The Demand and Supply Model

The Demand and Supply Model
Module 1 – Home THE DEMAND AND SUPPLY MODEL Modular Learning Outcomes Upon successful completion of this module, the student will be able to satisfy the following outcomes: • Case o Analyze the market as a mechanism of resource allocation, evaluate the main comparative statics propositions, and appraise the role of profits and prices in the market economy. o Analyze the demand and supply model of price determination. o Analyze the pricing implications of the price elasticity of demand.
• SLP o Analyze the tools of managerial economics as applied to your chosen firm. o Evaluate the dynamics of demand and supply and the role of prices and the drive to profit maximization. • Discussion o Evaluate the cost and benefits of a market economy. o Analyze how prices adjust to shifts in the determinants of the underlying determinants of demand and supply structures. Module Overview Module 1 is a general introduction to profits, markets, and the role of managers in a market economy. Module 1 introduces the student to the main tools of managerial economics:
• Tools of economic theory: competitive markets, marginal analysis, profit maximization, and comparative statics. • Tools of econometrics: regression analysis and forecasting. • Integrate the informational content of price elasticity of demand into the theory of profit maximization. Module 1 – Background THE DEMAND AND SUPPLY MODEL Case Assignment Readings Required Reading Bhat, M.S., and Rau, A.V. Managerial Economics and Financial Analysis, Hyderabad, IND BS Publications, 2008. ProQuest ebrary. Web. Retrieved August 18 2014Chapter
1: Introduction to Managerial Economics, pp 1-15. Townsend, H. Foundations of Business Economics, Market and Prices. London, GBR: Routledge, 1995. ProQuest ebrary. Web. Retrieved August 12, 2014. Chapter 1: The Economic Way of Thinking, pp 3-17 and Chapter 2: Firms, Markets and Industries, pp 21-30.
Optional Reading Vasigh, B. , Vasigh, B., and Tacker, T. Introduction to Air Transport Economics: From Theory to Applications. Famhan, GBR: Ashgate Publishing Ltd, 2013. ProQuest ebrary. Web. Retrieved August 12, 2014. Chapter 2: Principles of Economics with Application in Aviation, pp.27-38 and Chapter 3, Supply and Demand: Analysis in the Airline Industry, pp 46-67. Thomas, C.R., and Maurice, S.C., Managerial Economics, McGraw Hill (2008) Power Point Presentation available athttp://highered.mheducation.com/sites/0073402818/student_view0/chapter1/powerpoint_presentation.html Milton Friedman discussion of the power of the market in the famous piece on the lesson of the pencil (nobody can make a pencil):http://www.youtube.com/watch?v=R5Gppi-O3a8 Links to Demand, Supply, and Market Equilibrium Required Reading Thomas, C.R., and Maurice, S.C., Managerial Economics, McGraw Hill (2008) Power Point Presentations available at http://highered.mheducation.com/sites/0073402818/student_view0/chapter2/powerpoint_presentation.htmlhttp://highered.mheducation.com/sites/0073402818/student_view0/chapter3/powerpoint_presentation.html Optional Reading MRUniversity. (2015, Jan. 12). The Demand Curve [Video file]. Retrieved fromhttps://www.youtube.com/watch?v=kUPm2tMCbGE Links to Marginal Analysis Required Reading Thomas, C.R., and Maurice, S.C., Managerial Economics, McGraw Hill (2008) Power Point Presentation available athttp://highered.mheducation.com/sites/0073402818/student_view0/chapter4/powerpoint_presentation.html Optional Reading Econimicsfun. (2009, April 13). Economics Marginal Analysis Economics [Video File]. Retrieved fromhttps://www.youtube.com/watch?v=z9XgcXz1Uzo Links to price elasticity of demand Required Reading Thomas, C.R., and Maurice, S.C., Managerial Economics, McGraw Hill (2008) Power Point Presentation available at: http://highered.mheducation.com/sites/0073402818/student_view0/chapter6/powerpoint_presentation.html Optional Reading DeSpentDatMoney2. (2012, April 21). Price Elasticity of Demand [Video file]. Retrieved fromhttps://www.youtube.com/watch?v=VhKI8cOaYLI Vasigh, B., Vasigh, B., and Tacker, T. Introduction to Air Transport Economics: From Theory to Applications. Famhan, GBR: Ashgate Publishing Ltd, 2013. ProQuest ebrary. Web. Retrieved August 12, 2014. Chapter 3: Supply and Demand: Analysis in the Airline Industry, pp 81-92. QuickMBA presentation available athttp://www.quickmba.com/econ/micro/elas/ped.shtml NetMBA presentation available athttp://www.netmba.com/econ/micro/demand/elasticity/price/Lancaster, K (1966). A New Approach to Consumer Theory, Journal of Political Economy 74, 132-157. For the computation of the price elasticity of demand, see the attached Excel file. SLP Assignment Reading Townsend, H. Foundations of Business Economics, Market and Prices. London, GBR: Routledge, 1995. ProQuest ebrary. Web. Retrieved August 12, 2014. Chapter 1: The Economic Way of Thinking, pp 3-17 and Chapter 2: Firms, Markets and Industries, pp 21-30. Module 1 – Case THE DEMAND AND SUPPLY MODEL Case Assignment The Case assignment is performed using information on a company of your choice that is publicly traded in the stock market. If you are unsure which company to choose, you can look through the list of companies in the S&P 500 at the Yahoo Finance Portal (http://finance.yahoo.com/q/cp?s=%5EGSPC) or choose from a list of companies provided in the Appendix. Search the company’s website and obtain information about the company’s products, their markets, their recent price, revenue and profit history, and the main characteristics of the industry the company operates. Using this information, write a 4 to 5 page paper commenting on two of the following four questions: • Government regulators are concerned with market power. Does your company have market power? Or does your company operate in a competitive market? If so, provide a few examples. • Does your company operate using only a price strategy, or does it employ other strategies, such as advertising and product differentiation? If so, explain why and provide a few examples. • Do prices and other incentives play a significant role in your company? If so, explain why and provide a few examples. For example, how is the CEO of your company compensated? Salary only? Salary and bonuses? Salary and stock options? What is the reason for these alternative arrangements? • Your company wants to increase its total revenue. One strategy is to offer a 10% discount. Your company, however, knows that its customers can be divided into two distinct groups according to their likely responses to the discount. The accompanying table shows how the two groups respond to the discount. Group A Group B (sales per week) (sales per week) Sales before the 10% discount 1.55 million 1.50 million Sales after the 10% discount 1.65 million 1.70 million Using this information, and your knowledge of the relationship between total revenue and price elasticity of demand, compute using the midpoint method, the price elasticity of demand for Group A and Group B and explain how the discount will affect total revenue from Group A and Group B. If your company want to increase its total revenue, should the 10% discount be offered to Group A only, to Group B only, to neither Group, or to both Groups? For simplicity, assume in both cases that the price before the discount is 0, and after the discount is . For the computations of the arc elasticity of demand, please refer to the The Demand and Supply Model handout and Price Elasticity of Demand handout. Assignment Expectations In the Module 1 Case Assignment, you are expected to: • Describe the purpose of the paper and provide a conclusion. • Present information in a professional manner. • Answer the Case Assignment questions clearly and provide necessary details. • Write clearly and correctly—that is, no poor sentence structure, no spelling and grammar mistakes, and no run-on sentences. • Provide citations to support your argument and place references on a separate page. (All the sources that you listed in the references section must be cited in the paper.) Use APA format to provide citations and references [http://owl.english.purdue.edu/owl/resource/560/01/]. • Type and double-space the paper. • Whenever appropriate, please use Excel to show supporting computations in an appendix, present economic information in tables, and use the data to answer follow-up questions.

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