INSTRUCTOR MANUAL
Instructor’s Manual for Principles of Finance
03/21/22 1
, Instructor’s Manual for Principles of Finance
Chapter 3
Economic Foundati ons: Money and Rates
Lecture Outline
3.1 Microeconomics
Commonly, microeconomics and macroeconomics are prerequisite courses for a first-level
finance course. Consequently, the first half of this chapter should be either a primer or a
reminder of basic economic principles.
It is essential for any company to understand the economic environment in which it operates.
Microeconomics focuses on the decisions and actions of businesses and customers within the
economy. The driving forces behind microeconomics are market supply and demand for
products and services.
Demand: Demand is the quantity of a good or service that buyers are willing and able to
purchase at various prices during a given time period. Students should understand this
condition and, by extension, the inverse relationship it represents. The higher the price of a
good goes, the less willing and able consumers are to buy it. The utility the good provides
declines because the price of that utility increases.
The table below demonstrates this law of demand.
Price
($) Quantity
30 0
25 10
20 20
15 30
10 40
5 50
Table 3.1 Demand Schedule for Pizza
If certain economic factors change, though, the demand curve may shift. These factors include
consumer income, the size of the population, the tastes and preferences of consumers, and the
price of other goods. For example, if a student gets a raise at their off-campus job, they may be
more likely to purchase a second cup of coffee at the local shop.
03/21/22 2
Instructor’s Manual for Principles of Finance
03/21/22 1
, Instructor’s Manual for Principles of Finance
Chapter 3
Economic Foundati ons: Money and Rates
Lecture Outline
3.1 Microeconomics
Commonly, microeconomics and macroeconomics are prerequisite courses for a first-level
finance course. Consequently, the first half of this chapter should be either a primer or a
reminder of basic economic principles.
It is essential for any company to understand the economic environment in which it operates.
Microeconomics focuses on the decisions and actions of businesses and customers within the
economy. The driving forces behind microeconomics are market supply and demand for
products and services.
Demand: Demand is the quantity of a good or service that buyers are willing and able to
purchase at various prices during a given time period. Students should understand this
condition and, by extension, the inverse relationship it represents. The higher the price of a
good goes, the less willing and able consumers are to buy it. The utility the good provides
declines because the price of that utility increases.
The table below demonstrates this law of demand.
Price
($) Quantity
30 0
25 10
20 20
15 30
10 40
5 50
Table 3.1 Demand Schedule for Pizza
If certain economic factors change, though, the demand curve may shift. These factors include
consumer income, the size of the population, the tastes and preferences of consumers, and the
price of other goods. For example, if a student gets a raise at their off-campus job, they may be
more likely to purchase a second cup of coffee at the local shop.
03/21/22 2
