Business Economics Overview

Managerial Economics is economics applied in decision-making. It is a special branch of economics bridging the gap between the economic theory and managerial practice.

A business economist decides on the optimum size of output based on the objectives of the firm and ensures that the firm does not incur any undue costs.

Microeconomics is the branch of economics that studies the behavior of an individual consumer, firm, or family, while Macroeconomics studies the behavior of the whole economy.

<p>The law of demand states that there is an inverse relation between the price of a commodity and its quantity demanded, assuming all other factors affecting demand remain constant.</p> Signup and view all the answers

<p>Consumer surplus is the difference between the total amount consumers are willing and able to pay for a good and the total amount they actually do pay.</p> Signup and view all the answers

<p>The income effect refers to the change in consumer purchases due to changes in their income.</p> Signup and view all the answers

<p>The substitution effect refers to the change in the quantity demanded of a good due to the substitution of a relatively cheaper good for a dearer one.</p> Signup and view all the answers

<p>The law of supply states that, other things remaining the same, as the price of a commodity rises, its supply is extended, and as the price falls, its supply is contracted.</p> Signup and view all the answers

<p>Perfectly elastic supply occurs when the supply elasticity is limitless, meaning that even a slight rise in price increases the supply to infinity.</p> Signup and view all the answers

<p>Factors affecting the elasticity of supply include the number of businesses, time, marginal cost, and the mobility of factors of production.</p> Signup and view all the answers

<p>The purpose of Managerial Economics is to show how economic analysis can be used in formulating business policies.</p> Signup and view all the answers

<p>True</p> Signup and view all the answers

<p>False</p> Signup and view all the answers

<p>True</p> Signup and view all the answers

<p>True</p> Signup and view all the answers

<p>False</p> Signup and view all the answers

<p>True</p> Signup and view all the answers

<p>True</p> Signup and view all the answers

<p>Operational issues include choice of business, size of business, product designs, pricing, promotion for sales, and technology choice.</p> Signup and view all the answers

<p>Analyzing demand involves understanding buyer preferences, the effects of changes in price, consumer income, and tastes/preferences.</p> Signup and view all the answers

<p>A business economist decides on the optimum size of output based on the firm's objectives and ensures that the firm does not incur any undue costs.</p> Signup and view all the answers

<p>Inventory management is crucial for firms to minimize costs associated with maintaining raw materials, work in progress, and finished goods, and to understand how inventory decisions affect company profitability.</p> Signup and view all the answers

<p>Understanding the market structure and pricing policies allows firms to analyze competition, determine their ability to set prices, and develop effective marketing strategies.</p> Signup and view all the answers

<p>Firms must carefully evaluate investment decisions and allocate capital to choose the best investment projects, which are crucial for long-term profitability and growth.</p> Signup and view all the answers

<p>Factors that affect profit levels include changing prices, market conditions, and other economic variables.</p> Signup and view all the answers

<p>Analyzing risk and uncertainty helps businesses make efficient decisions and formulate plans by understanding and mitigating potential threats and opportunities.</p> Signup and view all the answers

<p>Individual economic variables = Microeconomics Aggregate economic variables = Macroeconomics</p> Signup and view all the answers

<p>Theory of Product Pricing = Microeconomics Theory of National Income = Macroeconomics Theory of Economic Welfare = Microeconomics Theory of General Price Level = Macroeconomics</p> Signup and view all the answers

<p>True</p> Signup and view all the answers

<p>False</p> Signup and view all the answers

<p>The two main causes of the law of demand are the income effect and the substitution effect.</p> Signup and view all the answers

<p>Giffen goods are inferior goods for which the quantity demanded increases when the price increases.</p> Signup and view all the answers

<p>False</p> Signup and view all the answers

<p>False</p> Signup and view all the answers

<p>True</p> Signup and view all the answers

<p>Elasticity of demand measures the responsiveness of quantity demanded to changes in price.</p> Signup and view all the answers

<p>The variables that influence elasticity of demand include the price of the commodity, the prices of related commodities, and the consumer's income.</p> Signup and view all the answers

<p>Price elasticity of demand measures the responsiveness of quantity demanded to changes in the price of a commodity, assuming all other factors affecting demand remain constant.</p> Signup and view all the answers

<p>Price Elasticity=Ep=Percentage change in quantity demanded / Percentage change in price</p> Signup and view all the answers

<p>The goal of a consumer is to maximize satisfaction from the commodities they purchase, given their limited resources (income), by allocating those resources rationally.</p> Signup and view all the answers

<p>True</p> Signup and view all the answers

<p>The marginal rate of substitution (MRS) refers to the amount of one good that an individual is willing to give up for an additional unit of another good while maintaining the same level of satisfaction.</p> Signup and view all the answers

<p>True</p> Signup and view all the answers

<p>The law of equi-marginal utility states that to maximize satisfaction, individuals should allocate their resources in a way that makes the marginal utility derived from each item consumed equal.</p> Signup and view all the answers

<p>Consumer surplus is a measure of the economic benefit that consumers receive from purchasing goods and services at a price lower than what they are willing to pay.</p> Signup and view all the answers

<p>False</p> Signup and view all the answers

<p>True</p> Signup and view all the answers

<p>The substitution effect occurs when the price of a good changes, leading consumers to substitute relatively cheaper goods for more expensive ones, keeping consumer income and other factors constant.</p> Signup and view all the answers

<p>The price effect refers to the overall impact of a price change on a consumer's purchasing decisions, including both the income and substitution effects.</p> Signup and view all the answers

<p>The Engel curve shows the relationship between a good's demand and the consumer's income.</p> Signup and view all the answers

<p>The law of supply states that, all other things being equal, as the price of a commodity rises, the quantity supplied will increase, and as the price falls, the quantity supplied will decrease.</p> Signup and view all the answers

<p>Elasticity of supply measures the responsiveness of the quantity supplied to changes in the price of a commodity.</p> Signup and view all the answers

<p>Business Economics, also known as Managerial Economics, applies economic theory and methodology to business decision-making.</p> Signup and view all the answers

<p>Internal Operational Issues and External Environmental Issues</p> Signup and view all the answers

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<p>The purpose of managerial economics is to show how economic analysis can be used in formulating business policies.</p> Signup and view all the answers

<p>Business Economics is a science that establishes a relationship between cause and effect.</p> Signup and view all the answers

<p>True</p> Signup and view all the answers

<p>True</p> Signup and view all the answers

<p>False</p> Signup and view all the answers

<p>A positive science analyzes cause-and-effect relationships, while a normative science involves value judgments and suggests courses of action.</p> Signup and view all the answers

<p>False</p> Signup and view all the answers

<p>All of the above</p> Signup and view all the answers

<p>A business economist decides on the optimal output size based on the firm's objectives and ensures the firm doesn't incur unnecessary costs.</p> Signup and view all the answers

<p>Profit theories help firms understand the impact of changing prices, market conditions, and other factors on their profits.</p> Signup and view all the answers

<p>The law of demand states that there is an inverse relationship between the price of a commodity and the quantity demanded, assuming all other factors remain constant.</p> Signup and view all the answers

<p>Essential goods are necessary items, like life-saving medicines, for which consumers may continue purchasing even at higher prices.</p> Signup and view all the answers

<p>Consumers may increase their demand now for a product if they anticipate future price increases, or they may decrease their demand now if they anticipate future price decreases.</p> Signup and view all the answers

<p>Factors that influence consumer demand are the price of the commodity, prices of related commodities, and consumer's income. These factors impact the elasticity of demand, indicating how responsive demand is to changes.</p> Signup and view all the answers

<p>Price elasticity of demand measures the responsiveness of quantity demanded to a change in price. It is calculated by dividing the percentage change in quantity demanded by the percentage change in price.</p> Signup and view all the answers

<p>The methods for measuring price elasticity of demand include the percentage method, the proportionate method, and the geometric method.</p> Signup and view all the answers

<p>Point elasticity of demand measures elasticity at a specific point on the demand curve, while arc elasticity measures elasticity over a segment of the demand curve.</p> Signup and view all the answers

<p>The types of price elasticity of demand include unitary elastic demand, highly elastic demand, less elastic demand, perfectly elastic demand, and perfectly inelastic demand.</p> Signup and view all the answers

<p>Smaller than unit elastic supply</p> Signup and view all the answers

<p>A consumer aims to maximize their satisfaction by getting the most value from the goods they purchase.</p> Signup and view all the answers

<p>The assumptions for consumer behavior include rationality, ordinal utility, consistent choice, perfect competition, and total utility being a function of the quantities consumed.</p> Signup and view all the answers

<p>Indifference curves are generally convex to the origin of axes, meaning the left-hand portion is steeper than the right-hand portion.</p> Signup and view all the answers

<p>If the MRS increased, the indifference curve would become concave to the origin.</p> Signup and view all the answers

<p>False</p> Signup and view all the answers

<p>The reasons are that indifference curves are not based on cardinal measurability of utility, and the rate of substitution between the two commodities need not be constant across all indifference curves.</p> Signup and view all the answers

<p>False</p> Signup and view all the answers

<p>The budget line represents combinations of goods that a consumer can purchase if they spend their entire income.</p> Signup and view all the answers

<p>The two conditions for consumer equilibrium are that the MRS must equal the price ratio of the goods, and the indifference curve must be convex to the origin.</p> Signup and view all the answers

<p>The substitution effect refers to changes in quantity demanded due to relative price changes, while the income effect refers to changes in quantity demanded due to changes in real income.</p> Signup and view all the answers

<p>The price effect, which refers to the change in quantity demanded due to a price change, can be decomposed into the substitution effect and the income effect.</p> Signup and view all the answers

<p>The PCC shows the relationship between the quantity demanded of a good and its price, while the Engel curve illustrates the relationship between the quantity demanded of a good and the consumer's income.</p> Signup and view all the answers

<p>False</p> Signup and view all the answers

<p>The exceptions to the law of supply are when the seller is in urgent need of money and wants to sell quickly regardless of price, or when a seller anticipates a further decrease in price and wants to sell quickly to minimize losses.</p> Signup and view all the answers

<p>The elasticity of supply measures the responsiveness of quantity supplied to a change in price. It is calculated by dividing the percentage change in quantity supplied by the percentage change in price.</p> Signup and view all the answers

<p>The types of price elasticity of supply include unit elastic supply, perfectly elastic supply, smaller than unit elastic supply, perfectly inelastic supply, and more than unit elastic supply. Each type represents a different level of responsiveness of supply to changes in price.</p> Signup and view all the answers

<p>Factors that can affect the elasticity of supply include the number of businesses in the market, the time period under consideration, the marginal cost of production, and the mobility of factors of production.</p> Signup and view all the answers

<p>The assumptions of consumer surplus theory include the measurability of utility, no substitutes available for the good under consideration, the ceteris paribus condition, the marginal utility of money being constant, the law of diminishing marginal utility, and independent marginal utility.</p> Signup and view all the answers

<p>The income effect refers to the change in quantity demanded of a good resulting from a change in the consumer's income.</p> Signup and view all the answers