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Management Economics
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Management Economics
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Management Economics1. Opportunity cost The sacrifice of the next best alternative
foregone when an economic decision is
made - arises from choice and leads to
cost-benefit analysis
2. Cost-benefit analysis Technique that compares the costs in-
volved in any action to its benefits - quan-
tifies costs and the benefits.
3. Market Where buyers and sellers come together
to exchange for a price - interaction deter-
mines price
4. Price takers When there are many buyers and sellers
selling homogenous goods
5. Benefits of market * Brings together buyers and sellers
* helps allocate resources
* coordinates decision making
* provides choice
* competition keeps prices low for con-
sumers
6. Demand the amount of a good buyers are willing
and able to purchase at a certain price
7. demand schedule a table showing the relationship between
the p and Qd of a good
8. Law of demand Ceteris paribus, the Qd of a good falls
when the price rises - demand curve
slopes downwards
9. Movement along a demand Price change
curve
10. Shift demand curve Determinants of demand:
* Income
* prices of other goods
* tastes
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, Management Economics
* expectations
* population
11. Supply Amount of a good that sellers are willing
and able to sell at a given price
12. Supply schedule A table that shows the relationship be-
tween the price and the quantity of a good
13. Law of supply Ceteris paribus, Qs falls when price de-
creases - upward sloping curve
14. Shift in Supply Determinants of supply:
* fop prices
* technology
* expectations
* number of sellers
15. Equilibruim Qs=Qd price level
16. PED PED=%change in Qd/%change in price
17. Calculating percent change in Q Change in Q/Q x 100
18. Perfectly inelastic 0 - Qd does not change at all
19. Inelastic -1 to 0 - Qd changes by smaller % than P
20. Unit-elastic Qd changes proportionally to price
21. Elastic <-1 - Qd changes by a greater % than P
22. Perfectly elastic Infinite - change in price leads to con-
sumers buying nothing
23. Determinants of PED * Number and closeness of substitutes
* Proportion of income spent on the good
* Time period - short term more inelastic
* Habit
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