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Describe the application of managerial Economics
Describe the application of managerial Economics
importance of business plan in general
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In business it is essential for owners to consider important factors when mapping out their business objectives. Economics used as a tool to solve coordination problems. They include what and how much product to produce, how to produce their product, and for whom they are producing. In order to effectively answer these questions, economics is used. Colander (2006) describes economics as “the study of how human beings coordinate their wants and desires, given the decision-making mechanisms, social customs, and political realities of the society” (p. 4). The foundation of economics is based on several factors that assist in understanding an economy.
These factors include economic reasoning, economic insights, economic institutions, and economic policy options. Economic reasoning is a way of thinking that weighs an option based on costs and benefits. Terms such as marginal costs, marginal benefits, and opportunity cost explain economic reasoning in more detail. Marginal costs and benefits are the additional cost and benefit to you respectively over and above those that you have already obtained. Opportunity cost is the cost forfeited by not selecting an option in favor of another. Insights in economics are the theories that have been discovered by economists that are useful in understanding trends. One of the most noted is the invisible hand theory. Economic institutions include but are not limited to laws, common practices, and organizations in a society, are the basis for understanding whether economic theory can be applied to reality (Colander, 2006, p. 14). It is very common for economic institutions to vary by country. Finally, the action or inaction taken by the government to influence economic actions are called economic pol...
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...w individuals demand products and goods offered in comparison with how firms supply such goods and services. Economics relies on several factors such as economic reasoning, insights, terminology, institutions, and policy options help to develop economics as a whole. The laws of supply and demand illustrate the producer and consumer relationship based upon price and quantity supplied and demanded. The inverse relationship of the law of demand and direct relationship of the law of supply with price and quantity allow economists to measure certain factors such as market equilibrium. These factors can change with movements and shifts along the supply and demand curves. In order to fully understand these movements and precisely quantify their effects elasticity of supply and demand is calculated to better illustrate how firms and individuals will react to changes in price.
Resources, S., textbooks, & Demand, M. (1999-2012). Supply and demand, markets and prices. Retrieved March 2, 2017, from http://www.econlib.org/library/Topics/College/supplyanddemand.html
The figure 4 shows the demand curve for a good with numerous close alternatives in consumption such as soft drinks or colas. To calculate the price elasticity of demand, first analyze the result when the price of a six-pack of sodas moves from $2 to $2.20, a 10% increase in price. However, the quantity demanded falls from 1,000 to 850, a 15% decrease in the quantity demanded. The price elasticity of demand of 1.5 measured here ensures that for every 1% change in the price of cola, quantity demand changes by 1.5% and it is clearly a relatively elastic
We can read about supply and demand and if we study it over a period, we can see it in action. However, by using the Supply and Demand simulator, we can see it work in action. We can watch the shifts of the supply curve and demand curve based on the various inputs. We can see how shifts affect equilibrium price, quantity, and decision making. From learning more about supply and demand, we can then apply what was learned. We can apply microeconomic and macroeconomic concepts to help with understanding factors that affect shifts. After gaining an understanding of these factors, we can better understand how price elasticity of demand affects a consumer’s purchasing and pricing strategy as they relate to
Economic events are largely governed by the interaction of supply and demand. The law of supply states that with ‘all else being equal’ (ceteris paribus), as market price of a good or service increases/decreases so will an increase/decrease in quantity supplied. In turn, the law of demand states as market price of a good or service increases/decreases ceteris paribus, the quantity demanded will increase/decrease accordingly. The Australian avocado industry is an indicative example of microeconomics - the study of individual consumer or business decision making and spending behaviour in relation to the allocation of a limited resource and the correlation of supply and demand in determining
Price Elasticity is the measure in responsiveness of consumers to changes in the price of a product or service. The evaluation and consideration of this measure is a useful tool in firms making decisions about pricing and production, and in governments making decisions about revenue and regulation. “Price Elasticity is impacted by measurable factors that allow managers to understand demand and pricing for their product or service; including the availability of substitutes, the consumer budgets for the product or service, and the time period for demand adjustments.” The proper consideration of Price Elasticity allows managers to set pricing such that the effect on Total Revenue is predictable and adjustments to production are timely. The concept of Price Elasticity is employed in the management of commercial firms and government.
Aggregate supply and aggregate demand is the total supply and total demand of all goods and services in an economy. Consumer demand for goods and service affect how companies will meet that demand with products. This allows the companies to determine which product will be most profitable to produce. The aggregate supply curve depicts the quantity of real GDP that is supplied by the economy at different price levels. The reasoning used to construct the aggregate supply curve differs from the reasoning used to construct the supply curves for individual goods and services. The supply curve for an individual good is drawn under the assumption that input prices remain constant. As the price of good X rises, sellers' per unit costs of providing good X do not change, and so sellers are willing to supply more of good X hence, the upward slope of the supply curve for good X. The aggregate supply curve, however, is defined in terms of the price level. Increases in the price level will increase the price that producers can get for their products and thus induce more output. But an i...
The law of demand states there is an inverse relationship between the price of a good and the quantity buyers are willing to purchase within a defined time period. To investigate the demand of a product economist use a demand curve. The law of supply states the principel that the s a direct relationship between the price of a good and the quantilt sellers are willing to offer for sale in a defined time period. Some of the things that impact the supply curve include technology. Apple is a leader in innovation and technology. They are consistently releasing new and improved products. The total amount spent on research and development expense was $4.5 billion in 2013The demand for Apple products continues to grow. Since 2009 sales have continually increased from $42905 million in 2009 to $170910 million in 2013. . (2013 10K) Another thing leading to the increase in demand is Apples reputation. Consumers would rather spend money on an Apple then buy a cheaper lesser known brand because they know Apple will meet the...
In a market demand, there are two markets, product markets and resource markets. Anytime a market exists, there are buyers and sellers. The buyers of a good or service are called demanders. A demand is best defined as the willingness and ability to buy a good at a range of prices (Cowen, Tabarrok 27). The law of demand states that there is always an inverse relationship between the price of a good and the quantity demanded. When the price of a good is high, a lower quantity will be demanded by the buyer of that good. It is also true that if the price of a good is low, the greater quantity will be demanded. For this illustration, I will use the market for Ben & Jerry's Ice Cream storefront. Assume that the high price of ice cream at Ben & Jerry's was selling $12 per scoop. We can assume that the quantity demanded for ice cream will be low. But as the price of Ben & Jerry's Ice Cream per scoop drops further to $7, $6, or $1, ceteris paribus, more consumers will be able and willing to afford Ben & Jerry's Ice Cream. According to Nancy
The law of demand states that if everything remains constant (ceteris paribus) when the price is high the lower the quantity demanded. A demand curve displays quantity demanded as the independent variable (the x-axis) and the price as the dependent variable (the y-axis). http://www.netmba.com/econ/micro/demand/curve/
Companies. Retrieved July 4, 2008, from University of Phoenix, MMPBL-501 Web site. University of Phoenix . ( 2008). Economics for Managerial Decision Making
For example, the chart would reflect the correlation between demand and the products price, or in the case of supply, the supplied products and its price. Moreover, supply, demand, and price, along with supply elasticity can be graphed and analyzed. This particular method of tracking and analyzing data is essential in identifying the markets status and determining the best plausible route (Skousen, 2014). By studying supply and demand, one is also able to identify whether an excess or a shortage in demand or supply is occurring, or whether an equilibrium has been attained. Consequently, it is evident that supply and demand take part in the market economy and greatly influence and impact the price value. Furthermore, to express how supply and demand impacts the price value, the price value of airline tickets will be utilized as an
Supply and demand is one of the most simple-looking aspects of an economy and its study, but yet it presents the greatest challenge to analysts. Although most events can be mathematically calculated to perfection, the human aspect always intervenes and throws off a calculation. Dealing with the imperfections of psychology differentiates a modern analyst with initiative over one who follows an equation.
The market price of a good is determined by both the supply and demand for it. In the world today supply and demand is perhaps one of the most fundamental principles that exists for economics and the backbone of a market economy. Supply is represented by how much the market can offer. The quantity supplied refers to the amount of a certain good that producers are willing to supply for a certain demand price. What determines this interconnection is how much of a good or service is supplied to the market or otherwise known as the supply relationship or supply schedule which is graphically represented by the supply curve. In demand the schedule is depicted graphically as the demand curve which represents the amount of goods that buyers are willing and able to purchase at various prices, assuming all other non-price factors remain the same. The demand curve is almost always represented as downwards-sloping, meaning that as price decreases, consumers will buy more of the good. Just as the supply curves reflect marginal cost curves, demand curves can be described as marginal utility curves. The main determinants of individual demand are the price of the good, level of income, personal tastes, the population, government policies, the price of substitute goods, and the price of complementary goods.
The study of economics is important to everyone. Financial decisions affect everyone in their day-to-day routines. Economics is the study of how society manages its scarce resources (Mankiw, 2012). Macroeconomics is the study of economy wide phenomena, including inflation, unemployment, Gross Domestic Product, and economic growth (Mankiw, 2012). Macroeconomics is important because, it is how all of us relate into markets and economies. Many news articles today are centered on the economy and current events. One of these articles lends itself to many economic principles and ideas. Even though there are many important topics not covered in the article, the article titled, "You Are What You Owe" in Time, encompassed many general economic principles as well as the many macroeconomics indices illustrated in the article.
One method that Toyota can consider is using the price elasticity of demand to determine whether to increase or decrease the sale price of their automobiles. The responsiveness or sensitivity of consumers to a price change is measured by a product's price elasticity of demand (McConnell & Brue, 2004). Market goods can be described as elastic or inelastic goods as change in quantity demanded for that good. If demand is elastic, a decrease in price will increase total revenue. Even though a lower price would generate lower sales revenue per unit, more than enough additional units would be sold to offset lower price (McConnell & Brue, 2004). In a normal market condition, a price increase leads to a decreased demand, and a price decrease leads to increased demand. However, a change in income affecting demand is more complex.