MANECON Flashcards
• Science is a body of knowledge that is organized in a ______.
• It is founded on ______.
systematic manner
methodical observation
• Managerial economics is also the science of making decisions about scarce resources that have ___ applications.
• It is a body of knowledge that determines or observes the ___ and ___ environments in order to make decisions.
multiple
internal
external
• In science, any conclusion is reached after _____.
• Policies are developed in managerial economics after ____.
• Because the economic environment is made up of _____ that are unpredictable, the policies put in place are not rigid.
extensive experimentation
extensive testing and trials
human variables
• Managerial economists make decisions based on their valuable prior ___ and ___.
• Principles of science are ___ applicable. Similarly, managerial economics policies are partially, if not entirely, ___ applicable.
• Policies must be changed from ____ depending on the situation and the attitude of individuals toward those situations.
• Policies are universally applicable, but they must be ___ on a regular basis.
experience and observations
universally
time to time
modified
Managerial economists must be skilled at ____ their abilities, knowledge, and understanding to achieve organizational goals. Managerial economists should be able to put their _____ about economic environment elements into
practice
leveraging
theoretical knowledge
• Managerial Economics is used in the ____ of organizations.
• Managerial economics assists _____ in making decisions.
• These decisions are based on ____ and are appropriate in the current economic environment
administration
management
economic reasoning
They are influenced by the external environment in which the economy operates, such as government policies, general price levels, income and employment levels in the economy, stage of the business cycle in which the economy is operating, exchange rate, balance of payment, general consumer expenditure, saving and investment patterns, and market conditions.
• These aspects are related to
macro economics
Managerial Economics is ___ in nature
• Managerial Economics is concerned with people (i.e. human resource, consumers, producers etc.).
• The nature and attitude of each individual vary.
• Thus, in order to keep up with dynamism and vitality, managerial economics evolves over time.
dynamic
• Managers study and manage the organization’s internal environment in order to ensure the organization’s
profitability and long-term viability.
• This aspect is related to the study of ____.
• The managerial economics deals with the problems that individual organizations face, such as the organization’s main goal, demand for its product, price and output determination, available substitute and complementary goods, supply of inputs and raw materials, target or prospective consumers of its products, and so on.
microeconomics
The major contributors to managerial economics are two branches of economics:
microeconomics and macroeconomics
Managerial Economics is essentially a combination of
Economics and Management
For the market to function properly, all firms operating in it must consider the components of the economic environment. This
economic environment is made up entirely of
microeconomic elements
When compared to Managerial Economics, ___ is a broader concept. Managerial economics is built on the
foundation of ____. Almost all Managerial Economics concepts are perceptions of ____.
Micro Economics
Managerial economics can be thought of as an application of ____. Demand Analysis and Forecasting, Price Theory,
Revenue and Cost Theory, Supply and Production Theory, and Supply and Demand Analysis are the major bare bones of ____ that underpin Managerial Economics. Managerial Economics employs ____ theories to solve
organizational problems and make decisions.
Microeconomic
All managers want to be as __ as possible in carrying out their decision-making function. Their business planning can be more effectively planned and executed if they have a thorough understanding of ____ concepts and their applications
efficient
microeconomic
Optimum decision making to achieve the organization’s goal, i.e. __ __, is possible with proper compliance of ___ know-how, regardless of technological constraints and market conditions.
____ analysis is important because it is used to solve day-to-day problems and concerns.
profit maximization or cost minimization
microeconomic
If a manager wants to raise the price of a product due to an increase in production costs, he will examine the ____ of demand for that product to ensure that the price increase is not followed by a significant drop in demand. It is the application of demand analysis to a real-world problem
price elasticity
Managers use ___ theories, __ and __ theories from microeconomics to determine the price of their products.
pricing
cost and revenue
Decisions regarding production and market supply of the product, knowledge of the availability of fixed and variable factors of production, state of technology to be used, and availability of raw materials are all critical. This can be determined with knowledge of _____
production theory
Determination of price and output is possible with knowledge of ____ and approaches relevant to price and output determination in the given market setup. Managerial economics makes use of ____ such as game theory, linear programming, and others to apply economic theory to decision making.
market structures
statistical methods
One of the responsibilities of a manager is to create ___ for various departments within the organization, which is learned through Capital Budgeting and Capital Rationing. A ___ assists the manager in making decisions.
budgets
cost-benefit analysis
The study of ___ economics assists managers in meeting the organization’s social responsibilities. Microeconomics is the
study of ____ , which assists managers in determining equilibrium for their organizations.
welfare
partial equilibrium analysis
Managerial Economics employs _____ and _____ such as regression analysis, correlation analysis, and so on. One of the most important aspects of Managerial Economics is the theory of the ___, which is an important component of microeconomics.
mathematical economics and econometrics tools
firm
The _____ is probably the most important concept in economics and is certainly the most frequently used in
Managerial Economics. ____ is closely related to the marginal cost and marginal revenues of economic theory
Incremental concept
____ denotes a change in total cost.
Incremental cost
_____ denotes a change in total revenue as a result of a firm decision.
Incremental revenue
A decision is clearly a profitable one if:
a) It increases revenue more than costs.
b) It decreases some cost to a greater extent than it increases other
c) It increases some revenues more than it decreases other
d) It reduces costs more than revenue
___ generally refers to small changes and ____ implies judging the impact of a unit change in one variable on the other.
Marginal
marginal analysis
____ is change in total revenue per unit change in output sold.
Marginal revenue
____ refers to change in total costs per unit change in output produced.
Marginal cost
While ___ refers to change in total costs due to change in total output.
incremental cost
If the marginal revenue is ____ than the marginal cost, then the firm should bring about the change in price
greater
_____ it analyzes the change in the firm’s performance for a given
managerial decision
often is generated by a change in outputs or inputs
marginal analysis
Incremental analysis is generalization of
marginal concept
The incremental concept is mainly used by the progressive concerns. Even though it is a widely followed concept, it has certain limitations:
(a) The concept cannot be generalized because observed behaviour of the firm is always variable.
(b) The concept can be applied only when there is excess capacity in the concern.
(c) The concept is applicable only during the short period.
According to the _____, the decision maker must consider both the short and long run effects of his
decisions. He must give appropriate weight to the various time periods.
time perspective concept
___ was the one who introduced the concept of time into economic theory.
Marshall
Managerial economists are also
interested in the short and long run effects of decisions on revenues and costs. The main issue in decision making is finding the ___ between the long and short run.
right balance
In the ___ period, the firm can change its output without changing its size.
short
In the __ period, the firm can change its output by changing its size.
long
The output of the industry is ___ in the ___ term because firms cannot change their size of operation and can only vary variable facto P.
In the __ period, the industry’s output is likely to increase because firms have enough time to expand their
sizes and use both variable and fixed facto P
fixed; short
long
In the ___ period, a firm’s average cost may be greater than or less than its average revenue.
short
In the ___ run, the firm’s average cost will equal its average revenue.
long
A decision may be made based on ____ considerations, but as time passes, it may have ____ consequences that make it more or less profitable than it appeared.
short-term
long-term
The fundamental concept of _____ is used extensively in both micro and macroeconomics. Even if we are unable to articulate its significance, we use the concept of ____ in everyday life. The concept of ____ is useful in Managerial Economics when making decisions involving a choice between different alternative courses of action
opportunity cost
The ____ of a decision is the loss of alternatives necessitated by that decision. When carrying out a decision necessitates the use of a resource that is in short supply at the firm, alternatives must be sacrificed. As a result, ___ represents the benefits or revenue lost by choosing one course of action over another
opportunity cost
The concept of opportunity cost implies three things:
- The calculation of opportunity cost entails measuring sacrifices.
- Sacrifices can be both monetary and physical.
- The cost of sacrificed alternatives is referred to as the opportunity cost.
For other business people, opportunity cost is a ____that does not appear in the company’s books of accounts. If a resource has no other use, its opportunity cost is ___
fictitious concept
zero
The following is the economic significance of opportunity cost:
- It aids in determining the relative prices of various goods.
- It aids in determining the standard remuneration for a factor of production.
- It aids in the efficient allocation of factor resources.
In managerial economics, the _____ deals with the allocation of available resources among alternative activities. The _____ states that an input should be allocated so that the value added by the last unit is the
same in all cases.
equi-marginal principle
It is the driving force behind any rational budgetary procedure. The principle is also used in investment decisions and the allocation of research budgets. For a consumer, this concept implies that money can be distributed among various commodities in such a way that the marginal utility derived from each commodity is the same. Similarly, for a producer, this
concept entails allocating resources in such a way that the marginal product of the inputs is the same in all uses.
Equi-Marginal Concept:
This concept is an extension of the time perspective concept. Because the future is unknown and incalculable, there is a great
deal of risk and uncertainty in it. Everyone understands that a peso today is worth more than a peso in two years time.
Discounting Concept
The process of determining the present value of a payment or a stream of payments that will be received in the future is
known as ____. As mentioned above, a peso is worth more today than it will be tomorrow due to the time value of money. The primary factor used in pricing a stream of future cash flows is ___.
discounting
The concept of ____ is found most useful in managerial economics in decision problems pertaining to investment planning or capital budgeting
discounting
Managerial decisions are actions taken today that will have an unexpected consequences in the future. The future is uncertain and involves risk and danger. The uncertainty stems from unpredictability in the business cycle, economic structure, and government policies.
Risk and Uncertainty
This means that management must accept the risk of making decisions for their organization in the face of ___ and unknown economic conditions in the future. Firms may be uncertain about production, market prices, rival strategies, and so on. The consequences of an action are not known for certain when there is ___
uncertainty
In general, ___ assumes that the firm has perfect knowledge of its costs and demand relationships, as well as of its environment. ___ is not permitted to influence decisions. ___ arises because producers simply cannot predict the dynamic changes in the economy and, as a result, their firms’ cost and revenue data with reasonable accuracy.
economic theory
2 & 3 Uncertainty
Furthermore, ___ are external to the firm and are beyond the firm’s control. As a result, the risks associated with unexpected ___ in a firm’s cost and revenue data cannot be estimated, and thus cannot be insured. However, products must attempt to predict their firms’ future cost and revenue data in order to determine output and pricing policies.
dynamic changes
Managerial economists have attempted to account for uncertainty using _____. The probabilistic treatment of uncertainty necessitates the formulation of specific subjective expectations regarding cost, revenue, and the environment. The time horizon, risk attitude, and rate of change of the environment all influence the probabilities of future events.
subjective probability
___ is an economic principle that refers to a consumer’s desire to buy goods and services as well as his or her willingness to pay a price for a specific good or service
Demand
Demand consists of a ___ to buy the commodity, as well as a ___ to buy it and sufficient _____ to do so.
desire
willingness
purchasing power
___ occurs when goods are demanded by individuals (for example, clothing and shoes).
Individual demand
___ is comprised of goods demanded by households (for instance-demand for house, washing machine).
Household demand
___ is the total demand for a commodity by all individuals/households in the market.
Market demand
A ____ is a mathematical function that depicts the relationship between the quantity of a commodity demanded and the factors influencing demand.
These functions are probably the most important tools used by economists. While many variables determine the quantity consumers wish to purchase in a market, the ___ of the commodity is perhaps the most important one
demand function
price
____ refers to the quantity of a good that an individual is willing to buy at each of several prices, at a specific time, and under specified conditions.
Individual demand
___ is the total amount of a good that would be purchased in aggregate by individuals and businesses at each of the various prices at a given point in time. Demand schedules can be ___ or displayed in ____ form.
Market demand
graphed
tabular
When a demand schedule is graphed, the result is known as the
demand curve
The law of demand states that there is an ___ relationship between quantity demanded of a commodity and it’s price, other factors being constant.
inverse
___ is a tabular representation of the quantity demanded of a commodity at various prices.
Demand schedule
The ____ is a graphical representation of the demand schedule. It depicts the price-quantity relationship graphically.
demand curve
The individual demand curve depicts the ____ that an individual is willing to pay for various quantities of a commodity
highest price
When the price of a commodity falls, the purchasing power of the consumer ___. As a result, he can buy the same amount of commodity for less money, or he can buy more of the same commodity for the same amount of money.
rises
___ is when the price of a product rises, consumers switch to cheaper alternatives, resulting in a decrease in sales.
Substitution effect
When the price of a commodity falls, a rational consumer buys more to equalize the marginal utility and price level. As a result, if a customer wants to buy more, the price must be reduced. This is also stated by the law of demand.
Law of diminishing marginal utility
The ___ does not apply when there are expectations of a change in the price of a commodity, i.e. when there is speculation. Consumers tend to buy less or postpone purchases if they expect commodity prices to fall in the future. Similarly, they tend to buy more at higher prices because they expect prices to rise in the future.
law of demand
Five determinants of demand:
- Consumer tastes and preferences
- Income
- Market size
- Prices of related goods
- Consumer expectations
In economics, ___ is the amount of a resource that firms, producers, labourers, providers of financial assets, or other economic agents are willing and able to provide to the marketplace or to an individual.
___ can be in produced goods, labor time, raw materials, or any other scarce or valuable object.
Supply
Supply is often plotted graphically as a supply curve, with the price per unit on the ___ and quantity supplied as a function of price on the ___. This reversal of the usual position of the dependent variable and the independent variable is an unfortunate but standard convention.
vertical axis
horizontal axis
The supply curve can be either for an ___ or for the _____, adding up the quantity supplied by all sellers. The quantity supplied is for a particular time period (e.g., the tons of steel a firm would supply in a year), but the units and time are often ___ in theoretical presentations.
individual seller
market as a whole
omitted
In the ___, supply is the amount of a product per unit of time that producers are willing to sell at various given prices when all other factors are held constant
goods market
In the ____, the supply of labor is the amount of time per week, month, or year that individuals are willing to spend working, as a function of the wage rate.
labor market
Some of the more important factors affecting supply are the good’s own
(6)
price
the prices of related
goods production costs,
technology,
the production function, and expectations of sellers.
Factors affecting supply:
(7)
Price
Prices of related goods
Conditions of production
Expectations
Price of inputs
Number of suppliers
Government policies and regulations
According to the Law of Supply,
keeping other factors constant, an ___ in price results in an ___ in quantity supplied
increase
refer to goods from which inputs are derived to be used in the production of the
primary good
related goods
The relationship in Price of related goods are
inverse or negative
Conditions of production: The most significant factor here is the state of ____. If there is a technological advancement in one good’s production, the supply ___. Other variables may also affect production conditions.
technology
increases
Expectations: Sellers’ concern for future market conditions can ___ affect supply. If the seller believes that the demand for his product will sharply increase in the foreseeable future the firm owner may immediately ___ production in anticipation of future price ___. The supply curve would shift out.
directly
increase
Price of inputs: Inputs include ____________. If the price of inputs increases the supply curve will ___ as sellers are less willing or able to sell goods at any given price. ___ can affect the price of inputs, and the scale of production can affect how much the fixed costs translate into the end price of the good.
land, labor, energy & raw materials.
shift left
Fixed inputs
Number of suppliers: The _____ is the horizontal summation of the individual supply curves. As more firms enter the industry, the ___ will shift out, driving down prices
market supply curve
The law of supply, like the law of demand, explains the ____ relationship between price and supply.
qualitative
Qualitative relationships ____ provide an accurate picture.
do not
The concept of price elasticity of supply is, in some ways, a mirror image of the concept of price elasticity of __.
demand
The ___ of the seller to change the ____ supplied at different prices determines _______.
willingnes
quantity
supply elasticity
_____ is defined as the amount by which the quantity supplied of a good responds to a change in its price, calculated as a percentage change in quantity supplied divided by the percentage change in price.
Price elasticity of supply
Price elasticity of supply is calculated as a
as a percentage change in quantity supplied divided by the percentage change in price.
n layman’s terms, the goal is to determine how many percentage points the supply changes when the price changes by 1%.
Price elasticity of supply
The idea that supply elasticity remains constant across the supply curve is not well received in many markets or industries. Some economists believe that suppliers react more strongly to price changes when they occur for the ___ and in ____. In these cases, elasticity can be calculated at multiple points along the same curve to yield different elasticity numbers.
first time
large magnitudes
There is only one type: The price elasticity of supply examines the market from the ___ perspective. As a result, in almost all cases, it is only ____. It is unaffected by factors such as supplier income levels. As a result, we lack the concept of income elasticity of supply.
supplier’s
price sensitive
Furthermore, the supply of one product is less likely to interfere with the supply of another product. As a result, ____ of supply isn’t much of a factor. As a result, unlike elasticity of demand, which can be of various types, elasticity of supply is more or less based on a single type.
crosselasticity
Price elasticity of supply, like price elasticity of demand, is affected by a variety of factors. Some of these factors are within the ___ control, while others may be beyond their control. Regardless of the control, if management is aware of these factors, it will be able to better manage its supply
organization’s
The theoretical model stated in the law of supply simply assumes that supply can adjust up and down as
the price changes. As a result, the law of supply ignores the supply-related ground realities.
Capacity Addition
This means that when capacity is stagnant, supply will remain stagnant for a while before increasing by leaps and bounds when additional capacity is introduced. This is a significant determinant of supply elasticity. Products with easily added and reduced capacity have elastic supply, whereas products with difficult to increase or decrease capacity have inelastic demand.
Capacity Addition
Industry is typically characterized by an ___ supply chain. If one part of the supply chain expands while the rest remains stagnant, the growth will be lopsided. This has an impact on supply elasticity as well.
Growth in Related Infrastructure:
interconnected
The issue of storage capacity is not the only one. The supplier must also consider whether the goods in their possession are _____. Buyers are aware that ____ goods have a limited shelf life.
perishable or not.
perishable
Perishable goods supply is thus ___ because whatever is produced must be disposed of as soon as possible. However, when it
comes to non-perishable goods, supply is usually ____ because producers can hold on for as long as they need to.
highly elastic
inelastic
The ___ of the production period is based on the assumption that changes in price have an immediate effect on the quantity supplied. Theoretically, this is correct. However, for many products, this is not feasible.
length
Products with longer production times have relatively ___ supply compared to products with shorter production times.
inelastic
The law of supply also assumes that the supplier’s profitability remains ___ regardless of the number of units sold. That is not correct. In reality, we have what are known as economies of scale and diseconomies of scale. This has an impact on the ____ of production.
constant
marginal cost
In the ___, all products’ supply is more or less ___. This is due to the fact that there are numerous factors that producers cannot change in the short run. In the long run, however, all of the factors are variable, and thus the supply of all products is completely ___. As a result, businesses must exercise caution when making capital decisions.
short run
inelastic
elastic
A good’s ‘_____ is a measure of how sensitive the quantity demanded is to its price. When the price rises, quantity demanded falls for almost any good, but it falls more for some than for others
price elasticity of demand
______measures the responsiveness to the supply of a good or service after a change in its market price.
According to basic economic theory, the supply of a good will increase when its price rises. Conversely, the supply of a good will decrease when its price decreases.
Price elasticity of supply
A good’s ‘price elasticity of demand is a measure of how sensitive the quantity demanded is to its
price. When the price rises, quantity demanded falls for almost any good, but it falls more for some than for others
Price elasticity of demand
___ measures the responsiveness to the supply of a good or service after a change in its market price. According to basic economic theory, the supply of a good will increase when its price rises. Conversely, the supply of a good will decrease when its price decreases.
Price elasticity of supply
____ is a type of demand which changes in the same proportion to its price; this means that the percentage change in demand is exactly equal to the percentage change in price.
Unitary elastic demand
Utilities, prescription drugs, and tobacco products are the most common goods with ___ demand. In general, _______ are the least elastic
inelastic
necessities and medical treatments
While there ___ goods that are completely inelastic, there are some that are very close.
are no
____ is one in which the change in quantity demanded as a result of a price change is small.
Inelastic demand
An ___ product is defined as one where a change in price does not significantly impact demand for that product. In other words, when the price changes or consumer’s incomes change, they will not change their buying habits. ___ products are necessities and, usually, do not have substitutes they can easily be replaced with
inelastic
Consumer durables are an example of a product with ___ demand. These are items that are purchased infrequently or rarely, such as a washing machine or a car, and can be delayed if the price rises.
elastic
____ is one in which the change in quantity demanded as a result of a price change is large
elastic demand
PRICE DECREASE =
DEMAND INCREASE
An __ good is defined as one where a change in price leads to a significant shift in demand. In general, the more substitutes
there are for an item, the more ___ demand for it will be.
elastic
___ measures how demand shifts when other economic factors change. When fluctuating demand is unrelated to an economic factor, it is called ____.
Elasticity
inelasticity
Inelasticity and elasticity of demand refer to the degree to which demand responds to a change in another economic factor, such as
price, income level, or substitute availability
Elasticity of demand is an important variation on the concept of demand. Demand can be classified as:
• Elastic demand
• Inelastic demand
• Unitary demand
