Econ semester 2 exam

Flashcards covering pricing strategies, macroeconomic principles, and monetary systems.

Revenue Management (Yield Management)

The practice of dynamically adjusting prices based on real-time market data, customer behavior, and capacity to maximize revenue.

Goal of Revenue Management

Maximize total revenue over time by selling the right product to the right customer at the right time for the right price.

Market Analysis

Understanding supply and demand conditions in real time.

Price Elasticity of Demand

Measuring how sensitive customers are to price changes.

Market Segmentation

Dividing the market into groups with different price sensitivity or purchase behavior.

Price Elasticity of Demand

A measure of how much quantity demanded responds to a change in price.

Elastic Demand

A small change in price results in a large change in quantity demanded.

Inelastic Demand

A change in price has little effect on quantity demanded.

Price Differentiation

Charging different prices to different customer segments based on willingness to pay.

Purpose of Price Differentiation

Maximize revenue and attract both price-sensitive and non-sensitive customers.

US Airline Model (Kimes, 1989)

Revenue management system matching customers with prices based on booking time, flexibility, and segment.

Bundled Pricing

One price for a package of services or products (e.g., cruise with meals and entertainment).

Partitioned Pricing

Base price with optional or mandatory add-ons (e.g., hotel room + resort fee).

Economics

The study of how societies use scarce resources to produce valuable commodities and distribute them among different people.

Microeconomics

Study of individual and business decisions regarding allocation of resources and prices of goods and services.

Macroeconomics

Study of the behavior of an economy as a whole, including inflation, unemployment, and economic growth.

Firms

Produce goods/services and demand production inputs.

Households

Provide labor, consume goods, and save income.

Government

Regulates, spends, and taxes to influence the economy.

Financial Sector

Facilitates money flow through banks, investments, and credit.

C

Consumer spending

I

Business investment

G

Government spending

X

Exports

M

Imports

Demand-Pull Inflation

Results from an increase in AD leading to more jobs and higher prices.

Cost-Push Inflation

Triggered by a reduction in AS leading to higher prices and lower output (stagflation).

Expansion

Rising GDP, falling unemployment, increased consumption.

Recession

Decline in GDP for two consecutive quarters.

Medium of Exchange

Eliminates inefficiencies of barter.

Store of Value

Retains purchasing power over time.

Unit of Account

Standard for measuring and comparing prices.

Means of Deferred Payment

Used for future transactions (e.g., credit).

Barter System

Direct exchange → inefficient.

Commodity Money

Backed by tangible goods (e.g., gold).

Fiat Money

Backed by trust in the issuing government/central bank.

Issue Currency

Print money and ensure its legal tender status.

Regulate Banks

Oversee commercial banking system.

Monetary Policy

Adjust money supply and interest rates to stabilize the economy.

Hold Reserves

Manage foreign exchange and gold reserves.

Enable Transactions

Provide means like credit cards, online banking.

Create Money

Through fractional reserve lending – banks only hold a portion of deposits and lend the rest.

Expansionary Policy

Increase money supply and lower interest rates to boost spending.

Contractionary Policy

Reduce money supply and raise interest rates to control inflation.

M0

Physical currency in circulation.

M1

M0 + demand deposits (checking accounts).

M2

M1 + savings accounts and time deposits.

Buying Bonds

Injects money into the economy (expansionary).

Selling Bonds

Removes money from circulation (contractionary).

Total cost

Fixed cost+ Variable cost

Average Variable cost

Variable cost/Quantity produced

Average variable cost

Variable cost/ Quantity produced

Average cost

Total cost/Quantity produced

Average total cost

Average fixed cost+ Average variable cost

Average total cost

Total cost/Quantity

Marginal cost

Change in total cost/ change in quantity

Break Even Quantity

Fixed cost/(Price-Average variable cost)

Target profit quantity

(Fixed cost+target profit)/(Price-Average variable cost)

PED = (ΔQ / Qₑₐₕ) / (ΔP / Pₑₐₕ)
Where:

(ΔQ / Qₑₐₕ) / (ΔP / Pₑₐₕ)

ΔQ

Q2 - Q1

Qavg

(Q1 + Q2) / 2

• ΔP

• P2 - P1

Pavg

• (P1 + P2) / 2

Aggregate Demand (AD)

= C + I + G + (X - M)

Money Multiplier =

1 / Reserve Ratio

Money Created =

Initial Deposit × Money Multiplier

M0

Physical currency

M1

M0 + Demand Deposits

M2 =

M1 + Savings + Time Deposits

Cost of Sales (Periodic Inventory)

Beginning Inventory + Purchases - Ending Inventory