1 Welcome to EC 209: Managerial Economics- Group A By: Dr. Jacqueline Khorassani Study Guide Week Three (Note: You must go over these slides and complete every task outlined here before Thursday, September 20)

2 Chapter 3: This chapter is also mainly a review of what you learned in First Commerce. Send me your questions. What does the elasticity measure? –How can it be shown (measured) using calculus? –What is the difference between point versus Arc (Mid-point) elasticity?

3 What is the own price elasticity of demand? How is it measured? Is it positive or negative? What is the difference between elastic, inelastic and unitary elastic demands? How is a perfectly elastic demand curve different from a perfectly inelastic demand curve? Which factors affect it and how?

4 How does the own-price elasticity related to total revenue? The case of elastic, inelastic, and unitary elastic demands –Graphical representation How does the own-price elasticity related to marginal revenue?

5 What is the cross price elasticity of demand? How is it measured? When is it positive? When is it negative? Suppose that a firm sells two related good and the price of one good changes; how can the cross price elasticity help us predict the changes in the total revenue?

6 What is the income elasticity? How is it measured? When is it positive? When is it negative?

7 Uses of elasticity How can the elasticity help the manager in his/her pricing strategies? How can the elasticity help the manger in predicating the revenue? How can the elasticity help the manager to determine the effects of a change in a competitor’s price?

8 Mathematical representations of demand curves Linear demand –What do the coefficients mean? How are they related to elasticity? –How does it look graphically? Log-Linear Demand –What do the coefficients mean? How are they related to elasticity? –How does it look graphically?

9 What is regression analysis? How can it be used to estimate demand? How can we interpreting the regression output?

10 Chapter 4: The Theory of Individual Behavior (up to Page 135) What are the properties of consumer preferences? –Completeness? –More is Better? –Diminishing Marginal Rate of Substitution? –Transitivity? What is an indifference curve? –Graph? –How does it reflect the properties of consumer preferences? –Family of indifference curves?

11 What is a budget constraint? Graph of budget line? –Slope? Market rate of substitution? –Shifts? Change in price? Change in income

12 Where does consumer equilibrium come from? What does it mean? Graphical representation? How does a change in prices affect consumer equilibrium? –Substitute goods –Complement goods How does a change in income affect consumer equilibrium? –Normal/inferior goods

13 What is the income effect of a price change? –Graphically? The substitution effect of a price change? –Graphically?