J. Kohn Last updated 1/1/14
Economics Pre-requisite Terms and Concepts
Management BST 310
Market Strategy & Marketing BST 350
Spring 2014
The following terms, questions and graphs from Intro and Intermediate Micro form a critically important foundation for the understanding of strategy, marketing and management. In both Management (BST 310) and Market Strategy & Marketing (BST 350) you will be required to apply these microeconomic concepts to the analysis specific organizations and to draw graphs that reflect the strategic situations for these organizations. You will have a hard time getting an A in either class if you struggle with these terms and concepts.
I strongly suggest that you spend some time reviewing your microeconomics before the semester starts. You can use your old intermediate micro text, notes, and other web resources. I have posted some of my intermediate micro lecture slides on both the Management and Market Strategy & Marketing Moodle pages for your reference. If you are in Management, the first seven chapters of the BSZ text review these concepts in a managerial context.
There will be a randomized 10 question multiple choice Moodle quiz on these concepts
at the end of the first week of class. If you are in both classes, you can take the test once on the Management Moodle page. If you score less than a 5, then you must attend a microeconomics review on Friday 1/31 from 9:30 – 11:30
Terms
You should know definitions and be able to give an example of each term. Where appropriate, you should also know the mathematical notation and graphical representation of each term.
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J. Kohn Last updated 1/1/14
Adverse selection (market for lemons)
Commodity
Barrier to entry
Demand (vs. quantity demanded)
Diminishing returns, utility, scale, scope
Elasticity (elastic, inelastic, supply, demand)
Equilibrium (long and short run)
Externalities (positive and negative)
Gains from trade (consumer and producer surplus)
Income & substitution effects (Slutsky substitution)
Indifference curve (map)
Information asymmetry
Law of demand
Marginal utility
Marginal cost (for both producers and consumers)
Marginal revenue (in perfect and imperfect markets)
Marginal product
Market power (Lerner Index)
Monopoly (pricing power, price discrimination)
Monopolistic competition
Oligopoly
Pareto efficiency/optimality
Preferences (assumptions about)
Perfect competition (assumptions required for)
Producer costs (total, fixed, variable, average, marginal)
Public & Private Goods (with definitions non-rivalrous and non-excludable)
Supply (vs. quantity supplied)
Shut-down condition
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J. Kohn Last updated 1/1/14
Questions to think about:
1. What does PRICE tell you about marginal costs and marginal benefits for producers and consumers?
2. Where do supply curves come from? Where do demand curves come from? What makes supply (demand) curves more or less elastic?
3. What are the assumptions necessary for a perfectly competitive market? What are examples of violations of these assumptions? What types of markets (monopolistic competitive, oligopoly, monopoly) result from different violations of assumptions?
Graphs to draw: NOTE: be sure to label all axes, lines and relevant points
1. Draw a graph illustrating the relevant producer costs (total, fixed, variable, average, marginal) and indicate the producer’s supply curve including the shut-down condition.
2. Draw a consumer’s utility map for a good and a composite commodity with a budget constraint, indifference curve and optimal bundle. Reduce (increase) the price for the good, shift the budget constraint and identify the new optimal bundle. Identify the income and substitution effects of the price change. Then reduce (increase) the budget, shift the budget line and identify the new optimal bundle. From this indifference map draw the corresponding demand curve.
3. Draw a supply demand, and marginal revenue curves for a perfectly competitive, monopoly and monopolistic competitive market. For each graph, identify the producer and consumer surplus. Adjust these graphs for more (less) elastic supply and demand. How does the producer and consumer surplus change when supply and/or demand elasticity changes?
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