Managerial Economics Lecture notes | Slides Managerial Economics

WHO ARE THE CONSUMERS?

- One that consumes, someone who acquires goods and services for direct use or ownership

- Not for resale or use in production and manufacturing

- The market; the one driving the economy with their behavior

- Purchasing products and services

- Organizations, people

- Not necessarily the buyer: Example: Parents buy toys for their children. The children are the consumers

of the toys. Not the parents.

- Knowing who the consumers are helps businesses in determining their strategies. They use market

studies to know what the behaviors of the consumers are so that they could take advantage of it to

maximize profits.

- All activities in the economy are driven by the behaviors of the consumers. Businesses produce supplies

or goods and services to cater the demands of the consumers. The consumers in return will buy those

products. In short, the activities of the businesses are focused on the consumers.

WHAT ARE CONSTRAINTS?

- Limitations; stoppage; constrictions; blockage to achieving or obtaining something

WHAT ARE THE CONSTRAINTS FOR CONSUMERS?

- Price and Income

- Most of us have a limited amount of money to spend on the things we need and want. With prices

increasing, our question is how are we going to afford the goods and services that we want to consume?

WHAT DO YOU THINK IS THE CONCERN OF THE BUSINESSES REGARDING THE CONSTRAINTS OF

THE CONSUMERS?

- On the part of the businesses, How are they going to maximize their profits if the consumers have

constraints or limitations such as lesser income to spend on goods and services?

- It will affect decision making on both consumers and producers/ sellers.

- Optimal solution: Consumers: to be satisfied with the things that we buy spending only on things that

what we can afford. Businesses: Maximize profits and lessen costs even if the consumers have

constraints. How are we to utilize the information on consumer’s behavior?

WHAT ARE UNLIMITED WANTS?

- We desire for so many things even those that we cannot afford.

- We never get enough because there is always something else that we need or want. The term

‘unlimited wants’ is the side of human nature that wants an infinite number of things. However, the

resources we have available to get these wants are limited.

- That’s where Constraints will enter into the picture – We cannot afford the unlimited wants because we

only have a limited income. If you are a student, you have an allowance. You cannot buy everything

that you want to buy because you are constrained by the limited allowance that you have. For working

individuals, there are so many wants (you want to travel, you want to buy new clothes, etc.) but you

are constrained by your obligations and you only have limited income. With that limited income, it is

not only for your wants but for some other obligations that you have.

- But still, the objective for consumers is to achieve the maximization of satisfaction.

- For businesses, there are limited resources around. Resources are scarce. How to satisfy the needs

and wants of consumers and maximize profits given that there are scarce resources?

WHAT IS SATISFACTION?

- Contentment; fulfilled needs and wants; happy; reached the peak of enjoyment of a certain product or

service

- Satisfying wants and needs is the ultimate goal of economic activity, the end result of addressing the

fundamental problem of scarcity. The attainment of satisfaction is also fundamental to life itself.

WHAT’S THE DIFFERENCE BETWEEN WANTS & NEEDS?

- As to meaning: Needs refers to an individual's basic requirement that must be fulfilled, in order to

survive. Something that you must have. Whereas Wants are described as the goods and services, which

an individual like to have, as a part of his caprices. Something that you wish to have.

- As to nature: Needs are limited whereas wants are unlimited.

- Needs represents necessity, basic needs. While wants represent desire.

Partial preview of the text

Download Managerial Economics Lecture notes and more Slides Managerial Economics in PDF only on Docsity!

WHO ARE THE CONSUMERS?

One that consumes, someone who acquires goods and services for direct use or ownership
Not for resale or use in production and manufacturing
The market; the one driving the economy with their behavior
Purchasing products and services
Organizations, people
Not necessarily the buyer: Example: Parents buy toys for their children. The children are the consumers of the toys. Not the parents.
Knowing who the consumers are helps businesses in determining their strategies. They use market studies to know what the behaviors of the consumers are so that they could take advantage of it to maximize profits.
All activities in the economy are driven by the behaviors of the consumers. Businesses produce supplies or goods and services to cater the demands of the consumers. The consumers in return will buy those products. In short, the activities of the businesses are focused on the consumers. WHAT ARE CONSTRAINTS?
Limitations; stoppage; constrictions; blockage to achieving or obtaining something WHAT ARE THE CONSTRAINTS FOR CONSUMERS?
Price and Income
Most of us have a limited amount of money to spend on the things we need and want. With prices increasing, our question is how are we going to afford the goods and services that we want to consume? WHAT DO YOU THINK IS THE CONCERN OF THE BUSINESSES REGARDING THE CONSTRAINTS OF THE CONSUMERS?
On the part of the businesses, How are they going to maximize their profits if the consumers have constraints or limitations such as lesser income to spend on goods and services?
It will affect decision making on both consumers and producers/ sellers.
Optimal solution: Consumers: to be satisfied with the things that we buy spending only on things that what we can afford. Businesses: Maximize profits and lessen costs even if the consumers have constraints. How are we to utilize the information on consumer’s behavior? WHAT ARE UNLIMITED WANTS?
We desire for so many things even those that we cannot afford.
We never get enough because there is always something else that we need or want. The term ‘unlimited wants’ is the side of human nature that wants an infinite number of things. However, the resources we have available to get these wants are limited.
That’s where Constraints will enter into the picture – We cannot afford the unlimited wants because we only have a limited income. If you are a student, you have an allowance. You cannot buy everything that you want to buy because you are constrained by the limited allowance that you have. For working individuals, there are so many wants (you want to travel, you want to buy new clothes, etc.) but you are constrained by your obligations and you only have limited income. With that limited income, it is not only for your wants but for some other obligations that you have.
But still, the objective for consumers is to achieve the maximization of satisfaction.
For businesses, there are limited resources around. Resources are scarce. How to satisfy the needs and wants of consumers and maximize profits given that there are scarce resources? WHAT IS SATISFACTION?
Contentment; fulfilled needs and wants; happy; reached the peak of enjoyment of a certain product or service
Satisfying wants and needs is the ultimate goal of economic activity, the end result of addressing the fundamental problem of scarcity. The attainment of satisfaction is also fundamental to life itself. WHAT’S THE DIFFERENCE BETWEEN WANTS & NEEDS?
As to meaning: Needs refers to an individual's basic requirement that must be fulfilled, in order to survive. Something that you must have. Whereas Wants are described as the goods and services, which an individual like to have, as a part of his caprices. Something that you wish to have.
As to nature: Needs are limited whereas wants are unlimited.
Needs represents necessity, basic needs. While wants represent desire.

As to survival: Needs are essential; Wants are not essential. You can live without it.
Needs remain constant. Wants change over time. What you want when you were a kid is different as to what you want now as a teenager or as you grow older. It changes every day.
The non-fulfillment of a need may result for you to get sick or die, because it is essential in your survival. While non-fulfillment of a want will only result to a disappointment for not being able to enjoy the benefits you might get from it. GIVE EN EXAMPLE OF NEEDS? OF WANTS? Because consumers have different needs and wants, their objective is to maximize their satisfaction or to have these needs and wants fulfilled. But they are constrained by prices, income, obligations, limited resources. That’s what’s gonna lead us to making choices. WHAT ARE CHOICES?
Options, alternatives, decisions, optimal solutions from among options. CAN YOU GIVE A SITUATION IN YOUR LIFE WHERE YOU NEED TO MAKE A CHOICE?
An example is when you choose what course to take in college. There are a lot of options. You can choose to become an Engineer, a Doctor, a Nurse. But you chose to become an Accountant. So you are now taking BSA. That’s making a choice.
Choosing the school to attend to in college. You chose to be in your current University from among all other options that you have.
With scare resources and different constraints, one must make a choice. To choose what will be best for the consumers and what will best for the suppliers. To achieve both of their objectives.
ability of a consumer or producer to decide which good, service or resource to purchase or provide from a range of possible options
As rational consumers and rational producers, there is freedom to choose. To choose what’s better. To choose what is best.
Remember that we have already discussed about decision making. What is the last step? Make a decision. Or make a choice. From a number of alternatives, you make a choice after considering your objectives, your resources, the consequences of those choice whether it will be beneficial or not. Will the benefits outweigh the costs? You choose what’s gonna be the optimal solution. SLIDE 7: WHAT ARE TRADE-OFF?
After being confronted with a decision to choose and you have already chosen what you think is best for you, we now look at what you have traded off.
This is the process itself of giving up or letting go of one alternative to choose the best one or to give it up in return or exchange of another.
A trade-off occurs when we make a choice that benefits us, but to acquire that benefit, we also have to give up something of value.
Have you ever had to make a decision about spending your money today versus tomorrow? For example, you might ask yourself, 'Should I go out to dinner tonight, or would I rather save my money so I can go to the movies tomorrow?' You probably make decisions like this several times a day without even realizing it. Since your resources - such as time and money - are limited, you must choose how to best allocate them by making some trade-offs.
Most of us don't have so much money that we are in a position to buy everything we desire. We must put thought into every purchase and how it affects our bank account. We also must think about what type of satisfaction that purchase will give us. As a result, to get one thing that we like, we usually have to give up another thing that we also may like. Making decisions requires trading off one item against another.
In economics, the term trade-off is often expressed as an opportunity cost, which is the most preferred possible alternative. A trade-off involves a sacrifice that must be made to get a certain product or experience. A person gives up the opportunity to buy 'good B,' because they want to buy 'good A' instead.
An example of trade-off: You have an examination the next day. And your best friend will be celebrating his/her birthday today. If you choose to go to the party, you might not be able to allot time to study and review for the exams tomorrow. But if you stay at home and just study, you will not be able to attend your friend’s birthday. WHAT IS THE BUSINESS TRADE OFF?
Less manpower; affect the production; you have to pay severance pays, last pay, etc.
EXAMPLES: Less market research (lower cost in marketing researches) – lower sales; less successful new product launch
High quality standards to build reputation – More quality control costs
Higher advertising online – Reduced advertising on tv

WHAT IS CARDINAL? WHAT IS ORDINAL?

Cardinal is specific number or value; Ordinal – ranking
Cardinal utility gives a value of utility to different options. Ordinal utility just ranks in terms of preference. In ordinal utility, the consumer only ranks choices in terms of preference but we do not give exact numerical figures for utility. It is argued this is more relevant in the real world. When deciding where to go for lunch, we may just decide I prefer an Italian restaurant to Chinese. We don’t calculate the exact levels of utility. WHAT ARE TASTES AND PREFERENCES?
These are subjective (individual) tastes, as measured by utility, of various bundles of goods. They permit the consumer to rank these bundles of goods according to the levels of utility they give the consumer. Note that preferences are independent of income and prices. COMPLETE
Which is when the consumer does not have indifference between two goods. If faced with apples versus oranges, every consumer does have a preference for one good over the other. For example, Eddie has two alternative choices: steak or chicken. The assumption of completeness reflects the idea that Eddie should be able to compare his options, in this case steak and chicken. In other words, Eddie should be able to say whether he likes steak or chicken better. TRANSITIVE
Based on defining a relationship between goods, such as if a consumer prefers good A to good B, and prefers good B to good C, then the consumer should prefer good A to good C. Let's use Eddie's food selections as another example. If Eddie prefers steak (good A) to chicken (good B), and prefers chicken (good B) to turkey (good C), then Eddie should prefer steak (good A) to turkey (good C). MORE IS BETTER THAN LESS
More of a good is always better as long as it does not affect the consumer's ability to utilize all other goods. Eddie will be happier with 6 steaks and 2 chickens, than 4 steaks and 1 chicken. Eddie has no point of satiation or the ability to be satisfied. Some economists call this assumption consumer greed. Economic Importance of Consumer Choice Consumer preference is critical to economics because of the relationships between preferences and consumer demand curves. It is important to understand what Eddie and other consumers prefer to spend their income on which will help predict consumer demand. The purpose in understanding the consumer choice theory is a way of analyzing how consumers may achieve equilibrium between preferences and expenditures by maximizing utility or satisfaction in terms of their consumer budget limits. INDIFFERENCE CURVE
the consumer has no preference for one combination or bundle of goods over a different combination on the same curve. One can also refer to each point on the indifference curve as rendering the same level of utility (satisfaction) for the consumer. In other words, an indifference curve is the locus of various points showing different combinations of two goods providing equal utility to the consumer.
The consumer preferences give rise to several combinations of commodities, each yielding the same level of satisfaction. CONVEX
curved or rounded outward like the exterior of a sphere or circle
Indifference curves are convex to the origin because as the consumer begins to increase his or her use of one good over another, the curve represents the marginal rate of substitution. MRS - The marginal rate of substitution is the rate at which a consumer gives up one good for another. The marginal rate of substitution goes down as the consumer gives up one good for another, so it is convex to the origin. The curve could not be concave, as this would mean that the marginal rate of substitution increases (which is not possible as the consumer gives up one good for another). BUDGET LINE
Since a higher indifference curve represents a higher level of satisfaction, a consumer will try to reach the highest possible IC to maximize his satisfaction. In order to do so, he has to buy more goods and has to work under the following two constraints: He has to pay the price for the goods and He has limited income, restricting the availability of money for purchasing these goods.

Managerial Economics Lecture notes, Slides of Managerial Economics

Related documents

Partial preview of the text

Download Managerial Economics Lecture notes and more Slides Managerial Economics in PDF only on Docsity!

WHO ARE THE CONSUMERS?

WHAT IS CARDINAL? WHAT IS ORDINAL?