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MARKET DEMAND
Microeconomics Made Easy
by
William Yacovissi
Mansfield University
©William Yacovissi All Rights Reserved
Profits
 Profit is the difference between money
earned from selling a good, and money paid
to produce the good.
 Money earned from selling a good is called
Revenue, or Total Revenue.
Profits
 Money used to pay for inputs to produce a
good are called Costs, or Total Costs
 Profits = Total Revenue - Total Costs or
(PR = TR - TC)
 A company is assumed to want to behave in
such a way as to maximize profits.
Revenue
 Total Revenue = Price * Quantity or
(TR = P * Q).
 For example, if I sell 100 units of a good at
a price of $5.00 then my total revenue
equals $5 * 100 or $500.
Revenue
 Average Revenue = Total Revenue/
Quantity or AR = TR/Q.
 For example, if I earn $50.00 from selling
10 units of a good, my Average Revenue =
$50.00/10 = $5.00. Notice that Average
Revenue is the same as the Price.
Revenue
 Revenue is complicated by the fact that
often the price of a good and the quantity
sold are related.
 This relationship is called Demand.
Revenue
 The relationship between Price and
Quantity is assumed to be inverse.
 That is, as the Price increases, the Quantity
sold decreases. Conversely, as the Price
decreases, the Quantity increases.
WAYS OF SHOWING
DEMAND
 The relationship between price and quantity
sold, which is called demand, can be shown
as a table, a graph, or an equation
 Each way shows the same information in a
different form.
MARKET DEMAND FOR VIDEO
RENTALS FOR EXAMPLE
Price
Quantity
Revenue
$1.00
500 a Day
$500
$2.00
400 a Day
$800
$3.00
300 a Day
$900
$4.00
200 a Day
$800
$5.00
100 a Day
$500
DEMAND AS A GRAPH
De mand For Vide o Re ntals
$5.00
P ric e
$4.00
$3.00
$2.00
$1.00
100
200
300
400
Rentals Per Day
500
DEMAND SHOWN AS AN
EQUATION
The equation:
 Quantity Demanded = 600 - 100(Price)
fits the data for the demand for video
rentals shown in the table and graph.
 Do you see why the table, graph, and
equation are all equivalent ways to show
demand.