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managerial economics UoM summary
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- The University Of Manchester (UOM)
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🥯managerial economics notes
textbook readings
lecture 1a: introduction
managerial economics enables managers to select strategic direction, allocate
efficiently, and respond effectively to tactical issues
the demand function and factors affecting demand:
^price of substitutes = ^demand
^price of complementary goods = v demand
^consumer income = ^demand
^advertising/marketing expenditures = ^demand
^advertising/marketing by competitors = v demand
^population = ^demand
^consumer preference for the good = ^demand
^expected future prices = ^demand
^time period of adjustment = ^demand
managerial economics notes 1
, ^taxes on the good = v demand
the supply function and factors affecting supply:
^price of inputs = v supply
^price of unused substitute inputs = v supply
tech improvements = ^supply
entry of other sellers = ^supply
supply disruptions = v supply
^regulatory costs = v supply
^expected future price = v supply
^time period of adjustment = ^supply
^taxes = v supply
answer to the so-called “diamond-water paradox,” which economist Adam Smith
pondered but was unable to solve. Smith noted that, ”even though life cannot exist
without water and can easily exist without diamonds, diamonds are, pound for
pound, vastly more valuable than water”
lecture 1b: demand theory
the demand schedule is a list of prices and corresponding quantities of a product or
service that would be demanded over a particular time period by some individual or
a group of individuals at uniform prices
the law of demand is the inverse relationship between price and quantity demanded
demand schedules shift when one determinant of demand changes (refer to lecture
1a)
demand is based on the theory of consumer choice:
managerial economics notes 2
, each consumer must choose among combinations of goods and services that
maximise satisfaction or utility subject to constraint on amount of funds available
two basic reasons for the increase in quantity demanded as the result of a price
reduction:
purchasing power
substitution effects
considering the factors that can affect the demand of a product we can describe an
implicit demand function as:
elasticity is the measure of the responsiveness of quantity demanded or supplied to
changes in any variables that influence the supply and demand
(1) price elasticity of demand is the ratio of the percentage change in quantity
demanded to the percentage change in price, assuming all other factors remain
unchanged
it can take values from 0 to -∞
Ed = 0 = perfectly inelastic
0 < |Ed| < 1 = Inelastic
|Ed| = 1 = unit elastic
1< |Ed| < ∞ = elastic
managerial economics notes 3
, |Ed| = ∞ = perfectly elastic
marginal revenue is the change in total revenue that results from a one-unit change
in quantity demanded
managerial economics notes 4
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