Business Economics and Quantitative Aptitude
Core concepts
Business economics covers demand and supply, elasticity, cost behaviour and market structures. Know the law of demand, determinants of demand other than price, and the difference between a movement along the curve (price change) and a shift of the curve (non-price change). Learn price, income and cross elasticity and their business uses: pricing power, revenue effects, substitute and complement relationships.
Cost concepts: fixed versus variable, total, average and marginal cost, and the short-run versus long-run distinction. Understand economies and diseconomies of scale. Market structures to compare: perfect competition, monopolistic competition, oligopoly and monopoly, judged on number of sellers, product differentiation, entry barriers and price control.
Quantitative aptitude includes percentages, ratios, averages, simple and compound interest, profit and loss, time and work, and basic interpretation of tables and charts.
Traps in questions
- Confusing a shift in demand with a movement along it.
- Assuming revenue always rises with price; it depends on elasticity.
- Mixing simple and compound interest by applying the rate to the original principal each year.
- Treating fixed cost as zero in the long run; it becomes variable instead.
Rule of thumb
If demand is elastic, a price cut raises total revenue. If inelastic, a price rise raises total revenue.
Worked example
A product priced at 100 sells 1,000 units. Price falls to 90 and sales rise to 1,200. Revenue moves from 100,000 to 108,000, so demand is elastic over this range and the cut was worthwhile.