Orientation ME 17.6.11

8/3/2019 Orientation ME 17.6.11

1/18

Managerial Economics:Concepts and theories

By: Shikha Singh,

LBSIM,Delhi


2/18

Economics: study of how society manages its

scarce resources.

Efficiency: society gets the most that it can

from its scarce resources.

Equity: the benefits of those resources aredistributed fairly among the members of

society.

Externalities: impact of one persons actionson the well-being of a bystander;


3/18

Market power: the ability of a single

economic actor (or small group of actors) to

have a substantial influence on market prices. Opportunity cost: of an item is what you

give up to obtain that item. The cost of using

an item is the value of the best alternative

use.


4/18

Economic model: simplified representation of reality that is

used to address relevant issues about that reality.

Macroeconomics: studies economy-wide phenomena,

including inflation, unemployment, and economic growth.

Microeconomics: studies how households and firms make

decisions and how they interact in specific markets.

Normative statements: about how the world should be

(prescriptive analysis).

Positive statements: attempt to describe the world as it is

(descriptive analysis).

The production possibilities frontier: graph that shows thecombinations of output that the economy can possibly produce

given the available factors of production and the available

production technology.


5/18

Ceteris paribus: a Latin phrase, translated as other thingsbeing equal, used as a reminder that all variables other thanthe ones being studied are assumed to be constant.

Competitive market: a market in which there are many

buyers and many sellers so that each has a negligible impacton the market price.

Complements: two goods for which an increase in the priceof one good leads to a decrease in the demand for the other.

Demand curve: a graph of the relationship between the

price of a good and the quantity demanded. Demand schedule: a table that shows the relationship

between the price of a good and the quantity demanded.


6/18

Equilibrium: situation in which supply and demand havebeen brought into balance.

Equilibrium price: the price that balances supply anddemand

Equilibrium quantity: the quantity supplied and thequantity demanded when the price has adjusted to balancesupply and demand.

Excess demand (or Shortage): situation in which quantitydemanded is greater than quantity supplied

Excess supply (or Surplus): situation in which quantitysupplied is greater than quantity demanded

Inferior good: a good for which, other things equal, anincrease in income leads to a decrease in demand.


7/18

Law of demand: the claim that, other things equal, the quantitydemanded of a good falls when the price of the good rises.

Law of supply: the claim that, other things equal, the quantitysupplied of a good rises when the price of a good rises.

L

aw of supply and demand: the price of any good adjusts to bringthe supply and demand for that good into balance.

Market: a group of buyers and sellers of a particular good orservice.

Market demand: sum of all the individual demands for a particulargood or service.

Market supply: sum of the supplies of all sellers of a particular goodor service.


8/18

Monopolistic competition: a type of market that contains manysellers but each offers a slightly different product.

Monopoly: a market with only one seller of a product without closesubstitutes. This seller sets the price.

Monopsony: a market with only one buyer.

Normal good: a good for which, other things equal, an increases inincome leads to an increase in demand.

Oligopoly: a market with few sellers that do not always competeaggressively.

Perfect competitive markets: markets that are defined by two

primary characteristics: (1) the goods being offered for sale are allthe same, and (2) the buyers and sellers are so numerous that nosingle buyer or seller can influence the market price.


9/18

Elastic demand: when the elasticity is greater than 1, sothat quantity moves proportionately more than the price.

Elastic supply: if the price elasticity of supply is larger than1.

Elasticity: A measure of the responsiveness of quantitydemanded or quantity supplied to one of its determinants.

Income elasticity of demand: a measure of how much thequantity of a good responds to a change in consumers

income, computed as the percentage change in quantitydemanded divided by the percentage change in income.

Inelastic demand: when the elasticity is less than 1, so thatquantity moves proportionately less than the price.

Inelastic supply: if the price elasticity of supply is less than1.


10/18

Luxuries: those goods with a very high income and price elasticity of demand.

Necessities: those goods with a very low income and price elasticity of demand.

Perfectly elastic demand: quantity demanded changes infinitely with any change

in price.

Perfectly inelastic demand: quantity demanded does not respond to price changes.Elasticity equals 0.

Perfectly elastic supply: close to infinity price elasticity of supply.

Perfectly inelastic supply: zero price elasticity of supply.

Price elasticity of demand: A measure of how much the quantity demanded of a

good responds to a change in price of that good, computed as the percentage change

in quantity divided by the percentage change in price.

Price elasticity of supply: a measure of how much the quantity supplied of a good

responds to a change in price of that good, computed as the percentage change in

quantity supplied divided by the percentage change.


11/18

Total revenue (PxQ): the amount paid by buyersand received by sellers of a good, computed asthe price of the good times the quantity sold.

Unit-elastic demand: when the elasticity isexactly 1, so that quantity moves the sameamount proportionately as price.

Unit-elastic supply: if the price elasticity of

supply is exactly one.

Willingness to pay: the maximum amount that abuyer will pay for a good.


12/18

Tax incidence: is the manner in which the

burden of a tax is shared among participants

in a market. Tax incidence is the study of who

bears the burden of a tax.


13/18

Welfare economics: the study of how the allocationof resources affects economic well-being.

Marginal consumer (or buyer): the buyer whowould leave the market first if the price were anyhigher.

Marginal producer (or seller): the seller who wouldleave the market first if the price were any lower.

Willingness to pay: the maximum amount that a

buyer will pay for a good. Willingness to sell (cost): the value of everything a

seller must give up to produce a good.


14/18

Consumer surplus: the amount that buyers are willing to pay for agood minus the amount they actually pay for it, measures thebenefit that buyers receive from a good as the buyers themselvesperceive it.

Producer surplus: the amount a seller is paid for a good minus the

sellers cost, it measures the benefit to sellers participating in amarket.

Total surplus: the sum of consumer surplus plus producer surplus.In the absence of market imperfections, it can also be computed asthe difference between the value to buyers minus the cost tosellers.

Market efficiency: a market allocation is said to be efficient if itmaximizes the total surplus received by all members of society.

Deadweight loss: the fall in total surplus that results from a marketdistortion, such as a tax.


15/18

Fixed costs: those costs that do not vary withthe quantity of output produced.

Variable costs: those costs that do vary with thequantity of output produced

Efficient scale: the quantity of output that

minimizes average total cost. Economies of scale: the property whereby long-

run average total cost falls as the quantity ofoutput increases.

Diseconomies of scale: the property wherebylong-run average total cost rises as the quantityof output increases.


16/18

National Income

Consumption

Investment Aggregate DD, SS

Inflation/deflation

Business cycles

Monetary and fiscal policy

Globalisation and FDI


17/18


18/18

Thank You

Orientation ME 17.6.11

Documents

Transcript of Orientation ME 17.6.11