1. Market Managerial Economics Jack Wu

2. Perfect Competition homogeneous product many buyers many sellers price takers free entry and exit equal information

3. Free Entry? Japanese Beer Market, pre- ’ 94: Ministry of Finance production licenses for minimum of 2 million liters a year sales licenses limited to small family- owned stores

4. Information Market with differences in information not as competitive as one where all buyers and sellers have equal information  photocopying service  medical treatment  legal advice

5. Market Equilibrium, I Price at which quantity demanded equals quantity supplied when market out of equilibrium, market forces push price towards equilibrium

6. 0 20 22 81011 supply demand a b c equilibrium excess supply Quantity (Million ton-miles a year) Price ($ per ton-mile) Market Equilibrium, II

7. Market Equilibrium, III excess supply = excess of quantity supplied over quantity demanded  triggers price decrease excess demand = excess of qty demanded over qty supplied  triggers price increase

8. Supply Shift, I supply shifts down (right) -> lower price, larger quantity supply shifts up (left) -> higher price, smaller quantity final equilibrium depends on elasticities of demand and supply

9. 0 19.60 20 1010.4 original supply new supply demand 60 cents ce b d Quantity (Million ton-miles a year) Price ($ per ton-mile) a Supply Shift, II

10. 010 19.40 20 original supply new supply demand 60 cents c b 0 1010.6 20 new supply original supply demand 60 cents b c Extremely inelastic demandExtremely elastic demand Quantity (Million ton-miles a year) Price ($ per ton-mile) ee Price Elasticities of Demand

11. 0 20 10 demand a b original and new supply 01011 19.40 20 60 cents a b original supply new supply demand Price ($ per ton-mile) Quantity (Million ton-miles a year) Extremely inelastic supplyExtremely elastic supply Price Elasticities of Supply

12. Supply Shift: Price Impact price change no more than amount of the supply shift price change  smaller if demand is more elastic than supply  larger if supply is more elastic than demand

13. 0 1.50 1 retail supply a Quantity (Million units a year) Price ($ per unit) after wholesale price cut retail demand b Promoting Retail Sales Q

14. Demand Shift, I demand shifts down (left) -> lower price, lower quantity demand shifts up (right) -> higher price, larger quantity final equilibrium depends on elasticities of demand and supply

15. 0 20 1010.8 supply new demand original demand 1 million a f b c Quantity (Million ton-miles a year) Price ($ per ton-mile) Demand Shift, II

16. Tanker Services, 1999 OPEC production cutback  reduced demand for tanker services  raised tanker operating cost  on balance, reduced tanker rates rates for older tankers fell more than for newer vessels

17. Valentine ’ s Day Nearing Valentine ’ s Day, price of roses always rises much more than the price of greeting cards. Why?

18. Calculating Equilibrium, I How would 3% increase in income affect price and sales of gasoline? demand  price elasticity -.23  income elasticity 0.39 supply  price elasticity 0.62

19. Calculating Equilibrium, II 1. % change in qty demanded = -0.23 %p + 0.39 x 3 2. % change in qty supplied = 0.62 %p 3. equate and solve: %p = 1.38% 4. % change in qty = 0.87%

20. 0 20 22 100105 price short-run average variable cost short-run marginal cost Quantity (Thousand ton-miles a year) 0 20 22 1012 short-run demand short-run supply 1 million a c Price ($per ton-mile) (a) Individual seller(b) Market Short-Run Market Equilibrium

21. 0 20 21 100 original long- run average cost new long-run average cost long-run marginal cost Quantity (Thousand ton-miles a year) 0 20 21 1013 long-run demand long-run supply 1 million a d Price ($per ton-mile) (a) Individual seller(b) Market Long-Run Market Equilibrium

22. Short/Long-Run Impact If demand/supply shifts, market price is more volatile in the short run than long run greater change in market quantity over the long run than short run

23. Pricing and Freight Cost, I cost and freight ex-works pricing  How does pricing policy affect sales?

24. 0 1.50 1 CF supply a Quantity (Million pounds a year) Price ($ per pound) ex-works supply CF demand ex-works demand b 25 cents Pricing and Freight Cost, II

25. Retailing: Why coupons? alternative -- cutting wholesale prices “ With coupons, prevent retailers from getting part of price cut. ”