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Understanding Price Elasticity & Consumer Behavior in Managerial Economics

Learn to compute price elasticity of demand, consumer surplus, and deadweight loss; analyze impact of income changes; discuss indifference curves in consumer behavior.

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Understanding Price Elasticity & Consumer Behavior in Managerial Economics

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  1. Week 4 Managerial Economics

  2. Order of Business • Homework • Assigned Lectures • Other Material • Lectures for Next Week

  3. Homework

  4. Pashigian, p 86, Exercise 2-2

  5. Years to calculate 

  6. Bias due to changes in preferences

  7. Complements or Substitutes

  8. Price elasticity of Y; no year

  9. Suppose the demand function for a product is Q = 150 - 12p. Compute the point elasticity of demand at Q = 30. Then compute the arc price elasticity of demand over the interval Q= 40 to Q = 30; over the interval Q = 31 to Q = 30; over the interval Q = 30.1 to Q = 30. Comment on the pattern of these price elasticities.

  10. Explain whether you agree or disagree with the following statement: An economist would classify a new automobile that does not start in cold weather as an inferior good. (Apologies for giving this question given the recent weather, but it IS a good question).

  11. Explain whether you agree or disagree with the following statement: An economist would classify a new automobile that does not start in cold weather as an inferior good. (Apologies for giving this question given the recent weather, but it IS a good question). Does the quantity demanded increase or decrease with income?

  12. Suppose the demand function for a product is Q = 150 - 12p. The good is currently selling for $5. Compute consumer surplus. Then compute the deadweight loss if the government imposes a tax of $2 on each unit sold.

  13. Q=150-12P $5 90

  14. $12.5 Q=150-12P 7.5 $5 90 90

  15. $12.5 Q=150-12P 7.5 $5 90 90

  16. $12.5 Q=150-12P 7.5 $5 90 $90

  17. $12.5 Q=150-12P $7 $5 66 90

  18. DWL=$24 $12.5 Q=150-12P $7 $5 66 90

  19. A consumer does not subscribe to satellite TV, and lives in an area where there is no cable TV. Describe in words the shape of his indifference curves between satellite TV and other goods. Tell me what you can tell about their shape?

  20. OG He gets more utility from doing without satellite TV than he would with. S

  21. Lectures for this Week • The Economics of Bads • The Value of Time • Consumer Surplus • Applying Consumer Surplus • Consumer Surplus and Deadweight Loss • More on Consumer Surplus

  22. The Economics of Bads

  23. The Value of Time

  24. Consumer Surplus

  25. Applying Consumer Surplus

  26. Consumer Surplus and Deadweight Loss

  27. More on Consumer Surplus

  28. Lectures for Next Week • Consumer Surplus and Indifference Curves • Priceline and E-Bay • Compensated Demand Curves • Income and Substitution Effects • Uncertainty • Uncertainty and Risky Behavior • Buying Insurance • A Numerical Problem • Who Robbed C.C.

  29. Consumer Surplus and Indifference Curves

  30. Priceline and E-Bay

  31. Compensated Demand Curves

  32. Income and Substitution Effects

  33. Uncertainty

  34. Uncertainty and Risky Behavior

  35. Buying Insurance

  36. A Numerical Problem

  37. Who Robbed C. C.

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