Managerial Economics Reviewer PDF

Man is an active performer or mover Economics in Economics Economics is a science in which - as a social science that deals with man v...

Man is an active performer or mover Economics in Economics Economics is a science in which - as a social science that deals with man ventures into exploring and the allocation of scarce resources to learning. satisfy unlimited wants. Scarcity: We learn to think critically about forces individuals and societies to how resources are used and how make choices, and economics economic policies can impact studies these choices. various aspects of life, from grocery - Economics is a broad ranging prices to national economic discipline that uses a variety of performance. techniques and approaches to Economics equips students with address important social questions. analytical tools to make informed OIKONOMIA- Greek word of decisions, understand market Economics, it reflects the dynamics, and evaluate the management of resources, trade-offs involved in different which is central to the choices. discipline. “Household Management” OIKOS- household/property NOMOS- to distribute ECONOMICS RESOURCES (nemein) 1. LAND- all natural resources, including raw materials that are used in the production process. This Other definitions of Economics factor is finite and location-specific, which makes its management crucial - It is the proper allocation and in economics. efficient use of available resources 2. LABOR- “Human-Effort”. Involved in for the maximum satisfaction of producing goods and services. The human wants (Fajardo, 199) quality of labor is influenced by - It is the study of how man could best education, training, and health, allocate and utilize scarce resources which are areas of economic study of society to satisfy man’s related to human capital. unlimited wants (Castillo, 1989). 3. CAPITAL- Man-made materials, - Economics is a branch of knowledge physical assets like machinery, that deals with the production, buildings, and tools used to distribution and consumption of produce goods and services. It is goods and services (Webster) DIFFERENT from financial capital, which refers to funds used to buy the physical capital. Economics studies Why study Economics? how investment in capital can lead to increased productivity and economic Man CANNOT isolate himself from growth. Economics  4. ENTREPRENEURSHIP- “The Idea”. - It is about finding the optimal The entrepreneur combines the level of production where other factors of production to create supply meets demand value. Entrepreneurs are crucial for WITHOUT leading to excess innovation, economic growth, and or shortages. This balance is job creation. They take risks and critical in maintaining drive economic development by economic stability and bringing new products and services growth. to market 4. For whom to produce? Economic Questions - Desired Consumers and Target Market/s 1. What to produce?’ - It addresses the distribution - The entrepreneur should of goods and services among think of a product that can: different groups in society. Compete, Satisfy a need or It involves decisions on a want, Be Produced from income distribution, social materials nearby. equity, and access to - In a market economy, this resources. decision is typically driven by consumer demand, while in a command economy, the government decides based Economic Systems on perceived needs. Traditional Economy - decisions are made based on historical precedent and societal roles. 2. How to produce? Often found in rural or - Labor Intensive or Capital underdeveloped regions where the Intensive economy revolves around - It’s about deciding whether subsistence farming or small-scale to use more labor or more industry capital in the production Command Economy - The process, which can vary government controls the factors of depending on the resources production and makes all decisions available and the technology. regarding what, how, and for whom to produce. This system aims for equality and centralized control but often STRUGGLES with inefficiency 3. How much to produce? and lack of innovation. - DEMAND: consumer desire Market Economy - decisions are SUPPLY: Producer activity made by individuals and businesses based on market  signals. Prices play a crucial role in b. for an Inferior Good (cash on signaling what should be produced hand increases) — inward and in what quantities. This system shift promotes efficiency and innovation but can lead to inequalities. Law of Supply Mixed Economy - Most countries operate with this, blending elements price increases, supply increases of command and market systems. price decreases, supply decreases Governments intervene to correct (+P)(+S) | (-P)(-S) market failures, provide public Supply Curve goods, and ensure social welfare, while markets drive efficiency and an upward sloping that indicates the innovation. positive relationship between the price of a product and the quantity supplied ___________________________________ producers are willing to increase ___________________________________ production at higher prices to increase profit Law of Supply and Demand Changes in the Supply Curve Law of Demand Change in Price = movement along price increases, demand decreases the supply curve price decreases, demand increases Change in the Cost of Production: (+P)(-D) | (-P)(+D) a. supply will shift outward if costs decrease Demand Curve b. supply will shift inward if they increase a downward sloping that indicates Changes in the Expected Demand: the negative relationship between a. supply will shift outward if price of a product and the quantity enthusiasm increases demanded. b. supply will shift inward if there is an expectation to Changes in the Demand Curve change favors of an alternate good or service Change in Price = movement along the demand curve Equilibrium Change in a Non-Price Variable: a. for a Normal Good (cash on Economic Equilibrium — goal of hand increases) — outward economic activity; to have steady shift supply of goods satisfying the demand of the consumers Government Intervention Qs=Qd done by government to combat Elasticity market inequities and promote fairness - Refers to the varying level of three common ways of intervention: responses in a market. a. Taxation b. Regulation 5 reaction pattern(types of elasticity) c. Subsidies 1. Elastic: a small change in price results in a large change in quantity demanded(Qd) or quantity supplied Regulation (Price Control) (Qs) If the numerical coefficient is Price Ceiling — to protect greater than 1 then its Elastic consumers by establishing a 2. Unitary: change in price results in maximum price an equal change in quantity Price Floor — to protect producers demanded(Qd) by establishing a minimum price If the numerical coefficient is Effects of Price Control on: one/s then its unitary a. Price Ceiling = shortage of 3. Inelastic: large change in price goods results in a lesser change in quantity b. Price Floor = supply, demanded(Qd) or quantity supplies consumer, producer surplus (Qs) If the numerical coefficient is less than 1 then its inelastic 4. Perfect Elastic: price constant and DEMAND AND SUPPLY FUNCTION the quantity varies in it. 5. Perfect Inelastic: Quantity is Demand Function: an equation that let us constant and the price varies in it know how a variable like demand is determined is called a linear function, if it produces a straight line when it is graphed. ___________________________________ Qd=a-bP ___________________________________ Supply Function: In graphing, y line should MARKET STRUCTURES always be price while x line should always be quantity. - examines how different markets are organized and their impact on Qs=C+dP businesses and consumers. It influences competition, pricing Market Equilibrium: When the supply and strategies, and product demand curves intersect, the market is in differentiation. equilibrium.  1. Pure Competition (Perfect Relatively Free Entry and Competition): a marketing situation Exit where many sellers offer similar Non-Price Competition: products for similar prices. firms often engage in Large Number of Buyers non-price competition, such and Sellers as advertising, branding, etc. Homogeneous Products to attract consumers. Price Takers: Firms accept the market price; cannot set Ex. Grocery stores, Restaurants, and prices themselves. Clothing Free Entry and Exit: No significant barriers to entering or exiting the 3. Oligopoly: A market structure market. where a few large firms dominate Perfect Information: All the market. Each firm has significant participants have complete market power and must consider the information about prices, actions of other firms when making quality, and availability. decisions. This structure can lead to Ex. Agricultural markets and Foreign higher prices and reduced exchange market innovation. Few Sellers, Many Buyers: Interdependence among Sellers: Firms are highly 2. Monopolistic Competition: A interdependent. The actions market structure where many firms of one firm (e.g., pricing offer similar but not identical decisions) can significantly products. Firms have some pricing affect others. Firms must power but less than a monopoly. In anticipate competitors’ the long run, firms generally earn responses. normal profits. Price-Setting Power: Firms Imperfect Competition: can influence prices but must Firms have some market account for competitors' power due to product reactions. This can lead to differentiation. price wars or collusion to set Product Differentiation: higher prices. products are similar but not Homogeneous or exactly the same. Differentiated Products Large Number of Sellers Barriers to Entry Independent Decision-Making: Firms set Ex. Oil and gas, Automobiles and Airlines prices and output based on their own demand curves, 4. Monopoly: A market structure aware of competitors’ where a single firm dominates the actions. market, providing a unique product  or service with no close substitutes. This firm has significant control over prices and supply. 6. Duopoly: A market structure where Single seller two firms dominate the market, each Price maker: has the power with some control over prices. It is a to set prices and determine type of oligopoly with only two the quantity of the product. It sellers and many buyers. maximizes profits by Two Sellers, Many Buyers adjusting prices based on the Price Determination: Both demand curve. firms influence prices. Their Unique Product pricing strategies are High Barriers to Entry interdependent, requiring Market Power consideration of each other’s Potential for Market potential reactions. Failure: Monopolies can lead Government Regulation: to to market failures by prevent anti-competitive producing less and charging practices and ensure fair more than would occur in a conditions. competitive market, reducing Homogenous Product consumer surplus, causing Market Dynamics inefficiencies, and potentially stifling innovation. Ex. Globe and Smart telecommunications and Pepsi and Coca-cola Ex. Meralco and Public utilities Industry ___________________________________ ___________________________________ 5. Monopsony: A market condition with only one buyer and multiple sellers. The single buyer controls INDUSTRIAL ECONOMICS demand, prices, and terms, - a field of economics that studies the significantly influencing the market. structure, behavior, and performance Single Buyer, Many sellers of industries and firms. It focuses on Buyer determines price understanding how businesses Regulated Pricing: operate within different market Government regulation may structures and the factors that control or influence pricing to influence their decisions, strategies, prevent exploitation by the and outcomes. monopsonist. Homogenous Product Decision Making Areas Market power and efficiency Research Development Investment - must decide how Ex. Coal factory much to invest in creating new products, improving existing ones, or  developing innovative technologies. - Regulates not only economic activity It impact the firm's competitiveness, but also the ability to purchase and ability to meet changing consumer sell of buyers and sellers demands, and position within the respectively. By balancing the industry. interests of both buyers and sellers, Market Investment- decide where competition ensures that economic and how to allocate their budget to activity is conducted fairly and promote their products or services. It efficiently, promoting a healthy, helps firms build brand awareness, functioning marketplace. increase market share, and establish customer loyalty, making it essential for both short-term sales and long-term success COMPETITIVE MARKET FORMATION- Planning and Organizing occurs when multiple buyers and sellers business activities- involves freely interact within a market, leading to structuring and coordinating the competition that drives efficiency, company's operations to ensure innovation, and fair pricing. efficiency and productivity. It ensures PRINCIPLES: that the company can respond to market changes, meet production Profit Motive: The driving force demands, and optimize its use of behind the actions of firms and assets, all of which are crucial for individuals in the economy. It refers sustained profitability and growth. to the desire to earn profits as the main incentive for engaging in business activities SELF INTEREST- the primary motivator of Diminishability: The property of economic activity, driving individuals and goods that makes them exhaustible businesses to make decisions that or reducible with use. As one person maximize their own benefits. consumes a good, the quantity available for others decreases. - The primary cause of competition Rivalry: occurs when the among buyers. Buyers compete for consumption of a good by one the best of goods at the lowest price, person reduces the ability of others which drives demand-based pricing to consume that good. This is and affects supply. closely related to diminishability and is a common characteristic of private goods Rejectability: refers to the ability of COMPETITION- regulates economic activity consumers to refuse or reject a good by acting as a check on self-interest, or service if they do not want or ensuring that businesses and individuals need it. cannot take undue advantage of others. Excludability: refers to the ability of producers to prevent individuals from using a good or service if they  have not paid for it. Only paying 1. Creativity & Innovation: This refers consumers can access or benefit to the ability to generate new ideas from the product. and develop innovative solutions to problems. It's about thinking outside the box and coming up with unique concepts. ENTREPRENEUR- an individual who 2. General Management Skills, identifies opportunities, takes on the risks of Business Know-how & Networks: starting and managing a business or This encompasses the practical venture, and innovates to create value in skills and knowledge needed to run the market a business effectively. It includes areas such as financial Good at: management, marketing, operations, Sensing Opportunities: and building relationships with Entrepreneurs have a keen ability to customers, suppliers, and investors. identify unmet needs, emerging 3. Promoter: This refers to the ability trends, or gaps in the market. They to communicate and persuade are often observant and perceptive, others to support the business idea. able to spot potential where others It involves effective communication, might see only challenges. networking, and sales skills. Exploiting Opportunities: Once an 4 QUADRANTS OF THE MATRIX opportunity is identified, entrepreneurs act decisively to 1. INVENTOR- High creativity and capitalize on it. Entrepreneurs are innovation, low general management adept at navigating uncertainties, skills. Often the one who comes up adapting to changing conditions, and with the original idea but may lack overcoming obstacles to turn the practical skills to bring it to opportunities into successful market. ventures. 2. ENTREPRENEUR- High creativity and innovation, high general management skills. Combining innovative thinking with the ability to execute and manage a business. 3. PROMOTER- Low creativity and innovation, high general management skills. Skilled at promoting and selling the business idea but may not have the original concept. 4. MANAGER- Low creativity and innovation, low general management Timmons Model of Entrepreneurship skills. Primarily focused on managing the day-to-day operations of the business and may not be  involved in strategic planning or innovation. PRODUCTION: The process of transforming inputs into outputs to meet consumer needs and demands LAND LABOR CAPITAL ENTREPRENEUR