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Shaila Srivastava
SL EC 501
ME
Shaila Srivastava
SL EC 501
Introduction :
The word Economics is derived from the Greek words
are needed. Economic problem arises because of scarcity. Economics is a study of economic problems. Wants are motive force for economic activity. Wants leads to efforts. Efforts secures satisfaction.
ME
Shaila Srivastava
SL EC 501
Economics Definitions :
Wealth Definition:
Welfare Definition: Scarcity Definition: Growth Definition:
Adam Smith
Alfred Marshall Lionel Robbins Paul Samuelson
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Shaila Srivastava
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1.Wealth Definition. : Father of Economics Adam Smith in his book Wealth of Nations 1776 defined Economics is the study of wealth. In this definition wealth is given first place, man has given second place
3. Scarcity Definition. :
Lionel Robbins in his book Nature and Significance of Economic Science-1932 given scarcity definition. Economic is the science which studies human behavior as a relationship between ends and scarce means which have alternative uses. Scarcity Definition-main Points : Unlimited wants, but gradable. Scarce means, which have alternative uses.
Superiority of scarcity definition : Robbins included material and non material goods ,widens the scope of economics. He made economics a positive science. His definition is universal.
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Shaila Srivastava
SL EC 501
person wants that never stops him from working and keeps him engaged in the work of earning money for the satisfaction of his wants. 2. Scarcity of Means - limited resources due to which economic problems arise.. But it should be noted that the means are scare with respect to their demand. 3. Selection / Urgency of Wants. Naturally, we go to satisfy our urgent needs / wants first and then the remaining ones. If all the wants are same there would be no urgency to fulfill then and hence no economic problem would arise. 4. Alternative Uses - Scars means are capable of alternative uses i.e. they can be put to a number of uses e.g water can be used for drinking as well as for cooking. The main problem arises that where the utilization should be made first. 5. Human Science - Economics is the study of human behavior as a whole both with in and out side the society. It does not restrict the subject matter within specific limits.
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allocating a firms scarce resources to achieve its desired objectives. Involves the ability to organize and administer various tasks in pursuit of certain objectives. Managerial economics is the use of economic analysis to make business decisions involving the best use (allocation) of an organizations scarce resources.
Making appropriate business decision requires clear understanding of market conditions of product, inputs & financial markets which require application of economic concepts, theories & tools.
profits.
objectives efficiently. Managerial economics shows the logic of consumer, and government decisions.
What is Managerial
Douglas - Managerial economics is .. the application
of economic principles and methodologies to the decision-making process within the firm or organization.
Pappas & Hirschey - Managerial economics applies
application of economic theory and the tools of analysis of decision science to examine how an organisation can achieve its objectives most Shaila Srivastava SL EC 501 effectively. ME
What is Managerial
Howard Davies and Pun-Lee Lam It is the application of economic analysis to business problems; it has its origin in
theoretical microeconomics.
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Shaila Srivastava
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How Can Managerial Economics Assist Decision-Making? 1. Adopt a general perspective, not a sample of one
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what is a firm? what are the firms overall objectives? what pressures drive the firm towards profit and away from profit
The basis for some of the more rigorous analysis of issues in Marketing and Strategic Management.
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How people interact with each other. The forces and trends that affect the economy as a whole.
and therefore cannot produce all the goods and services people wish to have. It is relative to needs/ends.
In Economics:
Trade off Choosing one thing to give up other that
give rise to opportunity cost (Next best alternative use of resources). Example PPC
Efficiency and Productivity How well we use
scarce resources in order to get maximum output. Productivity - relation of inputs & output.
Utility Power of economic goods to satisfy human
Economics is
Science or Arts? Science systematic body of knowledge that explain the relationship betweens causes and effects. Arts deals with wants, needs and demand of human being. Pure Economics or Applied Economics? Nature of economics Positive or Normative? Positive- What is. Normative How things ought to be.
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Economic Activities :
Consumption: Extracting utility from goods and
services. Production: Production of goods and services which posses utility. Exchange: means buying and selling of goods and services. It is link between consumer and producer. Distribution: Sharing of income by the four factors of production.
ME
Shaila Srivastava
SL EC 501
Frisch was the first to use the terms micro and macro in economics in 1933.
The terms micro and macro derived from Greek. Mikros (small) and makros (large). Micro means individualistic and macro aggregative.
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Shaila Srivastava
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Where micro economics explain a tree in the forest, macro economics explains all the trees in the forest.
Micro economics
Is the study of particular
Macro economics
firms, households, individual prices and particular commodity. Popularized by David Ricardo, Marshall, J.B Say and J.S Mill. Micro economics called as Price Theory.
Assumption - full employment and ceteris paribus (other things remain constant).
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system as a whole. studies aggregates values like National Income, National output, general price level, total consumption, saving and investment of a country. J.M Keynes popularized macro Economics Macro economics is called Income and Employment theory.
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Macro Economics Income & Employment theory Theory of Consumption Theory of Savings & Investment Business Environment Theory of D & S of Money Theory of Growth & Development Money & Capital market; Corporate Finance Theory of Exchange Theory of Public Finance International Business Mgt
Where to produce
Thus Economics is about how society allocates its scarce
resources, how the economy works, how business and government make decisions and how these decisions affect the individuals. How the prices of labour, capital, and land are set in the economy, and how these prices are used to allocate resources.
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societys resources?
How should they be produced? No capital at all Small amount of capital More capital Who should get them? How do we distribute these products among the different groups and individuals in our society?
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Shaila Srivastava
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cost of a choice may only be a part of opportunity cost of that choice Opportunity cost of a choice includes both explicit costs and implicit costs Explicit costdollars actually paid out for a choice Implicit costvalue of something sacrificed when no direct payment is made
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every problem that economists study, whether it be explaining the behavior of consumers or business firms or understanding important social problems like problems like poverty or racial discrimination.
Basic Principle
All economic decisions made by individuals or society are costly The correct way to measure the cost of a choice is its opportunity
Moving from point A to point B requires shifting resources out of other goods and into health care.
D
500,000 400,000
F
100,000 200,000 300,000 400,000 500,000 Number of Lives
opportunity cost
The more of something we produce
production choices
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2. then moved to the PPF during the war. Both military and civilian production increased.
Economic Growth
If economy is already operating on its PPF
Cannot exploit opportunity to have more of everything by moving to it
An increase in physical capital enables economy to produce more of everything that uses these tools
More factories, office buildings, tractors, or high-tech medical equipment Skills of doctors, engineers, construction workers, software writers, etc.
quantity of resources
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Shaila Srivastava
SL EC 501
Economic Growth
Increases in capital and technological change often go
hand in hand For instance, PET body scanners will enable us to save even more lives than our current set of resources
Moving horizontal intercept of PPF rightward, from F to F Impact of PET scanners stretches PPF outward along horizontal axis
shift other resources out of medical care and into production of other things
Because of technological advance and new capital, we can shift resources without sacrificing lives
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Shaila Srivastava
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Economic Growth
If we can produce more of the things that we value, without having to produce less of anything else,
4. or more lives saved and greater production of other goods. 3. The economy can end up with more lives saved and un-changed production of other goods . . .
J
700,000
F'
500,000 600,000
to limited means having alternative uses to satisfy unlimited wants. Scarcity of resources
Economic activity : matching ends to means Economic (optimal) decision making : Act of optimal choice considering constraint & objectives
positive in approach
Business Environment
It consists of two factors Internal environment firm's resources, business strategy, value system, objectives, mgt structure External environment business opportunities & threats to business Business environment consists of: economic, legal, social & political environment.
Economic Environment
Core of all external environments. Economic
strengths & weaknesses important for determining legal, social & political environment Economic policies, domestic & international environment. Important to determine business environment. It includes a. Nature of economy (rich/poor) b. Structure of economy(composition of NI) c. Economic policies(industrial, trade, foreign exchange, investment, fiscal, monetary, etc. d. Economic conditions(domestic & international
suppliers, marketing intermediaries, competitors, customers & the public. Macro- demographic, economic, technical, political & cultural environment. Macro environments is more uncontrollable than micro.
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Shaila Srivastava
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allocates its scarce resources, how the economy works, how business & government make decisions and how these decisions affect the individuals.
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Economic System
An economic system is a nations plan for
answering the key economic questions. Governments (democratic, socialist, communist) take differing approaches to how they allow their economic systems to operate. However, no systems operate in a pure form.
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two features
Mechanism for allocating resources
Market Economy
Individuals decide by buying and selling in a market. No one tells consumers what to buy and no one tells businesses what to make and sell Consumers and businesses make their own decisions based on their interests. Profit is the motivator Market forces demand & supply Examples of this economy
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(Centrally-Planned)
Economic questions are answered by the
owners of the resources. Resources are controlled by the government They decide how much of each item is to be produced Use military to enforce these decisions People have little say in price or supply Examples of this economy?
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command
Government uses regulations of various types to impose constraints on our individual choice The market is the dominant method of resource allocation in India
However, it is not a pure market
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May succeed or fail Private Property - Own, use, and dispose of things Profit - Money from sales after costs Competition - Rivalry among businesses to sell their goods and services to buyers, Allows consumers to make choices, Keeps prices reasonable Freedom of Choice - You can buy what you want (if its legal), Enter into a business or career of your choice
ME Shaila Srivastava SL EC 501
ME
Shaila Srivastava
SL EC 501
ME
Shaila Srivastava
SL EC 501
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Shaila Srivastava
SL EC 501