BUS 207 Chapter 3: Chapter 3 Vocab and Notes
30 Jan 2012
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Managerial economics chapter 3: demand analysis & optimal pricing. The demand function shows, in equation form, the relationship between the quantity sold of a good or service and one or more variables. The demand equation can be used to test the effect of changes in any of the explanatory variables. Starting from an initial price, by varying the price up or down, we move along respectively up and down) the demand curve. A higher price means lower sales and a lower price means higher sales. If there is a change in one of the other factors, then this causes a shift in the demand curve. The good s own price is a key determinant of demand. Also important, is the level of income of the potential purchasers of the good or service. A product is called a normal good if an increase in income raises its sales.
