Microeconomics for MBAs 27

Microeconomics for MBAs 27. The Economic Way of Thinking for Managers. Microeconomics for MBAs develops the economic way of thinking through problems that MBA students will find relevant to their career goals. Maths is kept simple and the theory is illustrated with real-life scenarios | Chapter 8 Consumer Choice and Demand in Traditional and Network Markets 7 The market demand can be shown graphically as the horizontal summation of the quantity of a product each individual will buy at each price. Assume that the market for Coke is composed of two individuals Anna and Betty who differ in their demand for Coke as shown in Figure . The demand of Anna is DA and the demand of Betty is DB. Then to determine the number of Cokes both of them will demand at any price we simply add together the quantities each will purchase at each price see Table . At a price of 11 neither person is willing to buy any Coke consequently the market demand must begin below 11. At 9 Anna is still unwilling to buy any Coke but Betty will buy two units. The market quantity demanded is therefore two. If the price falls to 5 Anna wants two Cokes and Betty given her greater demand wants much more six. The two quantities combined equal eight. If we continue to drop the price and add the quantities bought at each new price we will obtain a series of market quantities demanded. When plotted on a graph they will yield curve DA B the market demand for Coke see Figure . FIGURE Market Demand Curve The market demand curve for Coke DA B is obtained by summing the quantities that individuals A and B are willing to buy at each and every price shown by the individual demand curves DA and Db . This is of course an extremely simple example since only two individuals are involved. The market demand curves for much larger groups of people however are derived in essentially the same way. The demands of Fred Marsha Roberta and others would be added to those of Anna and Betty. As more people demand more Coke the market demand curve flattens out and extends further to the right. Elasticity Consumers Responsiveness to Price Changes In the media and in general conversation we often hear claims that a price change will have no effect on purchases. Someone may predict that an increase in .

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