managerial economics - dr.ehab nadem part ii

7/30/2019 Managerial Economics - Dr.ehab Nadem Part II

http://slidepdf.com/reader/full/managerial-economics-drehab-nadem-part-ii 1/16

Prepared By

Khalid Omar



Market

Definition: Market It’s a Place (Mechanism or Media or

System) where buyer & seller Meet (Interact)

to Exchange goods and services

When we say Market we means that, two said of themarket (Demand & Supply) because we can’t use one

said only to speck about market



General Rule :

When Demand is increase the price will increase that

assumed the other facts are constant.

Exception :

Sometime if demand are increase the price may be not

increase because the supply also increase by the same

percentage. Also if supply increased by lees than theDemand the price will increase & if supply increase more

than the demand the price will go down.



M A R K E T

All countries work with Economic system, will give us

Market price

MARKET

Demand Supply

Market Price

Decision

Producer Consumer

Official Price

Privet

Agency

Gov.

Ceiling price

Subsidies price Value of product

Goods & Services



Market

D S

Factors Effect Demand Factors Effect Supply

Demand FunctionSupply Function

D x = f ( Px Y , T . PR )

Product x

Price of x

( - )

The relationship

between Demand &

price is negative

Short - Run

immediate Effect

Now

Long – Run

Not Immediate

Effect

Consumer

Income

Test

Consumer preference

Price of

related goods

Complementary

goods

Substituted or

Competitive goods

Sx = f ( …….. ………)



General Rules :

Law of Demand “When price increase Quantity demand Decrease

, with other factors Constant.”

Close Substituted like Pepsi & Cooce

Substituted only like coffee & tea or Pepsi & Seven

Complementary Goods are the products that Complete satisfaction

from the main product

( like Sugar & Tea or Camera & Memory cards )

As long as the complementary product is available and ship will

effect to increase demand of main product



While The substituted product price increase the demand of

main product is increase .

Although When consumer income increase ( as long Run

Effect ) the demand will increase for normal goods but demand

will decrease from inferior goods ( like Foul& Flafl)

Market Force to go at Market price,

When we say market we mean Demand & Supply

Law of Demand:

{When price is Increase, Quantity of Demand will decrease}

Vise versa



● When we ask about the effect of any factor we need to know two

things Time ( Ether short – run or long run effect) & direction

( Decrease or Increase )

Supply Function:

Sx = f ( Px ) ……………………………………………….

Short – Run

Immediate

Law of supply:- When price is increase the

Quantity of supply will increase ( positiverelationship ) & vise versa ( Other factor are

constant.

Long – run

Cost of production , Gov. polices , technology

R/M, Labor, Utility

Government polices:-

1- Fiscal polices. Tax, Gov. Disbursement

2- Monetary polices. Interest Rat, Credit System

3- Regulation polices. Investment law License,

Technology :- Labor Intensive Or capital Intensive

When we shifted from labor intensive to capital

intensive the supply will increase.



If Government increase supply it will reflect on:

-Price decrease

- Tax collection Increase.

- Job Opportunity Increase.- Export increase.

Test Question sample :

Q: Demand is relationship between consumer demand and Cost of production.

A: False , Demand function is a relation between demand and Px / Y,T,PR

While cost of production is one of component of supply function is

Sx = f ( Px ) / Cost , Gov., Tech.

Q : Consumer income and price of production both they effect consumer decision in the

same way.

A: False : If Consumer income increase Demand will increase at long – run while price of

production increase demand will decrease,

s

c



Question :- There is no difference between demand & Quantity of demand ?

Answer : False - Increasing in Quantity Demand is short run effect related to

increase of the price the shifting will be at the same curve but increasing in

demand it self will be as reflection of anther facet like Customer income , Test or

PR .



3- Differentiate between Demand Function Or Supply Function and law of Demand or

Law of Supply ?

Dx = f ( Px ) Y, T , PR

S

C

Q

P

P1

Q1

D

P2

Q2

When price Decrease

Quantity Demand

Increase

Law of Demand

Movement in the

same curve

P1

Q1 Q2

Shifting the curve related to change in

demand as reflection of changes of any

other factor beyond the price like

Customer income , test Or price of

related product.

Q

P



Sx = f ( Px ) Product Cost , Gov. polices , Technology

Q1

P1

P2

Q2

S

Q

P

Q

P

P1

Q1 Q2

S S

Change Quantity Supply at the same

curve related to Change of the price

Change Supply by shifting the curve

related to Change of other fact like ( Cost

,Gov. ) not change in price



S 1

D 1

P

P e

Demand and supply curves will intersect at the

point called (Market equliprem price )

S 2

D 2

P e

Q1 Q2Q3

P e

Q4

Note: Any shifting for Supply curve or demandcurve will be there is new equliprem price .



S 1

D 1

P

P e 40 $

S 2

Ceiling or Max.

Price 10 $

Q1Q2

Shortage in supply – Black Market Until the supplycurve shift to right ( increase Q. Supply ) and the

new Equliprem point will achieve.

Equliprem price Short Run – This price it can be not the optimum price or best price .

If we need to change price we have to shift the curve by reducing cost of production or

reduce the demand by give substitute.

Q



The government can Interfere in the market price for basic products by

two tools:

1- Fixing ceiling price for short run only .

2- Increase supply by reducing Cost of production or change from

labor intensive to technology Intensive.

DD

S 1

S 1

S 2

S 2

P e 1

P e 2 P e 1

P e 2

Q2

Q2Q2Q1 Q1



D 2 D 2

D 1

D 1S S

Government can interfere to increase demand or reduce demand .

QQ

PP

P e 1

P e 1P e 2

P e 2

Q1Q1

Q2Q2

managerial economics - dr.ehab nadem part ii

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