MANAGERIAL ECONOMICS IN A GLOBAL

ECONOMY

Chapter 3
Demand Theory
LAW OF DEMAND
There is an inverse relationship between the
price of a good and the quantity of the good
demanded per time period.

Substitution Effect
Income Effect
 Individual Consumers Demand
QdX = f(PX, I, PY, T)
QdX = quantity demanded of commodity X
by an individual per time period
PX = price per unit of commodity X
I = consumers income
PY = price of related (substitute or
complementary) commodity
T = tastes of the consumer
 QdX = f(PX, I, PY, T)

QdX/PX < 0
QdX/I > 0 if a good is normal
QdX/I < 0 if a good is inferior
QdX/PY > 0 if X and Y are substitutes
QdX/PY < 0 if X and Y are complements
MARKET DEMAND CURVE
Horizontal summation of demand curves of
individual consumers

Bandwagon Effect
Snob Effect
HORIZONTAL SUMMATION: FROM
INDIVIDUAL TO MARKET DEMAND
 Market Demand Function
QDX = f(PX, N, I, PY, T)
QDX = quantity demanded of commodity X
PX = price per unit of commodity X
N = number of consumers on the market
I = consumer income
PY = price of related (substitute or
complementary) commodity
T = consumer tastes
DEMAND FACED BY A FIRM
Market Structure
Monopoly
Oligopoly
Monopolistic Competition
Perfect Competition
Type of Good
Durable Goods
Nondurable Goods
Producers Goods - Derived Demand
LINEAR DEMAND FUNCTION

QX = a0 + a1PX + a2N + a3I + a4PY + a5T

PX Intercept:
a0 + a2N + a3I + a4PY + a5T

Slope:
QX/PX = a1

QX
PRICE ELASTICITY OF DEMAND

Q / Q Q P
Point Definition EP
P / P P Q

P
Linear Function EP a1
Q
PRICE ELASTICITY OF DEMAND

Q2 Q1 P2 P1
Arc Definition EP
P2 P1 Q2 Q1
MARGINAL REVENUE AND PRICE
ELASTICITY OF DEMAND

1
MR P 1
EP
MARGINAL REVENUE AND PRICE
ELASTICITY OF DEMAND

PX
EP 1
EP 1

EP 1

QX
MRX
MARGINAL REVENUE, TOTAL REVENUE,
AND PRICE ELASTICITY

TR MR>0 MR<0
EP 1 EP 1

QX
EP 1 MR=0
DETERMINANTS OF PRICE ELASTICITY OF
DEMAND

Demand for a commodity will be more elastic if:

It has many close substitutes

It is narrowly defined

More time is available to adjust to a price change

DETERMINANTS OF PRICE ELASTICITY OF
DEMAND

Demand for a commodity will be less elastic if:

It has few substitutes

It is broadly defined

Less time is available to adjust to a price change

INCOME ELASTICITY OF DEMAND

Q / Q Q I
Point Definition EI
I / I I Q

I
Linear Function EI a3
Q
INCOME ELASTICITY OF DEMAND

Q2 Q1 I 2 I1
Arc Definition EI
I 2 I1 Q2 Q1

Normal Good Inferior Good

EI 0 EI 0
CROSS-PRICE ELASTICITY OF DEMAND

QX / QX QX PY
Point Definition E XY
PY / PY PY QX

PY
Linear Function E XY a4
QX
CROSS-PRICE ELASTICITY OF DEMAND

QX 2 QX 1 PY 2 PY 1
Arc Definition E XY
PY 2 PY 1 QX 2 QX 1

Substitutes Complements
EXY 0 EXY 0
McDonald Inc yang memproduksi hamburger (Qx) menyewa konsultan
untuk melakukan survei pasar untuk memperkirakan permintaan yang
dihadapi. Dari survei pasar tersebut diketahui estimasi fungsi permintaan
sebagai berikut:
Qx = 12000 5000Px + 5I + 1000Py
Dimana Px = harga hamburger McDonald
I = Pendapatan perkapita
Py= Harga hamburger KFC
Saat ini Px = 5, I = 10000 dan Py = 6
Dengan menggunakan informasi tersebut, saudara diminta membenatu
manager pemasaran McDonald untuk
a. Tentukan besarnya elastisitas harga barang x (px), elastisitas
pendapatan (I) dan elastisitas silang (Py)
b. Jelaskan interprtasi ekonomi dari masing-masing elastisitas pada no a.
c. Dengan menggunakan pendekatan elastisiatas, jika pada tahun depan
pendapatan perkapita diperkirakan naik sebesar 5% dan harga barang
lain (py) diperkirakan naik 10%, berapa perubahan yang terjadi pada
jumlah hamburger McDonald yang diminta.
OTHER FACTORS RELATED TO DEMAND
THEORY
International Convergence of Tastes
Globalization of Markets
Influence of International Preferences on Market
Demand
Growth of Electronic Commerce
Cost of Sales
Supply Chains and Logistics
Customer Relationship Management