Textbook Notes (368,425)
Canada (161,877)
BUS 207 (14)
Chapter 3

Chapter 3 Vocab and Notes

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Business Administration
BUS 207
Karen Ruckman

Managerial EconomicsChapter 3 Demand AnalysisOptimal PricingDETERMINANTS OF DEMAND The Demand FunctionThe 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 The Demand Curve and Shifting DemandStarting from an initial price by varying the price up or down we move along respectively up and down the demand curveA higher price means lower sales and a lower price means higher salesIf there is a change in one of the other factors then this causes a shift in the demand curveGeneral Determinants of DemandThe goods own price is a key determinant of demandAlso important is the level of income of the potential purchasers of the good or serviceA product is called a Normal Good if an increase in income raises its salesFor any normal good sales vary directly with income the coefficient on income in the demand equation is positiveMost goods and services are normal any increase in consumer income is spread over a wide variety of goods and servicesFor Inferior Goods an increase in income causes a reduction in spendingA third set of factors affecting demand are the prices of substitute and complementary goodsA Substitute Good competes with and can substitute for the good in questionAn increase in the price of the substitute good or service causes an increase in demand for the good in questionA pair of goods is Complementary if an increase in demand for one causes an increase in demand for the otherAn increase in the price of a complementary good reduces demand for the good in questionA wide variety of other factors may affect the demand for particular goods and servicesNormal population growth of prime groups that consume the good or service will increase demandChanges in preferences and tastes are another important factor
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