How to Use Economic Concepts and Models to Make Decision in Management

Abstract

How to use economic concepts and models to make decision in management is the main goal of studying Management Economics. This paper will present some basic economics concepts of demand and then combines them with management.

Keywords: Demand, Quantity demanded, Demand elasticity, Equilibrium, Giffen goods

1. Introduction

How to use economic concepts and models to make decision in management is the main goal of studying Management Economics. This paper will present some basic economics concepts of demand and then combines them with management. In part 2, we will introduce some basic economic concepts and Marshallian Demand and Supply theory. And then, analyze the importance of understanding demand elasticity in the management task in part 3. In part 4, we will discuss whether a increase in price always cause a decrease in quantity demanded.

2. The definition of basic economic concepts and Marshallian Demand and Supply theory.

In this part, we will introduce some basic economic concepts, then we will briefly outline Marshallian Demand and Supply theory.

2.1 The distinction between quantity demanded and demand.

As Parkin, Powell and Matthews (2005) have pointed out the most distinction between quantity demanded and demand, the quantity demanded of a good is the number that customers are willing and have the ability to buy at a given price during a certain time period, everything else remaining the same, it can be indicated by a point on a demand curve. Demand is the relationship between the price of the product and the quantity demanded of the product, demand is shown by the demand curve, and six major factors which include the price of substitute and complement, income, expectations of price and income in future, population and individual's attitudes bring changes in demand.

Figure1 and Figure 2 (Parkin et al., 2005) provide a clear and concise explanation.

2.2 The distinction between quantity supplied and supply.

Parkin, Powell and Matthews (2005) also have pointed out the most distinction between quantity supplied and supply, the quantity supplied of a good is the number that producers willing and able to provide at a given price during a certain time period, everything else remaining the same, the quantity supplied is indicated by a point on a supply curve.