ECN607 – Lectureaid_3.1

ECN607 – Lectureaid_3.1 - ECN607 Managerial...

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ECN607 – Managerial Economics Study Aid: lecture 3.1 Introduction In this module, the classical theory of consumer choice using cardinal utility analysis is discussed. The classical approach assumes individuals try to maximize their total utility subject to a budget constraint. This approach predicts how rational consumers will divide their limited incomes to maximize utility, so this module defines and differentiates between total and marginal utility. The law of diminishing marginal utility is discussed and related to the law of demand. Supply and demand elasticity is an important idea in microeconomics. Therefore, price elasticity of demand will be defined in this module. Price elasticity of demand will then be related to the business' total revenues and its bottom line; profit. The determinants of price elasticity of demand will also be discussed. Cross-price elasticity of demand and income elasticity of demand will also be introduced. Lastly, this lecture will end with a discussion of price elasticity of supply. Price Elasticity Elasticity means responsiveness. Price elasticity of demand means the responsiveness of the amount demanded of a product to changes in its price. The price elasticity of demand is calculated by dividing the
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This note was uploaded on 08/16/2010 for the course BUS ECON607 taught by Professor Tbd during the Spring '10 term at Grand Canyon.

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ECN607 – Lectureaid_3.1 - ECN607 Managerial...

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