LOGISTICS. 1. Website

Transcription

1 LOGISTICS 1. Website 2. TA: Svetla Tzenova Secy: Maggie Newman, , 3. Grades: 20% assignments/participation 20% mid-term 60% final 4. Fill out Cards: Name Job background/current Job Topics of interest

2 BUSINESS 300/500 : MICROECONOMICS Graduate School of Business University of Chicago Austan Goolsbee Class 1 INDUSTRY ANALYSIS OF COMPETITIVE MARKETS 1. Surveys of American Executives - 70% use D curves for marketing - 62% use supply and demand to set prices - Used widely in finance, consulting & gov policy 2. Useful questions - predicting future prices & output - analysis:mkt share & defn, taxes & regs, news

3 DEMAND 1. Synonomous with Customer Value 2. Gives the Q desired at that price: Law of Demand 3. Demand for Beef in the US Price/Lb Yearly Lbs/person

4 1. Graph the schedule DEMAND CURVES 2. IN ECONOMICS, PRICE IS ON THE Y AXIS - (i.e. I know it s backwards) 3. Could give fit an equation for demand - here it is Q = * P

5 WHAT SHIFTS DEMAND CURVES 1. Demand Less at the Same Price--a shift - Demand versus quantity demanded 2. Tastes Change 3. Prices of other goods - substitutes and complements 4. Income - normal and inferior goods

6 SUPPLY 1. How much is produced at a given P 2. Equation for supply: 3. Shifts: Less Q at same P-- S vs. quantity supplied - technology - input prices

7 EQUILIBRIUM 1. Set Supply = Demand 2. Solving with Equations: US Beef Market Q S = P Q D = P Q S = Q D P = P P = $4.00 plug back in to get Q = 120

8 MARKET ANALYSIS 1. Shifting D: Q & P move together 2. Shifting S: Q & P move opposite

9 MARKET ANALYSIS: EQUATION 1. If equation changes just resolve for equilibrium 2. Demand Decrease: Seattle Mad Cow Outbreak Original Q S = Q D = P P P = $4.00/lb Q = 120 lbs After Mad Cow Demand falls to Q D = P Q S = Q D P = P P = $2.40/lb Q = 48 lbs 3. Just like in the graph

10 THE IDENTIFICATION PROBLEM: EXAMPLE: 1. Quantity Consumed (lbs) per person in the US Beef Chicken Can you tell what is happening to S & D? - D is shifting? - How can you tell? 3. An Instrument for S or for D

11 THE IDENTIFICATION PROBLEM 1. An Instrument for Supply or for Demand 2. Instruments are things that shift one curve only 3. Using equilibrium points before & after a shift - approximate with a linear curve - Frank Perdue: 1950 Q= 10 lb, P=$2.50/lb 1960 Q= 25 lb, P=$1.40/lb

12 MARKET DEMAND OR SUPPLY 1. Individual curves are added at a given P P Q S Q S Market Q S

13 MARKET DEMAND OR SUPPLY 1. In a graph they are added horizontally (Q > 0) Demand Supply

14 CALCULATING MARKET DEMAND 1. Get individual D curves with Q on LHS Q D = P Q D = 70 - P 2. Find the price for zero Q in each one (set Q=0) Q : P >= 40 Q : P >= Add them up in sections to get market D Q+Q = (60-1.5P) + (70 - P) if P<40 - when both are in market just add them Q+Q = 70 - P if P > 40 & P < 70 - only Q because Q is zero for P>40 Q + Q = 0 if P > 70

15 CALCULATING MARKET SUPPLY 1. Get individual S curves with Q on LHS Q S = P - 10 Q S = P Find the price for zero Q in each one (set Q=0) Q S : P <= 10 Q S : P <= Add them up in sections to get market S Q S + Q S = (P - 10) + (P - 30) if P > 30 Q S + Q S = P - 10 if P >10 & P <30 Q S + Q S = 0 if P < 10 solve supply=demand here for choosing which bracket you're on

16 HOW RESPONSIVE IS DEMAND OR SUPPLY 1. How can you tell if D is very responsive to price 2. The perils of a change of units - demand curve in dollars Q = 10 - P - demand curve in pennies Q = 10 - (1/100) P 3. Elasticity: Change in % rather than unit terms

17 PRICE ELASTICITY 1. Definition Price Elasticity = (dq/q)/(dp/p) = (dq/dp)*(p/q) 2. What % Q changes from a 1% increase in P 3. Calculating Price elasticity of Copper - D curve (metric tons/yr): Q = P - dq/dp = Point Elasticity at P=$.70--Q=7.9 =(dq/dp)*p/q= -8*(.7/7.9) = Point Elasticity at P=$1.30--Q=3.1 =(dq/dp)*p/q= -8*(1.30/3.1) = -3.35

18 ELASTICITY ON A LINEAR DEMAND CURVE 1. Demand curve: Q = P 2. Elasticity at -P = 0: (dq/dp)*(p/q) = -P = $1.69 (where Q=0): (dq/dp)*(p/q) = 3. See it on the Picture

19 OTHER ELASTICITIES 1. Arc elasticity (vs. point elasticity) - only 2 points or a big change in P ARC ELASTICTIY: (dq/dp)*[(p 1 + P 2 )/2 / (Q 1 + Q 2 )/2] 2. Calculating an Arc elasticity - NYC: P fr/1.25 to 1.50 & Q down fr/1.5m to 1m - Arc elasticity = 3. Cross-Price Elasticity - How much your Q changes when my P rises 1% CROSS-P ELASTICTIY: (dq 1 /dp 2 )*(P 2 /Q 1 ) 4. Income elasticity How much Q changes when income rises 1% INCOME ELASTICITY: (dq/di)*(i/q)

20 ELASTICITY 1. Examples Public Transp Peas -2.8 Beer -1.2 Electricity -0.3 Water What determines Elasticity 3. Short-run and long run elasticities Short Long Gas Cars

21 USING ELASTICITIES IN BUSINESS 1. Market Share Impact of Price Changes - If own-p elas = -1 and cross-p elas =.5 - raise P 10% ==> Q falls 10% other q rises 5%. 2. Market Definition & Market Power of a Brand - can a firm raise P without losing much business - market power of Fed-Ex, Frozen Food CASE: SATELLITE VERSUS CABLE P Basic Premium Sat Q Basic Cable Satellite As a Pricing Tool