Text Book:Keat, Paul G., Young, Philip K. and Erfle, Stephen E. Managerial Economics, Seventh Edition; 2013. Chapter

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Text Book:Keat, Paul G., Young, Philip K. and Erfle, Stephen E. Managerial Economics, Seventh Edition; 2013.

Chapter 2:The Firms and its Goals

1. What is managerial economics and what are the questions we will try to answer in this course?

2. Why does a firm perform certain functions internally and others through the market? Provide instances of both functions in your work place.

Chapter 3: Supply and Demand

3. What is the difference between shifts in supply vs. changes in quantities supplied?

Chapter 4: Demand Elasticity

4. Assume that a department store was selling a brand of men's dress shirt at $100.00 per shirt. At that price, the store sold 50 shirts in one week. Next week, the store declared a "sale - buy one get one free". As a result, sale of the dress shirt increased to 300 in that week. Based on these information, calculate the price elasticity of demand using the arc elasticity formula (p 70-71 of the textbook). What does the coefficient of elasticity indicate?

5. Define cross-price elasticity of demand. Explain how the sign of the coefficient of cross-price elasticity (positive or negative) indicates if the two goods are substitute goods or complementary goods.

Supplement to Chapter 4

Table 1: Some Real-World Price Elasticities of Demand (All elasticities are in absolute values)
Metals	1.52
Electrical engineering products	1.39
Mechanical engineering products	1.3
Furniture	1.26
Motor vehicles	1.14
Instrument engineering products	1.1
Professional services	1.09
Transportation services	1.03
Gas, electricity, and water	0.92
Chemicals	0.89
Drinks (all types)	0.78
Clothing	0.64
Tobacco	0.61
Banking and insurance services	0.56
Housing services	0.55
Agricultural and fish products	0.42
Books, magazines and newspapers	0.34
Food	0.12
Oil	0.05
Source: Microeconomics, Parkin, p. 87

Table 2: Some Real-World Income Elasticies of Demand

Airline travel	5.82
Movies	3.41
Foreign travel	3.08
Electricity	1.94
Restaurant meals	1.61
Local buses and trains	1.38
Haircuts	1.36
Automobiles	1.07
Tobacco	0.86
Alcoholic drinks	0.62
Furniture	0.53
Clothing	0.51
Newspapers and magazines	0.38
Telephone	0.32
Food	0.14
Source: Microeconomics, Parkin, p.91