BSP1703 - Managerial Economics Summary Notes AY2020_21

BSP1703 – Managerial Economics AY2020/2021



Lecture 1 : Introduction
 Normative Statement
- expresses a value judgment about whether a situation is desirable or undesirable
- typically contain keywords such as "should", “would”, “could” and "ought."
- Examples;
o Taxes should be higher

 Motivating Examples
- Pricing
- Price Control
- Competition
- Behaviour Economics

 Opportunity Vs Accounting Cost
- Opportunity
o Value of the next best alternative that is foregone by the decision-maker
o Example – Purchasing a Property
 Keep the money to buy the property in saving accounts & earn some
investment returns
 Opportunity Cost = Price of Property + Returns that you would have kept
from keeping that money
 Cost of using your hse as office space = 0
o Opportunity Cos = Explicit Cost + Implicit Costs
- Accounting
o Explicit Costs like material expenses etc

 Marginal Analysis
- Marginal Benefits (MB)
o Changing in total benefits arising from a unit change in Quantity (Q)
o MB = Change in Total Benefits / Change in Quantity
- Marginal Costs (MC)
o Change in total costs arising from a unit change in Quantity (Q)
o MC = Change in Total Costs / Change in Q




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,BSP1703 – Managerial Economics AY2020/2021




o
o If a firm employs one variable factor of production, labour, & the marginal
product of labour is constant, then the marginal costs of production are
constant too.
- Marginal Principle
o MB > MC
 Last unit of variable increased benefits more than costs
o MC < MC
 Last unit of variable increases costs more than benefits
o Maximizing the benefits
 Q should increase to the point where MB = MC








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,BSP1703 – Managerial Economics AY2020/2021


Lecture 2 : Demand, Supply & Elasticity
 Market Demand




- Advertising
o Affects the willingness to purchase the product to consumers
- Consumer Expectations
o Consider future price to be cheaper (then they will wait it out to buy)

 Inferior Good
- Products that consumers purchase less of when their income rises.
- Example;
o Jeans, Fast Food & Transport

 Demand Curve
- Shows the amount of a good that consumers are willing to buy at different prices
- Curve is Down-ward sloping




-
- Demand Function:
o Qx = 10 – 2Px
o Q = a – bP
 Q is demand curve
 A is factors influencing demand besides price
 B is slope
 P is price
- Inverse Demand Function
o 2Px = 10 – Qx
o Px = 5 – 0.5Qx
o Basically, putting the price as the function

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, BSP1703 – Managerial Economics AY2020/2021




- Movement & Shifts of Demand Curve
o Movement
 Changes in Qty Demanded are related to changes in price of the good




 Upward Movement
 Contraction in demand
 Downward Movement
 Expansion in demand
o Shifts
 Changes in Determinants other than price such as Income, Tase,
Expectations, Population, Price of Related Goods





 Shifts to the Left
 Demand is low
 Shifts to the Right
 Demand is High




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