm and its Goals

Copyright 2011 Pearson Education,
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Inc. Publishing as Prentice Hall.

. Chapter Three 2 Inc. Publishing as Prentice Hall. Market demand • Demand for a good or service is defined as quantities that people are ready (willing and able) to buy at various prices within some given time period Other factors besides price are held constant Copyright 2011 Pearson Education.

Chapter Three 3 Inc. Market demand Market demand is the sum of all the individual demands Example: demand for candy Copyright 2011 Pearson Education. Publishing as Prentice Hall. .

Publishing as Prentice Hall. Market demand The inverse relationship between price and the quantity demanded of a good or service is called the Law of Demand Copyright 2011 Pearson Education. . Chapter Three 4 Inc.

. Market demand • Changes in price result in changes in the quantity demanded – This is shown as movement along the demand curve • Changes in non-price factors result in changes in demand – This is shown as a shift in the demand curve Copyright 2011 Pearson Education. Chapter Three 5 Inc. Publishing as Prentice Hall.

Chapter Three 6 Inc. Market demand • Nonprice determinants of demand – tastes and preferences – income – prices of related products – future expectations – number of buyers Copyright 2011 Pearson Education. Publishing as Prentice Hall. .

Chapter Three 7 Inc. Publishing as Prentice Hall. . Market supply • The supply of a good or service is defined as quantities that people are ready to sell at various prices within some given time period Other factors besides price held constant Copyright 2011 Pearson Education.

. Publishing as Prentice Hall. Chapter Three 8 Inc. Market supply • Changes in price result in changes in the quantity supplied  shown as movement along the supply curve • Changes in non-price determinants result in changes in supply  shown as a shift in the supply curve Copyright 2011 Pearson Education.

Publishing as Prentice Hall. Market supply • Nonprice determinants of supply – costs and technology – prices of other goods or services offered by the seller – future expectations – number of sellers – weather conditions Copyright 2011 Pearson Education. . Chapter Three 9 Inc.

Chapter Three 10 Inc. . Publishing as Prentice Hall. Market equilibrium • Equilibrium price: the price that equates the quantity demanded with the quantity supplied • Equilibrium quantity: the amount that people are willing to buy and sellers are willing to offer at the equilibrium price level Copyright 2011 Pearson Education.

Publishing as Prentice Hall. Chapter Three 11 Inc. . Market equilibrium • Shortage: a market situation in which the quantity demanded exceeds the quantity supplied  shortage occurs at a price below the equilibrium level • Surplus: a market situation in which the quantity supplied exceeds the quantity demanded  surplus occurs at a price above the equilibrium level Copyright 2011 Pearson Education.

. Publishing as Prentice Hall. Market equilibrium Copyright 2011 Pearson Education. Chapter Three 12 Inc.