MANAGERIAL ECONOMICS (BSP 1703)
LECTURE NOTES FOR EXAM TO SCORE
AN A 2025-2026 UNIVERSITY OF
SINGAPORE
,LECTURE 1
Opportunity Cost
The cost of using resources for a certain activity, measured in terms of the net benefit
that could be derived from the next best alternative forgone.
Marginalist Principle
If the marginal benefit (MB) is greater than the marginal cost (MC), it is rational to
continue the activity as the addition to total benefits exceeds the addition to total cost,
hence the net benefit is increasing. The optimal level is attained when MB = MC.
Perfectly Competitive vs Non-competitive Markets
A market is where parties gather together to facilitate exchanges in goods and services.
- A free market economy refers to one without any government intervention.
Market price is determined by the forces of supply and demand of the goods and
services.
- Market economy is one that is centrally planned, where the prices of goods and
services are manipulated by the government.
PERFECT COMPETITION
A market structure where there are many firms, freedom of entry and exit into
the industry, homogeneous products, and perfect knowledge of its goods and
market by both consumers and producers, and all firms are price takers. (perfectly price
elastic)
MONOPOLISTIC COMPETITION
A market structure where there are many firms, ease of entry and exit into the
industry, differentiated products, and thus has some control over its price. (price
elastic)
OLIGOPOLY
A market structure where there are a few dominant firms that control the major
share of the market, and there are barriers to entry of new firms. These firms are
mutually interdependent and are rivals. (price inelastic)
MONOPOLY
,A market structure in which a single firm/producer controls the whole supply of a
single product that has no close substitutes. A single firm serves the entire
market due to the high barriers to entry due to large economies of scale. (perfectly price
inelastic)
Market vs Industry
An industry is a collection of firms that sell the same/related products or services. The
competition is between firms in the same industry.
A market offers a variety of goods and services. The competition exists between various
sellers and buyers.
LECTURE 2 Demand & Supply elasticity
Elasticities
Price elasticity of demand PED measures the responsiveness of quantity demanded for
a good in response to the change in its price, ceteris paribus.
∞ = PED Perfectly Price Elastic
For rise in price, quantity demanded for good falls to 0
1 < |PED| Price Elastic
For rise in price, more than proportionate fall in quantity demanded for
good, total revenue decreases
0 < |PED| < 1 Price Inelastic
For rise in price, less than proportionate fall in quantity demanded for
good, total revenue increases
0 = PED Perfectly Price Inelastic
For rise in price, quantity demanded for good is the same
, Price elasticity of supply PES measures the responsiveness of quantity supplied in
response to the change in price, ceteris paribus.
0 = PES Perfectly Price Inelastic Supply
Fixed quantity firms can sell regardless of price
0 < PES < 1 Price Inelastic Supply
For rise in price, less than proportionate rise in quantity supplied
1 < PES Price Elastic Supply
For rise in price, more than proportionate rise in quantity supplied
∞ = PES Perfectly Price Elastic Supply
Producers can sell at whatever quantity for a fixed price
Income elasticity of demand YED is the measure of the responsiveness of demand to
change in response to a change in income, ceteris paribus.
YED < 0 Inferior Good Increase in income, fall in demand
0 < YED < 1 Normal Good (necessity) Increase in income, less than proportionate rise
in demand, income inelastic
1 < YED Luxury Good Increase in income, more than proportionate
rise in demand, income elastic
Cross-price elasticity of demand XED is the measure of the responsiveness of demand
to change in response to the change in the price of another commodity, ceteris paribus.
XED < 0 Complementary good If the price of B increases, the quantity
demanded of B falls and the demand of A also
falls
XED = 0 Non-related goods If the price of B increases, the quantity demand
of B falls and the demand of A remains
unchanged
XED > 0 Substitute goods If the price of good B increases, the quantity
demanded of B falls, and demand for A rises
LECTURE NOTES FOR EXAM TO SCORE
AN A 2025-2026 UNIVERSITY OF
SINGAPORE
,LECTURE 1
Opportunity Cost
The cost of using resources for a certain activity, measured in terms of the net benefit
that could be derived from the next best alternative forgone.
Marginalist Principle
If the marginal benefit (MB) is greater than the marginal cost (MC), it is rational to
continue the activity as the addition to total benefits exceeds the addition to total cost,
hence the net benefit is increasing. The optimal level is attained when MB = MC.
Perfectly Competitive vs Non-competitive Markets
A market is where parties gather together to facilitate exchanges in goods and services.
- A free market economy refers to one without any government intervention.
Market price is determined by the forces of supply and demand of the goods and
services.
- Market economy is one that is centrally planned, where the prices of goods and
services are manipulated by the government.
PERFECT COMPETITION
A market structure where there are many firms, freedom of entry and exit into
the industry, homogeneous products, and perfect knowledge of its goods and
market by both consumers and producers, and all firms are price takers. (perfectly price
elastic)
MONOPOLISTIC COMPETITION
A market structure where there are many firms, ease of entry and exit into the
industry, differentiated products, and thus has some control over its price. (price
elastic)
OLIGOPOLY
A market structure where there are a few dominant firms that control the major
share of the market, and there are barriers to entry of new firms. These firms are
mutually interdependent and are rivals. (price inelastic)
MONOPOLY
,A market structure in which a single firm/producer controls the whole supply of a
single product that has no close substitutes. A single firm serves the entire
market due to the high barriers to entry due to large economies of scale. (perfectly price
inelastic)
Market vs Industry
An industry is a collection of firms that sell the same/related products or services. The
competition is between firms in the same industry.
A market offers a variety of goods and services. The competition exists between various
sellers and buyers.
LECTURE 2 Demand & Supply elasticity
Elasticities
Price elasticity of demand PED measures the responsiveness of quantity demanded for
a good in response to the change in its price, ceteris paribus.
∞ = PED Perfectly Price Elastic
For rise in price, quantity demanded for good falls to 0
1 < |PED| Price Elastic
For rise in price, more than proportionate fall in quantity demanded for
good, total revenue decreases
0 < |PED| < 1 Price Inelastic
For rise in price, less than proportionate fall in quantity demanded for
good, total revenue increases
0 = PED Perfectly Price Inelastic
For rise in price, quantity demanded for good is the same
, Price elasticity of supply PES measures the responsiveness of quantity supplied in
response to the change in price, ceteris paribus.
0 = PES Perfectly Price Inelastic Supply
Fixed quantity firms can sell regardless of price
0 < PES < 1 Price Inelastic Supply
For rise in price, less than proportionate rise in quantity supplied
1 < PES Price Elastic Supply
For rise in price, more than proportionate rise in quantity supplied
∞ = PES Perfectly Price Elastic Supply
Producers can sell at whatever quantity for a fixed price
Income elasticity of demand YED is the measure of the responsiveness of demand to
change in response to a change in income, ceteris paribus.
YED < 0 Inferior Good Increase in income, fall in demand
0 < YED < 1 Normal Good (necessity) Increase in income, less than proportionate rise
in demand, income inelastic
1 < YED Luxury Good Increase in income, more than proportionate
rise in demand, income elastic
Cross-price elasticity of demand XED is the measure of the responsiveness of demand
to change in response to the change in the price of another commodity, ceteris paribus.
XED < 0 Complementary good If the price of B increases, the quantity
demanded of B falls and the demand of A also
falls
XED = 0 Non-related goods If the price of B increases, the quantity demand
of B falls and the demand of A remains
unchanged
XED > 0 Substitute goods If the price of good B increases, the quantity
demanded of B falls, and demand for A rises
