8/6/2019 Introduction of Economics Class I-A - Copy

http://slidepdf.com/reader/full/introduction-of-economics-class-i-a-copy 1/26

Economics: The World Around YouEconomics: The World Around You

Prepared by

Dr. SHIVASHANKAR K 

BSC(Agmaco), MBA, DEM, DIRM, PhD, NET (A.S. R. B)

Micro Economics for Managers

8/6/2019 Introduction of Economics Class I-A - Copy

http://slidepdf.com/reader/full/introduction-of-economics-class-i-a-copy 2/26

8/6/2019 Introduction of Economics Class I-A - Copy

http://slidepdf.com/reader/full/introduction-of-economics-class-i-a-copy 3/26

Objectives:

1.The course is to familiarize the students with basic concepts and

techniques of micro economic analysis and its applications to

managerial decision making.

2.It is also to acquaint the students with the basic concepts of 

economic theory of consumer behavior, the nature of economic costs

and their relationship to choice of output and technology, etc.

Pedagogy : Lectures, Assignments, case study, management

games and Seminars

8/6/2019 Introduction of Economics Class I-A - Copy

http://slidepdf.com/reader/full/introduction-of-economics-class-i-a-copy 4/26

MODULE 1

Overview, definition, nature and scope of Managerial Economics.

Demand Analysis and Forecasting Factors affecting demand, demand

distinctions, Price and income elasticity of demand, Methods of demand

forecasting, Demand forecasting over Product Life Cycle.

Project on Demand Forecasting

MODULE 2

Production Functions, Cobb-Douglas Production Function, cost-input

relationship

Returns to scale, factors of productivity

Cost concepts ± cost output relationships in the short run and the long run,

economies of scale.

8/6/2019 Introduction of Economics Class I-A - Copy

http://slidepdf.com/reader/full/introduction-of-economics-class-i-a-copy 5/26

MOUDLE 3

Market Structure and Pricing Theory

Market Structure ± perfect competition, monopoly, monopolisticcompetition oligopoly, Kinked demand curve.

Price output decisions under different market structures.

MOUDLE 4

Pricing Policies and Practices ± Pricing Strategies, Price

discriminations, price leadership.

8/6/2019 Introduction of Economics Class I-A - Copy

http://slidepdf.com/reader/full/introduction-of-economics-class-i-a-copy 6/26

MOUDLE 5

Behaviour of the Firm and Profit Theories

Nature and Objectives of the Firm, Theories of the Firm, Overview of 

the alternate theories of the objectives and behaviour of the firm.

Profit theories, Profit maximization as an objective

8/6/2019 Introduction of Economics Class I-A - Copy

http://slidepdf.com/reader/full/introduction-of-economics-class-i-a-copy 7/26

What is Economics?What is Economics? Economics is a social science.

 ± Economists study how individuals, individually

and collectively, make decisions about:� Buying consumer goods and services (consumption)

� Producing goods and services for sale

� Building factories, equipment, and tools

� Building and buying houses

� Setting prices and reacting to them

� Coordinating activities in the economy

� Import goods rather than make them themselves

8/6/2019 Introduction of Economics Class I-A - Copy

http://slidepdf.com/reader/full/introduction-of-economics-class-i-a-copy 8/26

What is Economics?What is Economics? (Continued)(Continued)

Economics is form of applied logic(reasoning).

 ± Economists study the reasoning that driveseconomic decisions and outcomes.

 ± The linkages, the chains of cause and effect, arevery long and complex in real-world economies.

 ± As a result, one might think of economics as the

study of unintended consequences.

8/6/2019 Introduction of Economics Class I-A - Copy

http://slidepdf.com/reader/full/introduction-of-economics-class-i-a-copy 9/26

Meaning of Economics:

Economics can be called as social science dealing with

economic problem and man·s economic behavior.

It deals with economic behavior of man in society in respect of 

consumption, production, distribution etc.

economics can be called as an unending science.

Economics provide optimum utilization of scarce resources to achieve thedesired result.

It provides the basis for decision making.

8/6/2019 Introduction of Economics Class I-A - Copy

http://slidepdf.com/reader/full/introduction-of-economics-class-i-a-copy 10/26

8/6/2019 Introduction of Economics Class I-A - Copy

http://slidepdf.com/reader/full/introduction-of-economics-class-i-a-copy 11/26

Definition of Economics

Definition of Economics

Economics is a way of analyzing andunderstanding the ways individuals and

groups of people behave in terms of their choices regarding the things they wantbut can¶t get enough of for free (scarcegoods).

To make sense of this definition, we mustexamine the concepts of   scarcity,economic choice, and rational self-interest.

8/6/2019 Introduction of Economics Class I-A - Copy

http://slidepdf.com/reader/full/introduction-of-economics-class-i-a-copy 12/26

Human Nature and Reality

Human Nature and Reality

People have unlimited wants.

People have limited time, income,

wealth²they have limited resourceswith which to acquire the things thatthey want.

As a result, they must make choices. Choices involve pursuing some

things while forgoing others.

8/6/2019 Introduction of Economics Class I-A - Copy

http://slidepdf.com/reader/full/introduction-of-economics-class-i-a-copy 13/26

Scarcity and GoodsS

carcity and Goods A good is called scarce if there is not

enough of it freely available (i.e., at zero

price) to satisfy human wants. ± An economic good is any good (physicalproduct) or service (nonphysical product) thatis scarce.

 ± A free good is a good for which there is no

scarcity.

8/6/2019 Introduction of Economics Class I-A - Copy

http://slidepdf.com/reader/full/introduction-of-economics-class-i-a-copy 14/26

Clarifying ConceptsClarifying Concepts Scarcity means that not enough is

available for free.

A shortage occurs when not enough isavailable at the current price. A shortage

is a problem of price.

Poverty occurs when the goods are

scarce, and those who need them do not

have the income to obtain them.P overty is

a problem of income.

8/6/2019 Introduction of Economics Class I-A - Copy

http://slidepdf.com/reader/full/introduction-of-economics-class-i-a-copy 15/26

Goods to Produce GoodsGoods to Produce Goods Resources are the elements needed to

produce other goods.

Resources are also called ± factors of production

 ± Inputs

They are:

 ± Land (includes natural resources) ± Labor (physical and intellectual services of 

people)

 ± Capital (plant, machinery, equipment used inproduction)

8/6/2019 Introduction of Economics Class I-A - Copy

http://slidepdf.com/reader/full/introduction-of-economics-class-i-a-copy 16/26

Resources in ProductionResources in Production

Producers

of GoodsResource

Suppliers

land 

labor 

capital 

rent 

wages

interest 

8/6/2019 Introduction of Economics Class I-A - Copy

http://slidepdf.com/reader/full/introduction-of-economics-class-i-a-copy 17/26

Economics can be studied under two heads:

1) Micro Economics

2) Macro Economics

Micro Economics:

It studies how individual make their choices about

what to produce,

How to produce,

For whom to produce, andwhat price to charge.

It is also known as the price theory 

It is the main source of concepts and analytical tools for

managerial decision making.

Various micro-economic concepts such as

Demand, supply,

Elasticity of demand and supply,

Marginal cost,

various market forms, etc. are of great significance to

managerial economics.

8/6/2019 Introduction of Economics Class I-A - Copy

http://slidepdf.com/reader/full/introduction-of-economics-class-i-a-copy 18/26

Macro Economics:

It·s not only individuals and farms who are faced with

having to make choices. Governments face many suchproblems. For e.g.

How much to spend on health

How much to spend on services

How much should go in to providing social

security benefits.

8/6/2019 Introduction of Economics Class I-A - Copy

http://slidepdf.com/reader/full/introduction-of-economics-class-i-a-copy 19/26

Following are the various economic concepts which are useful

for managers for decision making:

� Price elasticity of demand

� Income elasticity of demand

� Cost and output relationship

� Opportunity cost� Multiplier

� Propensity to consume

� Marginal revenue product

� Production function

� Demand theory 

� Theory of firm³price, output and investment decisions

� Money and banking

� Public finance - fiscal and monetary policy 

� National income

� Theory of international trade

8/6/2019 Introduction of Economics Class I-A - Copy

http://slidepdf.com/reader/full/introduction-of-economics-class-i-a-copy 20/26

Meaning of managerial economics:

Firms. In it economic theories and concepts are used to solve

practical business problem. It lies on the borderline of 

economics and management. It helps in decision making under

uncertainty and improves effectiveness of the organization.

  The basic purpose of managerial economic is to show how

economic analysis can be used in formulating business plans.

In the words of Mc Nair and Merriam,µ ME consists of use

of economic modes of thought to analyze businesssituationµ.

Managerial Economics = Management + Economics

8/6/2019 Introduction of Economics Class I-A - Copy

http://slidepdf.com/reader/full/introduction-of-economics-class-i-a-copy 21/26

Micro vs. MacroMicro vs. Macro Microeconomics

 ± Studies the economy at the level of individual

consumers, workers, firms, goods, andmarkets

Macroeconomics

 ± Studies the economy at the aggregate level, at

the level of the economy as a whole. ± Examines total consumer behavior, total

employment, total production, total sales, etc.

8/6/2019 Introduction of Economics Class I-A - Copy

http://slidepdf.com/reader/full/introduction-of-economics-class-i-a-copy 22/26

Meaning of Decision making:Decision making is the most important function of business

managers. Decision making is the central objective of 

Managerial Economics.

Decision making may be defined as the process of selecting

the suitable action from among several alternative courses of 

action.

8/6/2019 Introduction of Economics Class I-A - Copy

http://slidepdf.com/reader/full/introduction-of-economics-class-i-a-copy 23/26

Scope of ME

Decision related to demand:- demand, elasticity of demand,

demand forecasting etc

Related to cost & Production: law of production

Related to pricing: mkt analyis, pricing policies etc.,

Relating to profit mgt.

Macro economic factors: eg. Business cycles, inflation and govt policies etc.,

8/6/2019 Introduction of Economics Class I-A - Copy

http://slidepdf.com/reader/full/introduction-of-economics-class-i-a-copy 24/26

FAQ¶s of the module

1. What is Economics and Differentiate b/w the Micro & Macro

economics2. Comment on the nature of economics

3. Enlist some economical tools which help in ManagerialDecisions

4. Define Managerial economics

5. What do you mean by factor of production.

6. Give the difference between b/w scarce and Free goods

8/6/2019 Introduction of Economics Class I-A - Copy

http://slidepdf.com/reader/full/introduction-of-economics-class-i-a-copy 25/26

8/6/2019 Introduction of Economics Class I-A - Copy

http://slidepdf.com/reader/full/introduction-of-economics-class-i-a-copy 26/26

Thank Thank you you