Econ Foundation Session A

8/13/2019 Econ Foundation Session A

1/29


2/29

Manisha Rajadhyaksha 2 2

Session 1: Managerial Economics

Foundation Course

Obecti!es:

A"ter t#is session$ %ou &ill understand:

1' subect matter o" t#is course

(' anal%tical a))roac# used in Economics


3/29


4/29

Manisha Rajadhyaksha +

Economics

Economics plural ofeconomics

(Noun)

Noun: Branch of knowledge concerned

with production, consumption, and

transfer of wealth.

conomy ! "ondition of region or groupas regards material prosperity.


5/29

Manisha Rajadhyaksha ,

-efinition . Economics

Economics is a social science that

studies ho society chooses to allocate

its scarce resources, hich havealternative uses, to provide goods and

services !or present and !uture

consumption"


6/29

Manisha Rajadhyaksha /

Economics . Goods 0 (ervices

Goods and Services # good is

anything that satisfies a want.

$oods tangi%le or intangi%le.

&angi%le goods physical items, and

'ntangi%le goods ser(ices.

Both goods and ser(ices satisfy wants

and therefore can %e called goods.


7/29

Manisha Rajadhyaksha 1

Economics . Reso'rces np'ts# factors or means of prod'ction %and# %a&or#

capita%# and entreprene'rship$ *and %and itse%f and anything that grows on it or can &e

taken from it 4nat'ra% reso'rces$5

*abor h'man effort# &oth physica% and menta%$ Ca)ital man6made too% of prod'ction7 good prod'cedfor 'se in the prod'ction of other goods$

Ca)ital goodsreso'rces prod'ced and com&ined withother reso'rces to prod'ce more o'tp't$

Entre)reneurs#i) organi)ationa% force that com&inesfactors of prod'ction %and# %a&or# and capita% andtransforms them into the desired o'tp't$ 8he o'tp't may&e capita% or cons'mer goods$


8/29


Economics 6 (carcity Re%ationship &etween how m'ch there is of something and how

m'ch of it is wanted$ Reso'rces are scarce compared to the 'ses we have for them$ Eamp%es water scarce; rod'ction ofgoods to satisfy a want wi%% red'ce avai%a&%e reso'rces$

Reso'rces are %imited or scarce not eno'gh to prod'ce goods tosatisfy a%% o'r wants$ (carce reso'rces yie%d scarce goods$


9/29

Manisha Rajadhyaksha ?

Economics 6 @hoices

)carcity forces choice. conomics is

often called the study of choosing.

"annot ha(e all we want of e(erything

we want.

)carcity imposed %y limited factors of

production yielding limited output of

goods relati(e to unlimited wants.

"hoices must %e made.


10/29

Manisha Rajadhyaksha AB

Economics . *%ternative Cses @hoices made a&o't how reso'rces wi%% &e 'sed or

a%%ocated$ Allocate means distri&'te$ @hoices among a%ternatives decide which goods wi%% &e

prod'ced# how to a%%ocate reso'rces to prod'ce goods# andhow to a%%ocate the goods among the pop'%ation$

Method 'sed to decide how these a%%ocations wi%% &e madedepends on the kind of economic system chosen$

Reso'rces have a%ternative 'ses and are scarce necessary to choose among a%ternatives$ Many a%ternativeways to 'se reso'rces# and hence choices made$

Governments# individ'a%s# &'sinesses 'se reso'rces as pertheir o&jectives time# income# %and# %a&or# capita%# andentreprene'rship$


11/29

Manisha Rajadhyaksha AA

Economics . Opport'nity @ost

*pportunity costs are e(erywhere, due to

scarcity and the necessity of choosing.

*pportunity cost is not what you choosewhen you make a choice + it is what you did

not choose in making a choice.

Opportunity cost is the (alue of the forgone

alternati(e + what you ga(e up when you got

something.


12/29

Manisha Rajadhyaksha A2

Economics . >resent 0 D't're

@ons'mption @hoice imposes opport'nity cost over time$ Cse of reso'rces means that those reso'rces wi%%

not &e avai%a&%e for f't're 'se$ * decision m'st &e made# an opport'nity cost

enco'ntered# as to whether to a%%ocate for presentneeds or f't're needs$

8oday vers's tomorrow$ (ome goods wi%% &e

cons'med today and some in the f't're$ yred'cing present cons'mption# f't're cons'mptionincreased$


13/29


Economics . (ocia% (cience

conomics is a social science thatstudies how society chooses.

Social sciences focus on human%eha(ior.

conomics is a social science means

that economists study human %eha(iorconfronted %y scarcity throughapplication of scientific method.


14/29

Manisha Rajadhyaksha A+

Economics . -efinitions

"lassified into four groups:

1. ealth definitions,

2. Material welfare definitions,

-. )carcity definitions, and

. $rowth/centered definitions.


15/29

Manisha Rajadhyaksha A,


16/29

Manisha Rajadhyaksha A/

Materia%6


17/29


(carcity6&ased -efinition . Hione%

Ro&&ins Essays on Nature and Significance of the Economic Science A?32!$ Economics ! science which studies human beha"ior as relationship between ends

and scarce means which ha"e alternati"e uses#$

Main Features o" Scarcit% De"inition

A$ /uman &ants are unlimited: f one want is satisfied# another want crops 'p$

8h's# different wants appear one after another$2$ *imited means to satis"% #uman &ants: Himited means and reso'rces forsatisfying these wants$ Reso'rce considered as scarce if its s'pp%y is %ess than itsdemand$

3$ Alternati!e uses o" scarce resources: (ame reso'rce devoted to a%ternative %inesof prod'ction# and for satisfaction of different wants$

+$ E""icient use o" scarce resources: Cn%imited wants are ranked as per priority# and

scarce reso'rces are 'sed in efficient manner for satisfaction of these wants$,$ Need "or c#oice and o)timi0ation:@hoice &etween most 'rgent and %ess 'rgent

wants$ "ence# Economics is ca%%ed science of choice# and scarce reso'rces 'sedfor maim'm satisfaction i.e.$ optimisation! of most 'rgent wants$


18/29


Modern Growth6Oriented -efinition

. >a'% (am'e%son Economics ! study of how people and society end up choosing$ with orwithout use of money$ to employ scarce producti"e resources thatcould ha"e alternati"e uses to produce "arious commodities o"er timeand distributing them for consumption$ now or in the future$ among"arious persons or groups in society. It analyses costs and benefits of

impro"ing patterns of resource allocation#.Main Features o" Modern ro&t#.Oriented De"inition

A$ ro&t#.orientation:concerned with determining pattern ofemp%oyment of scarce reso'rces to prod'ce commodities over time$

2$ D%namic allocation o" consum)tion:of income for present andf't're$

3$ Distribution: of cons'mption among gro'ps in a society$+$ Im)ro!ement o" resource allocation:thro'gh cost6&enefit ana%ysis$

mprovement of reso'rce a%%ocation and &etter distri&'tive j'stice aresynonymo's with economic deve%opment$


19/29

Manisha Rajadhyaksha A?

ranches of Economic 8heory

Microeconomics

Macroeconomics


20/29

Manisha Rajadhyaksha 2B

Microeconomics

Branch of economics concerned with economicdecision/making of single unit of economic system.

0ow does an indi(idual or a family decide on how

much of (arious commodities and ser(ices toconsume3 0ow does a %usiness firm decide howmuch of its product or products to produce3

Microeconomics shows that economics is a socialsciencewhich aims at analy4ing economic %eha(iorof indi(iduals in a social en(ironment.


21/29

Manisha Rajadhyaksha 2A

mportance of Microeconomics

A$ Determination o" demand )attern: i.e.$ amo'nts of demand for goodsand services in the economy# as tota% demand for a good or service isthe s'm tota% of the demands of a%% the individ'a%s$

2$ Determination o" t#e )attern o" su))l%: i$e$ amo'nts of goods andservices prod'ced &y firms in economy$

3$ 2ricing:>rices of goods and services determine pattern of reso'rce

a%%ocation in economy$ 8hese prices are determined &y interaction offorces of demand and s'pp%y of the goods and services$

+$ 2olicies "or im)ro!ement o" resource allocation: economicdeve%opment stresses improving pattern of reso'rce a%%ocation in theco'ntry$

,$ Solution to t#e )roblems o" micro.units:Microeconomics starts with

individ'a% cons'mers and prod'cers# po%icies for correcting wrongdecisions at micro6%eve% are a%so faci%itated &y microeconomics$Economic pro&%ems faced &y economic agents s'ch as individ'a%cons'mers# prod'cers# etc$! are ana%y)ed with microeconomic theories$


22/29


Macroeconomics ranch of economics concerned with economic

magnit'des re%ating to the economic system as a

who%e# rather than to the microeconomic 'nits %ike

individ'a%s or firms$

8herefore ca%%ed aggregative economics$

4Macroeconomics dea%s $$$ not with individ'a%

income &'t with nationa% income# not with

individ'a% prices &'t with the price %eve%# not withindivid'a% o'tp'ts &'t with nationa% o'tp't5

Ienneth o'%ding!$


23/29


mportance of MacroeconomicsA$ Income and em)lo%ment determination:are vita% concerns of

macroeconomics$

2$ 2rice le!el:-etermination of genera% price %eve% and inf%ation isdisc'ssed in macroeconomic theories$

3$ 3usiness c%cles:Economic &ooms and depressions fo%%ow one anotherin a cyc%ica% fashion$ ncome and emp%oyment epands d'ring &oomperiods and shrink d'ring depressions$

+$ 3alance o" )a%ments: -ifference &etween tota% inf%ow and tota%o'tf%ow of foreign echange is known as &a%ance of payments$ @a'sesand remedies of o> pro&%ems are disc'ssed in macroeconomics$

,$ o!ernment )olicies: Government po%icies on economic varia&%es %ikenationa% income or genera% price %eve% are st'died in macroeconomics$

/$ Interrelations bet&een mar4ets: -ifferent markets of economicsystem commodity# %a&or# &ond# money# etc$! are interre%ated$-ist'r&ance in one of these markets affects a%% the others$


24/29

Manisha Rajadhyaksha 2+

Microeconomics v=s$

Macroeconomics

Microeconomics and macroeconomics arecomp%ementary to each other$

Himitations of microeconomics are covered &y

macroeconomics$ Macroeconomics does not make detai%ed st'dy of

individ'a% cons'mer or prod'cer# which is takencare of &y microeconomics$

"ence comprehensive notion of economics on%ywhen ac'ainted with &oth microeconomics andmacroeconomics$


25/29

Manisha Rajadhyaksha 2,

Csef'% economic concepts in

&'siness

>rice e%asticity of demand#

ncome e%asticity of demand#

Opport'nity cost#

8he m'%tip%ier# >ropensity to cons'me#

Margina% reven'e prod'ct#

(pec'%ative motive#

>rod'ction f'nction#

a%anced growth# andHi'idity preference$

8heory of the firm6price# o'tp'tand investment decisions#

'siness financing#

>'&%ic finance and fisca% po%icy#

Money and &anking#

Jationa% income and socia%acco'nting#

8heory of internationa% trade#and

Economics of deve%opingco'ntries$


26/29

Manisha Rajadhyaksha 2/

ndian contet . manageria%

economist f'nctions:

Macro6forecasting for demand and s'pp%y$ >rod'ction p%anning at macro and micro %eve%s$ @apacity p%anning and prod'ct6mi determination$ Economics of vario's prod'ctions %ines$ Economic feasi&i%ity of new prod'ction %ines=processes and projects$ *ssistance in preparation of overa%% deve%opment p%ans$ >reparation of periodica% economic reports 6 companys prod'ct6%ines#

f't're growth opport'nities# market pricing sit'ation# genera% &'siness#and nationa%=internationa% factors affecting ind'stry and &'siness$

>reparing &riefs and papers for top management for vario's@ham&ers# @ommittees# (eminars# @onferences# etc$ Ieeping management informed of vario's nationa% and internationa%

deve%opments on economic=ind'stria% matters$


27/29


Sco)e o" managerial economics

ncrease in comp%eity of &'siness decision6making process

d'e to changing market conditions and &'siness environment$

ncrease in 'se of economic %ogic# concepts# theories# too%s of

economic ana%ysis in decision making process$

Rapid increase in demand for professiona%%y trained mangeria%

manpower$


28/29


Com)le, business &orld

Growth of %arge sca%e ind'stries and (MEs

Growth of variety of ind'stries

-iversification of ind'stria% prod'cts

Epansion and diversification of &'siness activities Growth of MJ@s

-emand as nter6firm# inter6ind'stry# internationa% riva%ry# competition#

risk# 'ncertainty

Re'ires 6

Cnderstanding market conditions# nat're and degree of competition#market f'ndamneta%s# &'siness environment

Market condition ana%ysis 6 prod'ct market# inp't market# financia% market


29/29

Manisha Rajadhyaksha 2?

Economics (t'dy of how peop%e 6 individ'a%s# ho'seho%ds# firms# nations 6

optimi)e their gains from scarce reso'rces and opport'nities

(ocia% science 6 st'dies h'man &ehavior in re%ation to optimi)ing

a%%ocation of avai%a&%e reso'rces to acheive given ends

ndivid'a%s 6 want=need 6 maimi)e 'ti%ity to satisfy want=need

"o'seho%ds 6 what=how to cons'me 6 maimi)e tota% 'ti%ity Dirms 6 how to choose commodity# prod'ction# techno%ogy# %ocation of

firm# market=market segment# price of prod'ct# advertising and other

epenses# strategy for competition

Jation 6 how=what to a%%ocate reso'rces 6 men and materia%s 6 &etween

competing needs of society to mami)e we%fare of society Economic po%icies 6 taation# ependit're# price# fisca%# monetary#

emp%oyment# foreign trade# tariff# ind'stria%

Date post:	04-Jun-2018
Category:	Documents
Upload:	rohina-banerjee
View:	224 times
Download:	0 times

Econ Foundation Session A

Documents