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DBM
Economic Analysis
Semester - I
Sonia Singh
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Economic Mysteries
Why have paper towels
replaced hot-air hand
dryers in public restrooms?
Why do prices of some goods, like apples,
go down during months of heaviest
consumption, while others like beachfront
cottages, go up?
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What is Economics?
Economics is the study of how economic agents
or societies choose to use scarce productive
resources that have alternative uses to satisfy
wants which are unlimited and of varying
degrees of importance need of economics
arises because of
a) Unlimited wants
b) Scarce resources with alternative uses
Microeconomics
The study of the decisions of people and
businesses and the interaction of those
decisions in markets. The goal of
microeconomics is to explain the
prices and quantities of individual
goods and services.
MACROECONOMIC QUESTION
Economic Theory
Microeconomics
Study of the economic behavior of individual
decision-making units.
Relevance to Managerial Economics
Macroeconomics
Study of the total or aggregate level of output,
income, employment, consumption,
investment, and prices for the economy
viewed as a whole.
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Economic Methodology
Economic Models
Abstract from details
Focus on most important determinants of
economic behavior cause and effect
Decision Sciences
Mathematical Economics
Expresses and analyzes economic models
using the tools of mathematics.
Econometrics
Employs statistical methods to estimate and
test economic models using empirical data.
Market Mechanism
Managerial Economics
Manager
A person who directs resources to achieve a stated
goal.
Economics
The science of making decisions in the presence of
scare resources.
Managerial Economics
The study of how to direct scarce resources in the
way that most efficiently achieves a managerial goal.
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MANAGERIAL ECONOMICS
The application of economics theories
and principles in managerial problems with
the purpose of optimization of decision
making.
Decision making involves the activities
regarding production, distribution and
consumption.
Nature of Decision
What goods shall firm produce?
How should firm raise the necessary capital and
what shall be its legal form.
What technique shall be adopted, and what shall
be the scale of operations?
Where production is located?
How shall its product be distributed?
How shall resources be combined?
What shall be the size of output?
How shall it deal with its employees?
Types of Decision
Organizational and personal decisions
Basic and routine decisions
Programmed and non-programmed
decisions.
Economic Conditions
Market Structure
Supply and Demand conditions
State of Technology
Govt. Regulations
International Dimensions
Future Macroeconomic factors
Market Interactions
Consumer-Producer Rivalry
Consumers attempt to locate low prices, while
producers attempt to charge high prices.
Consumer-Consumer Rivalry
Scarcity of goods reduces the negotiating power of
consumers as they compete for the right to those
goods.
Producer-Producer Rivalry
Scarcity of consumers causes producers to
compete with one another for the right to service
customers.
Serve customers.
Provide employment opportunities.
Obey laws and regulations.
The
Therole
roleofofmanagerial
managerialeconomics
economicsininmanagerial
managerialdecision
decisionmaking
making
Business
An organization that provides goods or
services to earn profits
Profits
The difference between a businesss
revenues and its expenses
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Economic System
A nations system for
allocating its resources
among its citizens
Factors of Production
Resources
Resources used
used in
in the
the production
production of
of
goods
goods and
and services
services
Newer
Newer perspectives
perspectives include:
include:
5.
5. Physical
Physical Resources
Resources
6.
6. Information
Information Resources
Resources
Factors of Production
Natural Resources
Materials supplied by nature (such as land,
water, mineral deposits, and trees)
Capital
Funds needed to create and operate a business
enterprise
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Factors of Production
Entrepreneur
Person who starts a new business or makes the
decisions that expand a small business
Physical Resources
Tangible things organizations use in the conduct of
their business
Information Resources
Data and other information used by a business
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Market Economy
Individuals control production and allocation
decisions through supply and demand
Planned Economies
Communism
Planned economic system in which the
government owns and operates all major
sources of production
Socialism
Planned economic system in which the
government owns and operates selected
major sources of production
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Market Economies
Market
Mechanism for exchange between buyers and
sellers of a particular good or service
Input Market
Firms buy resources from supplier households
Output Market
Firms supply goods and services in response to
demand on the part of households
Capitalism
Market economy that provides for private
ownership of production and encourages
entrepreneurship by offering profits as an incentive
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OUTPUT MARKETS
DEMAND
Goods
Services
FIRMS
Supply products in
output markets
Demand resources
in input markets
DEMAND
HOUSEHOLDS
INPUT MARKETS
Labor
Capital
Entrepreneurs
Physical Resources
Information Resources
Demand products in
output markets
Supply resources in
input markets
SUPPLY
1-45
Socialism
Planned economic system in which the
government owns and operates only selected
major sources of production
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Marginal Principle
To maximize net benefits, the
managerial control variable should be
increased up to the point where MB =
MC
MB > MC means the last unit of the
control variable increased benefits
more than it increased costs
MB < MC means the last unit of the
control variable increased costs more
than it increased benefits
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Marginal Analysis
The
Should
youYou
keep
your
business
open
Scenario:
are
managing
a fast
forfood
one additional
hamburgerhour?
restaurant.
You currently close at 10 pm every
night, but are considering
extending your hours to 11 pm on
weekends.
What are the relevant
considerations?
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Your
monthly rent?
Other
sunk costs?
The
weekly revenues?
Your
hour?
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ECONOMIC SYSTEMS
LAISSEZ-FAIRE ECONOMIES:
THE FREE MARKET
laissez-faire economy
Literally from the French:
allow [them] to do. An
economy in which individual
people and firms pursue their
own self-interests without any
central direction or regulation.
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Consumer Sovereignty
consumer sovereignty The
idea that consumers ultimately
dictate what will be produced
(or not produced) by choosing
what to purchase (and what
not to purchase).
Distribution of Output
The amount that any one household
gets depends on its income and wealth.
Income is the amount that a household
earns each year. It comes in a number of
forms: wages, salaries, interest, and the
like.
Questions
A)
to learn a way of thinking.
B)
to understand society and global affairs.
C)
to be an informed voter.
D)
All of the above
Answer:D
A) opportunity cost.
B) marginalism.
C) efficient markets.
D)All of the above
Answer:
D
B)
In large measure, economics is the study of how people
make choices.
Answer:
C
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B)
is a way of analyzing decision-making processes caused
by scarcity.
C)
is concerned with proving that capitalism is better than
socialism.
D)
focuses on how a business should function.
Answer: B
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B)
There should be no unemployment in an advanced industrial society.
C)
Higher prices cause consumers to buy less.
D)
Equilibrium price implies that quantity demanded equals quantity
supplied.
Answer:
B
B)
Higher prices cause consumers to purchase less.
C)
Consumption should be distributed fairly in society.
D)
People should pollute as little as possible.
Answer:
B
Answer:
True
False
A= F
A)
positive economics.
B)
normative economics.
C)
macroeconomics.
D)
microeconomics.
Answer:
D
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B)
are a focus of microeconomics.
C)
are a focus of positive economics.
D)
are a focus of macroeconomics
Ans
=D
marginalism
descriptive economics
microeconomics
economic growth
model
economic theory
normative economics
economics
efficiency
opportunity cost
efficient market
positive economics
empirical economics
scarce
equity
stability
sunk costs
Industrial Revolution
macroeconomics
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variable
The
Therole
roleofofmanagerial
managerialeconomics
economicsininmanagerial
managerialdecision
decisionmaking
making
The
Therole
roleofofmanagerial
managerialeconomics
economicsininmanagerial
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decision
making
making
Managerial
decision
Managerial decisionproblems
problems
Product
Productprice
priceand
andoutput
output
Make
or
buy
Make or buy
Production
Productiontechnique
technique
Internet
Internetstrategy
strategy
Advertising
Advertisingmedia
mediaand
andintensity
intensity
Investment
Investmentand
andfinancing
financing
Economic
Economicconcepts
concepts
Theory
Theoryofofconsumer
consumerbehaviour
behaviour
Decision
Decisionmaking
makingtools
tools
Numerical
Numericalanalysis
analysis
Theory
Theoryofoffirm
firm
Theory
Theoryofofmarket
marketstructures
structuresand
and
pricing
pricing
Statistical
Statisticalanalysis
analysis
Forecasting
Forecasting
Game
Gametheory
theory
Optimisation
Optimisation
Managerial
ManagerialEconomics
Economics
Use
of
economics
Use of economicsconcepts
conceptsand
and
decision
making
tools
to
solve
decision making tools to solve
managerial
managerialdecision
decisionproblems
problems
Optimal
Optimalsolutions
solutions
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Thank You
Please forward your query
To: sonia23singh@gmail.com
CC:
manoj.amity@panafnet.com
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