Basic Marketing: A Global Managerial Approach

Perreault−McCarthy: Basic
Marketing: A
Global−Managerial
Approach, 14/e

Back Matter Appendix A: Economics

Fundamentals

© The McGraw−Hill

Companies, 2002

Economics Fundamentals 657

given price times that price. Note that as prices drop, the total unitquantity

increases, yet the total revenue decreases. Fill in the blank lines in the third column

and observe the behavior of total revenue—an important number for the market-

ing manager. We will explain what you should have noticed, and why, a little later.

If your only interest is seeing at which price the company will earn the greatest

total revenue, the demand schedule may be adequate. But a demand curve shows

more. A demand curveis a graph of the relationship between price and quantity

demanded in a market—assuming that all other things stay the same. Exhibit A-2

shows the demand curve for potatoes—really just a plotting of the demand sched-

ule in Exhibit A-1. It shows how many potatoes potential customers will demand

at various possible prices. This is a “down-sloping demand curve.”

Most demand curves are down-sloping. This just means that if prices are

decreased, the quantity customers demand will increase.

Demand curves always show the price on the vertical axis and the quantity

demanded on the horizontal axis. In Exhibit A-2, we have shown the price in dol-

lars. For consistency, we will use dollars in other examples. However, keep in mind

that these same ideas hold regardless of what money unit (dollars, yen, francs, pounds,

etc.) is used to represent price. Even at this early point, you should keep in mind that

markets are not necessarily limited by national boundaries—or by one type of money.

Note that the demand curve only shows how customers will react to various pos-

sible prices. In a market, we see only one price at a time, not all of these prices.

The curve, however, shows what quantities will be demanded—depending on what

price is set.

You probably think that most businesspeople would like to set a price that would

result in a large sales revenue. Before discussing this, however, we should consider

the demand schedule and curve for another product to get a more complete picture

of demand-curve analysis.

The demand

curve—usually down-

sloping

Exhibit A-1

Demand Schedule for

Potatoes (10-pound bags)

(1) (2) (3)

Price of

Potatoes Quantity Demanded Total Revenue

per Bag (bags per month) per Month

Point (P) (Q) (P Q 
TR)

A $1.60 8,000,000 $12,800,000

B 1.30 9,000,000

C 1.00 11,000,000 11,000,000

D 0.70 14,000,000

E 0.40 19,000,000

Exhibit A-2

Demand Curve for Potatoes

(10-pound bags)

1.60

1.30

1.00

0.70

0.40

0

Price ($ per bag)

Quantity (millions of bags per month)

A

10 20 30 Q

P

B

C

D

E