Economics for Managers

Economics for Managers. Day - 1.

Topics of Discussion. What is Economics? Why should study Economics? Economic issues Some Terms and Concepts Production Possibility Frontier Economic System Demand and Supply Analysis Elasticity of Demand and Supply.

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WHAT IS ECONOMICS ?. Is the study of how people use their limited resources to satisfy their unlimited wants.

Economics is social science that study human behavior within the context of markets.

“Economics is the Study of how societies use SCARCE resources to PRODUCE valuable commodities and DISTRIBUTE them among different People”..

Managerial Economics. Manager A person who directs resources to achieve a stated goal. Economics The science of making decision in the presence of scarce resources. Managerial Economics To study of how to direct scare resources in the way to achieves a managerial goal..

Economics and Management. Management Problems and Economics Tools Substitutes: Demand analysis Customers : Market Structure, Pricing. Rivalry : Market Structure. Suppliers: Cost and Production Analysis. New Entrants: Scale of operation, entry barriers, Economic Organizations..

[Audio] Macro/micro examples on next slide. Life is full of economic decisions: How long should you stay in school? Which profession should you choose? Should you C/S out of your income? What is the best way to invest your savings? This course: in running a business, this course give you insights into setting prices for your product and how best to produce them As a voter, you are called on to decide on G policies that affect society's allocation of resources ? this is essentially an economic question. e.g., What is the burden associated with alternative tax proposals? What are the distributional effects? What is the "best" way for firms to be organized? Should the G regulate companies that behave like monopolies?.

The Scope of Economics (Branch). Microeconomics is the branch of economics that examines the functioning of individual industries and the behavior of individual decision-making units—that is, business firms and households. Macroeconomics is the branch of economics that examines the economic behavior of aggregates — income, output, employment, and so on—on a national scale..

[Audio] Macroeconomics is the study of the nation's economy as a whole: total output, employment, price level Macro focuses on questions like: Why are jobs easier to find some years and harder in others? (effect on output, economic growth) 3. Effect on GDP, econ growth 4. What determines economic growth (increases in productivity)? Why are living standards so varied across countries? E.g., U.S. v. Mexico v. Bangladesh Why does economic growth fluctuate in irregular cycles? 5. Government action in the overall economy: monetary policy (money supply, interest rates) and fiscal policy (G tax and expenditure policy) e.g., Economic Growth and Tax Relief Reconciliation Act of 2001.

[Audio] Microeconomics is the study of decisions made by firms, individuals, and government in the face of scarcity, and how these choices affect the markets for goods and services. Incentives may be price (market force) or social, legal and institutional forces (e.g., this course's enrollment is rationed on a first-come basis) Nonmarket forces (rationing) versus market forces (price) to allocate scarce resources to individuals These are all economic forces.

[Audio] Microeconomics helps you understand the world in which you live Why are there laws against price gouging after natural disasters?.

BASIC ASSUMPTIONS IN ECONOMICS ANALYSIS. Ceteris paribus.

[Audio] Capitalistic country – USA. Produce technology and high end product for rich people Socialist country – China. Government decide what to produce for all people..

Approaches. Positive Economics. Questions of facts, reference to analysis and empirical evidence..

LEVELS OF ECONOMICS ANALYSIS. NORMATIVE ECONOMICS.

Approaches to Solve these Problems. Economic System Market Economy – Laissez Faire: Individuals and private sector firms make major decision about production and consumption. Command Economy – Dictatorship: Government make all important decisions. Mixed Economy: With elements of market and command..

ECONOMY AND ECONOMIC SYSTEM. An economy is the institutional structure through which individuals in a society coordinate their diverse wants and desires..

Functions of An Economic System. 1. Allocation of resources what and how much 2. Organization of Production use the best method of production 3. Distribution of commodities in market economy, is determine by income 4. Economic Progress and Development 5. Economic Stability.

ECONOMIC SYSTEMS. CAPITALIST SYSTEM. COMMAND ECONOMY.

CAPITALIST SYSTEM/ LAISSEZ-FAIRE. Private ownership of resources.

COMMAND ECONOMY/ COMMUNISM. Public (government) ownership of all resources.

MIXED SYSTEMS. A mixture of both pure capitalism and command economy.

Inputs and Output. Inputs: Land, Labour, Capital..

Land. Includes all resources found in the sea and on land. Land used for housing, factories and roads; energy resources and non energy resources Immobile Limited in supply In returns, this factor of production earns rent.

Labour. Refers to any kind of work for the purpose of receiving rewards - mental or manual Has greater mobility than land - occupational mobility and geographical mobility Is not a homogeneous product as different people have different skills and knowledge Earns wages.

Capital. Refers to the stock of goods produced for future production machines, roads, computers, hammers, trucks, buildings ….. It is not the end product but intermediate product The rewards for this factor of production is interest rate.

Entrepreneur. Refers to the organizer of an economic activity Responsible for arranging and managing how production should take place - the coordinator of all factors of production Will solve the three basic economic problems Earns profit.

Scarcity. Is the fundamental problem faced by all economies..

In a world of scarcity, choosing one thing means giving up something else..

DECISION MAKING. Opportunity cost requires people to choose what to produce or to consume - forces people to make decision.

The Production Possibility Frontier. The production-possibility frontier or “PPF” shows the maximum amounts of production that can be obtained by an economy given its technological knowledge and quantity of inputs or resources available..

EFFICIENCY. Denotes the most effective (the best) use of a society’s resources in satisfying people’s wants and needs..

Production Possibility Frontier. It shows the maximum amounts of production that can be obtained by an economy for the given technology and quantity of inputs available..

Q. Q. Robots (thousands). Pizzas (hundred thousands).

Production Possibility Frontier. Opportunity Cost Efficiency Shift in the Production Possibility Frontier.

Modern Economy. Market Economy Circular Flow of a market Economy Market Equilibrium Role of Government (Economic Role).