International business environment - IB
Week 1
Supply and demand curves
Demand
How much of a product consumers want to purchase depends on
many factors: price, income, tastes, availability and prices of
alternative products, etc.
Focus on key determinant: price
Demand for a good is falling in its
price
The demand curve shows the highest price a consumer of willing to pay for
a given unit
Price elasticity of demand = how strongly the demand reacts to a
price change (percent change in demand due to 1 percent change in
price)
Low elasticity > steep demand
curve High elasticity > flat
demand curve
Supply
The product price is key determinant of how much of a product firms
are willing to produce and sell: supply an extra unit as long as the
revenue from selling this unit (=price) exceeds the extra (=marginal)
cost of producing it
The supply curve shows the lowest price at which firms are willing to sell a
given unit (i.e. the marginal cost of producing this unit)
The supply of a good increases in its price
Price elasticity of supply = how strongly supply reacts to a price change
(percent change in sypply due to 1 percent change in price)
Low elasticity > steep demand
curve High elasticity > flat
demand curve
,National market with free trade
,The difference between the quantity supplied and demanded will be imported.
, The net welfare gain (triangle C) can be separated into consumption effect
and the production effect.
Consumption effect is welfare gain due to increase in quantity
consumed Production effect is welfare gained due to shifting to
cheaper foreign products
Exporting countries and free trade
Week 1
Supply and demand curves
Demand
How much of a product consumers want to purchase depends on
many factors: price, income, tastes, availability and prices of
alternative products, etc.
Focus on key determinant: price
Demand for a good is falling in its
price
The demand curve shows the highest price a consumer of willing to pay for
a given unit
Price elasticity of demand = how strongly the demand reacts to a
price change (percent change in demand due to 1 percent change in
price)
Low elasticity > steep demand
curve High elasticity > flat
demand curve
Supply
The product price is key determinant of how much of a product firms
are willing to produce and sell: supply an extra unit as long as the
revenue from selling this unit (=price) exceeds the extra (=marginal)
cost of producing it
The supply curve shows the lowest price at which firms are willing to sell a
given unit (i.e. the marginal cost of producing this unit)
The supply of a good increases in its price
Price elasticity of supply = how strongly supply reacts to a price change
(percent change in sypply due to 1 percent change in price)
Low elasticity > steep demand
curve High elasticity > flat
demand curve
,National market with free trade
,The difference between the quantity supplied and demanded will be imported.
, The net welfare gain (triangle C) can be separated into consumption effect
and the production effect.
Consumption effect is welfare gain due to increase in quantity
consumed Production effect is welfare gained due to shifting to
cheaper foreign products
Exporting countries and free trade
