MANAGERIAL ECONOMICS │SECOND SEMESTER - MIDTERMS │S.Y.
2024-2025
(na ni-rush 1 day before exam, hehe)
TOPIC 1: ELASTICITY
Elasticity is the quantitative measure of the
impact of one variable over the other.
Price Elasticity of Demand
Measure of how much the TQD of a good
respond to a change in the price in that Inelastic demand curve is steep compared to a
good. unit elastic demand.
PED is the measure of percent decrease in Elastic demand is much horizontally inclined
the quantity demand of goods and services compared to an inelastic demand.
when there is a percent increase in their price
ceteris paribus. Perfectly Elastic Perfectly Inelastic
PED = 0 PED = ∞
% △ QD If the price changes,
Basic Equation PED=│ │ If the price changes,
%△P the quantity demand
the quantity demand
would still remain the
QD 2− QD 1 would be infinite
same
QD 1
Basic Equation PED=│ │
P 2− P1
P1 Income Elasticity of Demand
QD 2 −QD 1 Measure of how much the QD of a good
(QD 2+QD 1)/2 respond to a change in consumer’s income
Midpoint Equation PED=│ │ PED is the measure of percent increase in the
P2 − P 1
quantity demand of goods and services when
( P2+ P 1)/2 there is a percent increase in the consumer’s
For every 1% increase in price will lead to a PED income ceteris paribus.
% decrease in quantity demand. % △ QD
Basic Equation IED=
PED is absolutized since price and demand have %△I
a negative relationship and can always expect
QD 2 −QD 1
PED to be negative.
QD 1
Basic Equation PED=
Elastic Inelastic Unit Elastic I 2−I 1
∞>PED > 1 0<PED <1 PED = 1 I1
△ P< △ QD △ P> △ QD △ P=△ QD
Commodities Commodities QD 2 −QD 1
The inc/dec
that that are still in (QD 2+QD 1)/2
in price is Midpoint Equation PED=
decreases demand I 2−I 1
equivalent to
the demand despite the
the inc/dec in (I 2+ I 1)/2
whenever increase in
demand
price increase price Inferior
Normal Goods
Goods
IED > 0 IED < 0
Income INC = Demand INC Income
Necessity/Income Luxury/Income INC =
Inelastic Elastic Demand
IED > 1 IED < 1 DEC
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MANAGERIAL ECONOMICS │SECOND SEMESTER - MIDTERMS │S.Y.
2024-2025
(na ni-rush 1 day before exam, hehe)
Cross-Price Elasticity of Demand QS 2− QS1
(QS 2+QS1)/2
Measure of how much the QD of a good Midpoint Equation PES=
P 2− P1
respond to a change in the price of another
good (P 2+ P1)/2
PED is the measure of percent increase in the For every 1% increase in price will lead to a PES
quantity demand of goods and services when % increase in quantity supply.
there is a percent increase in the price of
related goods of a commodity
% △ QDy
Basic Equation CPED=
% △ Px
QDy 2−QDy 1
QDy 1
Basic Equation CPED=
Px 2− Px 1
Px 1 Elastic Inelastic Unit Elastic
PES > 1 PES <1 PES = 1
QDy 2 −QDy 1
Commodities Commodities
(QDy 2+QDy 1)/2 that despite the The increase
Midpoint Equation CPED=
Px 2 − Px 1 increases large increase in price is
(Px 2+ Px 1)/2 the price will in price, QS equivalent to
adversely would have a the increase
Substitute Complementary increase the minimal in demand
supply increase
CPED > 0 CPED < 0
As the price of the As the price of the
commodity increases, commodity increases, Inelastic supply curve is steep compared to a
the demand of other the demand of other unit elastic supply.
commodity commodity
Elastic supply is much horizontally inclined
increases decreases
compared to an inelastic supply.
Price Elasticity of Supply Perfectly Elastic Perfectly Inelastic
PES = 0 PES = ∞
Measure of how much the QS of a good If the price changes,
If the price increases,
respond to a change in the price in that the quantity supply
the quantity supply
good. would still remain the
would be infinite
same
PES is the measure of percent increase in
the quantity supply of goods and services
when there is a percent increase in their price
ceteris paribus.
% △ QS
Basic Equation PES=
%△P
QS2 −QS 1
QS 1
Basic Equation PES=
P2−P1
P1
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MANAGERIAL ECONOMICS │SECOND SEMESTER - MIDTERMS │S.Y.
2024-2025
(na ni-rush 1 day before exam, hehe)
TOPIC 2: CONSUMER BEHAVIOR
Law of Diminishing Marginal Rate of
Utility – individual’s pleasure, happiness,
Marginal Utility Substitution (MRS)
satisfaction.
As you increase your The maximum
Consumer Theory
intake of a certain amount of a good
commodity, you will that a consumer is
Individual consumption decisions are
have a declining willing to give up to
always made because people desire to
satisfaction obtain one
maximize their satisfaction from additional unit of
consuming various goods and services another good
In measuring satisfaction, we will assume 4
factors that buyers are completely aware of: One of the
1. The spending on any good or service is characteristics of
exactly equal to the individual’s savings MRS is the
and income. diminishing trend
2. People are aware of the range of along the indifference
products available in the market. curve (as X increases,
3. People are aware of the prices of the Y decreases) making
products in the market. the curve convex
4. People are aware of the capacity of the
△ Y △ MUy
product MRS= =
△ X △ MUx
Measuring Utility
Consumer theory – suggests that consumers
rank all consumption bundles based on the
level of satisfaction they feel after consuming
these products or services. In analyzing the indifference curve, there are 3
Consumption bundles – combinations of two properties of consumer preferences
commodities that will yield a certain level of
Completenes In every pair of consumption
utility
s bundles, the consumer can
Indifference Curve – combinations of two say one of the following:
commodities which will yield the same level of X is preferred to Y
satisfaction Y is preferred to X
The consumer is
It depicts values that are considered by indifferent in X and Y
the utility function
Utility function – individual’s value of Transitivity Can be described by having
utility attained from consuming each commodities X, Y, Z:
conceivable bundle of goods X is preferred to Y
Y is preferred to Z
X must be preferred
to Z
Non-satiation More is better; Consumer
always receive happiness
Cardinal Values Ordinal Values from more
Based on number of Based on rankings
“util” or the unit of (eg. on the scale of 1
satisfaction (most to 10)
widely used way)
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MANAGERIAL ECONOMICS │SECOND SEMESTER - MIDTERMS │S.Y.
2024-2025
(na ni-rush 1 day before exam, hehe)
May either be increasing or decreasing
trend
Indifference Map
o If both commodities are normal
Graph containing a set of indifference goods, we can expect an
curves showing two commodities among increasing trend of purchase
which describe a person’s preferences o If both commodities are inferior
A consumer has an infinite number of goods, we can expect an
indifference curves decreasing trend of purchase
They do not intersect
If it intersects, one assumptions of
consumer theory is violated
Consumer is supposed to be indifferent
among market baskets
The Budget Line
Budget Constraint – makes us limit our
budget on different commodities
Budget Line – graph that shows the
combinations of goods/services of a
person; total amount of money spent is
proportionate to his/her income
Two possibilities in a budget line:
1. Income could increase
shift to the right
2. Prices could increase
shift to the left
Consumer’s Choice
To maximize utility, it must satisfy:
1. The decision must lie on the budget line
2. The decision must lie on the indifference
curve that is depicting the most preferred
combination of the consumer
Example:
You would prefer a point in the indifference curve
with the least budget because you will attain the
same level of satisfaction in the lowest possible
price.
In a single budget line, you will choose the
indifference curve that yields the highest
because you will maximize your satisfaction
under the same budget.
The Engel Curve
It shows the relationship between the
amounts of product that people are
willing to buy in their corresponding
income
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MANAGERIAL ECONOMICS │SECOND SEMESTER - MIDTERMS │S.Y.
2024-2025
(na ni-rush 1 day before exam, hehe)
TOPIC 3: THE PARETO PRINCPLE Wants: Specific forms that needs take,
shaped by culture, society, and individual
The Pareto Principle, also known as the personality (e.g., wanting pizza to satisfy
80/20 rule hunger).
Suggests that roughly 80% of outcomes Demand: Wants backed by purchasing
or effects result from 20% of the power and willingness to pay. For
causes or inputs example, a desire for a luxury car
It was named after Italian economist becomes demand when someone can
Vilfredo Pareto, who observed in the afford and intends to buy it.
early 1900s that 80% of Italy's land was
owned by 20% of the population. 2. Product (Goods, Services, and Place)
Pareto later observed similar distributions in other A product is anything offered to satisfy a need or
domains, such as wealth and income, where a want. It can take various forms:
small percentage of individuals controlled the
majority of resources. Goods: Physical, tangible items (e.g.,
smartphones).
This observation laid the foundation for the Services: Intangible offerings (e.g.,
principle, which was later generalized by consulting, education).
management consultant Joseph M. Juran in the Place/Experiences: Destinations or
mid-20th century as a universal concept of environments that create value (e.g.,
imbalance. theme parks, resorts).
Juran referred to it as the "vital few and trivial 3. Value, Cost, and Satisfaction
many," emphasizing the disproportionate
relationship between inputs and outcomes. Value: The perceived benefit a customer
gains compared to the cost incurred. It’s
For example: subjective and varies by individual.
Cost: The monetary and non-monetary
In business, 80% of sales often come from price a consumer pays (e.g., time, effort).
20% of customers. Satisfaction: The customer’s feeling of
In productivity, 20% of efforts may lead to fulfillment when the product or service
80% of results. meets or exceeds expectations.
The Pareto Principle is a heuristic, not a strict 4. Exchange and Transaction
rule, and is often used to identify key areas for
prioritization and focus. Exchange: The act of obtaining a desired
product or service by offering something of
While the Pareto Principle is a helpful rule of value in return (e.g., money, goods, or
thumb, it is not a law and does not always yield a services).
perfect 80/20 distribution. The ratio can vary, and Transaction: A specific event in which an
its application requires careful context analysis. exchange occurs, involving an agreement
between two or more parties. It forms the
TOPIC 3: CORE CONCEPTS OF MARKETING basis of economic activity.
BY PHILIP KOTLER.
5. Relationships and Networks
1. Needs, Wants, and Demand Modern marketing emphasizes building
long-term relationships with customers,
Needs: Basic human requirements, such suppliers, and other stakeholders to foster
as food, water, shelter, and safety. These loyalty and trust.
are inherent and universal.
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MANAGERIAL ECONOMICS │SECOND SEMESTER - MIDTERMS │S.Y.
2024-2025
(na ni-rush 1 day before exam, hehe)
Networks: Collaborative systems of
relationships between businesses,
customers, and partners that create value
and mutual benefits over time.
