Part 4. Essay.

Discuss the significance of microeconomic and macroeconomics to managerial economics.

Managerial economics is defined as a science specifically focusing on the application of

economic principles and methodologies to the decision-making process within an organization. There are
two main branches of economic, namely, microeconomics and macroeconomics.

Microeconomics is the study of how people, households, and businesses decide how to allocate
their resources considering scarcity, which is typically applied to goods and services, markets, or personal
finances. It helps to make important economic decisions based on consumer preferences, such as the likes
and dislikes of the consumer, which help to decide what to produce, how much to produce, and how to
produce it. Thus, we can say that it plays an important role in determining market outcomes or how it
performs. Additionally, this branch of economics enables us to comprehend the decision-making process
of a perfectly rational person. Thus, without microeconomics, it would be impossible to address and study
issues such as how firms and consumers make decisions, as well as how the interaction of numerous
individual decisions affects markets.

Macroeconomics, on the other hand, deals with the performance, structure, behavior, and
decision-making of an economy as a whole, which includes the markets, businesses, consumers, and
government. In order to fully understand how the entire economy works, this branch studies aggregate
indicators like GDP, unemployment rates, national income, price indices, and the relationships between
the various economic sectors. Additionally, they create models that describe the connections between
variables like national income, output, consumption, unemployment, inflation, savings, and investments
as well as global trade and global finance. With all of these, we can assert that macroeconomics serves a
wide range of crucial purposes.

In conclusion, despite differences in the areas on which they focus, both branches of economics
—microeconomics and macroeconomics—play important roles in the study of economics.

Assume the price elasticity of demand for a good is 0.5. If there is a 10% decrease in price, what would
happen to the percentage change in the quantity demanded?

 Assuming that the price elasticity of demand for a good is 0.5 and the percentage change in price
is 10%, then the percentage change in quantity demanded will be 5%. Therefore, it is Inelastic
because the percent change in price is greater than the percentage change in quantity demanded.
As a result, the revenue increases because the price falls.

What if the price were to rise by 15%?

 If the price were to rise by 15%, retaining the price elasticity of demand of 0.5, then the
percentage change in quantity demanded would be 7.5%. So, it is still Inelastic because the
percent change in price is greater than the percentage change in quantity demanded. As a result,
revenue decreases because price rises.
Part 4. Problems and Application.
1. Calculate the price elasticity for each of the following: State whether price elasticity of demand is
elastic, inelastic or unity. Will revenue rise, decline or stay the same with the given change in price?

a. The price of pens rises by 5%; the quantity demanded falls by 10%

Formula:
% change∈quantity demanded
Price Elasticity of Demand =
% change∈the price point
Solution:
10 %
Price Elasticity of Demand =
5%
Price Elasticity of Demand =2
The price elasticity of demand is 2, therefore it is Elastic since the percent change in price is less than
the percent change in quantity demanded. So, revenue decreases because price rises.

b. The price of a ticket to a Baseball game rises from P10.00 to P12.00 per game, the quantity of tickets
sold falls from 160,000 tickets to 144,000.

Formula:
(Qf −Qi)/(Qf +Qi)
Price Elasticity of Demand =
(Pf −Pi)/(Pf + Pi)
Solution:
(144,000−160,000) /(144,000+160,000)
Price Elasticity of Demand =
(12−10) /(12+10)
−16,000/304,000
Price Elasticity of Demand =
2/22
−0.0526315789
Price Elasticity of Demand =
0.0909090909
Price Elasticity of Demand =¿−0.578947368/¿
Price Elasticity of Demand =0.578∨0.58
The price elasticity of demand is 0.578 or 0.58, therefore it is Inelastic since the percent change in
price is greater than the percent change in quantity demanded. So, revenue increases because price
rises.

c. The price of an economic textbook declines from P50.00 to 47.00. Quantity demanded rises from
1,000 to 1,075.

Formula:
(Qf −Qi)/(Qf +Qi)
Price Elasticity of Demand =
(Pf −Pi)/(Pf + Pi)
Solution:
(1,075−1,000)/(1,075+1,000)
Price Elasticity of Demand =
(47−50)/(47+ 50)
 75 /2,075
Price Elasticity of Demand =
−3 /97
0.0361445783
Price Elasticity of Demand =
−00.0309278351
Price Elasticity of Demand =¿−1.1686746965/¿
Price Elasticity of Demand =1.168∨1.17
The price elasticity of demand is 1.168 or 1.17, therefore it is Elastic since the percent change in price
is less than the percent change in quantity demanded. So, revenue increases because price falls.

d. The price of water beds rises from P500.00 to P600.00, Quantity demanded falls from 1,000 to 800.

Formula:
(Qf −Qi)/(Qf +Qi)
Price Elasticity of Demand =
(Pf −Pi)/(Pf + Pi)
Solution:
(800−1000)/(800+1000)
Price Elasticity of Demand =
(600−500)/(600+500)
(−200)/(1800)
Price Elasticity of Demand =
(100)/(1100)
−0.11111111
Price Elasticity of Demand =
0.090909090
Price Elasticity of Demand =¿−1.2222222/¿
Price Elasticity of Demand =1.222 or 1.22
The price elasticity of demand is 1.222 or 1.22, therefore it is Elastic because the percent change in
price is less than the percent change in quantity demanded. So, revenue decreases because price rises.