5. What do my students have to say about Economics?

7. Difference between Micro and Macroeconomics

8. Microeconomics Managerial Economics How should the prices be set? In which way were the prices set? Computer Manufacturer (e.g.: IBM) Similar concepts

9. The nature of managerial economic decision making The role of managerial economics in managerial decision making Managerial decision problems Product price and output Make or buy Production technique Internet strategy Advertising media and intensity Investment and financing Managerial decision problems Product price and output Make or buy Production technique Internet strategy Advertising media and intensity Investment and financing Economic concepts Theory of consumer behaviour Theory of firm Theory of market structures and pricing Economic concepts Theory of consumer behaviour Theory of firm Theory of market structures and pricing Decision making tools Numerical analysis Statistical analysis Forecasting Game theory Optimisation Decision making tools Numerical analysis Statistical analysis Forecasting Game theory Optimisation Managerial Economics Use of economics concepts and decision making tools to solve managerial decision problems Managerial Economics Use of economics concepts and decision making tools to solve managerial decision problems Optimal solutions

33. Number of Bottles per Month Price per Bottle A B $4.00 2.00 D 40,00060,000 At $2.00 per bottle, 60,000 bottles are demanded (point B). When the price is $4.00 per bottle, 40,000 bottles are demanded (point A).

35. Quantity Price P2P2 Q2Q2 Q1Q1 Q3Q3 P1P1 P3P3 Price increase moves us leftward along demand curve Price increase moves us rightward along demand curve

37. BC $2.00 60,00080,000 D1D1 D2D2 An increase in income shifts the demand curve for maple syrup from D 1 to D 2. Number of Bottles per Month Price per Bottle At each price, more bottles are demanded after the shift

43. Quantity Price D2D2 D1D1 Entire demand curve shifts rightward when: income or wealth ↑ price of substitute ↑ price of complement ↓ population ↑ expected price ↑ tastes shift toward good

44. Quantity Price D1D1 D2D2 Entire demand curve shifts leftward when: income or wealth ↓ price of substitute ↓ price of complement ↑ population ↓ expected price ↓ tastes shift toward good

45. Supply is the willingness and ability of sellers to produce and offer to sell different quantities of a good at different prices during a specific period of time Law of Supply: As the price of a good rises, the quantity supplied of the good rises; and as the price of a good falls, the quantity supplied of the good falls.

49. F G 2.00 S 40,00060,000 $4.00 At $4.00 per bottle, quantity supplied is 60,000 bottles (point G). When the price is $2.00 per bottle, 40,000 bottles are supplied (point F). Number of Bottles per Month Price per Bottle

51. S2S2 G J S1S1 60,000 $4.00 80,000 A decrease in transportation costs shifts the supply curve for maple syrup from S 1 to S 2. Number of Bottles per Month Price per Bottle At each price, more bottles are supplied after the shift

56. P2P2 Q3Q3 Q1Q1 Q2Q2 P1P1 P3P3 Quantity Price Price increase moves us rightward along supply curve S Price increase moves us leftward along supply curve

57. Quantity Price S2S2 S1S1 Entire supply curve shifts rightward when: price of input ↓ price of alternate good ↓ number of firms ↑ expected price ↑ technological advance favorable weather

58. Quantity Price S1S1 S2S2 Entire supply curve shifts rightward when: price of input ↑ price of alternate good ↑ number of firms ↓ expected price ↑ unfavorable weather

61. E H J 1.00 $3.00 D S 50,00075,00025,000 Excess Demand 4.until price reaches its equilibrium value of $3.00. 2.causes the price to rise... 3.shrinking the excess demand... 1. At a price of $1.00 per bottle an excess demand of 50,000 bottles... Number of Bottles per Month Price per Bottle

63. 3.shrinking the excess supply... K L E 3.00 D S $5.00 50,00035,00065,000 Excess Supply at $5.00 2.causes the price to drop, 4.until price reaches its equilibrium value of $3.00. Number of Bottles per Month Price per Bottle 1.At a price of $5.00 per bottle an excess supply of 30,000 bottles...

66. 1.An increase in demand... E F' 3.00 D1D1 D2D2 S $4.00 50,00060,000 3.to a new equilibrium. 5.and equilibrium quantity increases too. 2.moves us along the supply curve... Number of Bottles of Maple Syrup per Period Price per Bottle 4.Equilibrium price increases

68. E' E3.00 D $5.00 50,00035,000 S2S2 S1S1 Number of Bottles Price per Bottle

70. P2P2 D E' P1P1 E Q2Q2 Q1Q1 S2S2 S1S1 Barrels of Oil Price per Barrel of Oil

72. Cubic Feet of Natural Gas Price per Cubic Foot of Natural Gas P4P4 P3P3 F Q3Q3 Q4Q4 S D2D2 F' D1D1

73. 1.An increase in supply... 2.and a decrease in demand... 5. and quantity decreased as well. A B $400 D 2003 S 2002 S 2003 D 2002 $500 2.453.33 Millions of Handheld PCs per Quarter Price per Handheld PC 4.Price decreased... 3.moved the market to a new equilibrium.

76. rent($) quantity demanded quantity supplied 8003010 10002514 12002217 140019 16001721 18001522

79. 79

81. The midpoint method: Price elasticity of demand: the percentage change in the quantity demanded that results from a 1 percent change in the price

83. Determinants of Price Elasticity of Demand Substitutability More substitutable  more elastic Less substitutable  less elastic Proportion of Income Greater proportion of income  more elastic Lesser proportion of income  less elastic Examples: Autos vs. Salt Luxuriousness More luxurious  more elastic Less luxurious  less elastic Examples: Cruise vs. Surgery Time (More time  greater elasticity, vice versa.)

92. Demand is price elastic. $5 4 Demand Quantity 100050 Price

95. (a) Perfectly Inelastic Demand: Elasticity Equals 0 $5 4 Quantity Demand 100 0 1. An increase in price... 2.... leaves the quantity demanded unchanged. Price

96. (b) Inelastic Demand: Elasticity Is Less Than 1 Quantity 0 $5 90 Demand 1. A 25% increase in price... Price 2.... leads to an 10% decrease in quantity demanded. 4 100

97. 2.... leads to a 25% decrease in quantity demanded. (c) Unit Elastic Demand: Elasticity Equals 1 Quantity 4 100 0 Price $5 80 1. A 25% increase in price... Demand

98. (d) Elastic Demand: Elasticity Is Greater Than 1 Demand Quantity 4 100 0 Price $5 50 1. A 25% increase in price... 2.... leads to a 50% decrease in quantity demanded.

99. (e) Perfectly Elastic Demand: Elasticity Equals Infinity Quantity 0 Price $4 Demand 2. At exactly $4, consumers will buy any quantity. 1. At any price above $4, quantity demanded is zero. 3. At a price below $4, quantity demanded is infinite.

101. Demand Quantity Q P 0 Price P × Q = $400 (revenue) $4 100 When the price is $4, consumers will demand 100 units, and spend $400 on this good.

103. Demand Quantity 0 Price Revenue = $100 Quantity 0 Price Revenue = $240 Demand $1 100 $3 80 An Increase in price from $1 to $3 … … leads to an Increase in total revenue from $100 to $240

105. Demand Quantity 0 Price Revenue = $200 $4 50 Demand Quantity 0 Price Revenue = $100 $5 20 An Increase in price from $4 to $5 … … leads to an decrease in total revenue from $200 to $100 Note that with each price increase, the Law of Demand still holds – an increase in price leads to a decrease in the quantity demanded. It is the change in TR that varies!

107. 0 2 6 4 10 8 12 14 2 1 4 3 5 6 $7 Demand is elastic; demand is responsive to changes in price. Demand is inelastic; demand is not very responsive to changes in price. When price increases from $4 to $5, TR declines from $24 to $20. When price increases from $2 to $3, TR increases from $20 to $24. Elasticity is > 1 in this range. Elasticity is < 1 in this range. Price Quantity

109. Remember, all elasticities are measured by dividing one percentage change by another

114. (a) Perfectly Inelastic Supply: Elasticity Equals 0 $5 4 Supply Quantity 100 0 1. An increase in price... 2.... leaves the quantity supplied unchanged. Price

115. (b) Inelastic Supply: Elasticity Is Less Than 1 110 $5 100 4 Quantity 0 1. A 25% increase in price... Price 2.... leads to a 10% increase in quantity supplied. Supply

116. (c) Unit Elastic Supply: Elasticity Equals 1 125 $5 100 4 Quantity 0 Price 2.... leads to a 25% increase in quantity supplied. 1. A 25% increase in price... Supply (If SUPPLY is unit elastic and linear, it will begin at the origin.)

117. (d) Elastic Supply: Elasticity Is Greater Than 1 Quantity 0 Price 1. A 25% increase in price... 2.... leads to a 100% increase in quantity supplied. 4 100 $5 200 Supply

118. (e) Perfectly Elastic Supply: Elasticity Equals Infinity Quantity 0 Price $4 Supply 3. At a price below $4, quantity supplied is zero. 2. At exactly $4, producers will supply any quantity. 1. At any price above $4, quantity supplied is infinite.