Economics for

Managers

W4 TUTORIAL
- SHASHI CHAUDHARY
 Attention!

Please keep
your mobile
phone(s)
inside your
bag-pack.

No mobile
phones

:2
 If you don’t understand economic sense of
e l a s ti c i t y … D o y o u r e m e m b e r t h e s e s t o r i e s ?

INDIA VIETNAM

3
 If there
were
No storage storage
Analysing facilities facilities
Farmers’
Economic
Situation
using
Market
Mechanism

Expected Revenue = LC 20x120 = LC 2,400 Expected Revenue = LC 20x120 = LC 2,400

Realised Revenue = LC (20x100 +10x20) = LC 2,200 Realised Revenue = LC 20x100 = LC 2,000

Additional: LC (18x5 + 20x15) = LC 390
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 Elasticity and Revenue Relation

Is price rise a Elastic Demand Inelastic Demand

suitable Scenarios
(𝛜p > 1) (𝛜p < 1)
strategy to
increase profit?
Revenue Revenue
How easy it is Price falls
Increases Decreases
for a company
to decide rise in
its products’ Revenue Revenue
Price rises
price? Decreases Increases

!! Don’t forget to measure the price elasticity of your product!

 Practice: Calculate Price Elasticity

Scenario 1 Scenario 2
Price Price
elasticities elasticities of
of Scenario Scenario
1 Revenu 2
Price Qty Price Qty Revenue
e

Period 2 ?? 12 10 120 12 10 120 ??

Period 1 ?? 10 15 150 10 11 110 ??

Period 0 --- 8 20 160 8 12 96 ---

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How many
types of
elasticities of
demand do you
know?

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 Discussion: Economics of Advertisement

Why do
companies
spend a lot on
advertisement?
 Discussion: Economics of Advertisement

Advertisement does 2 things:

Why do 1. Shifts Demand curve to the right
companies 2. Makes demand less elastic
spend a lot on
advertisement?
 Discussion:

Are elasticity of demand and the slope of

demand curve same thing?