HOW DO YOU DEFINE MANAGEMENT?
• WORKING TOGETHER FOR A COMMON
GOAL
• COORDINATION
• AN ACTIVITY/ ONGOING PROCESS
• AN ART ...
• THE FOCUS OF MANAGERIAL
ECONOMICS IS ON HOW THE FIRM
REACTS TO CHANGES IN ECONOMIC
ENVIRONMENT IN WHICH IT
OPERATES AND ...
• THE FOCUS OF MANAGERIAL ECONOMICS IS ON
HOW THE FIRM REACTS TO CHANGES IN
ECONOMIC ENVIRONMENT IN WHICH IT OPERATES
• AN...
Economics is a study of market structures
and consumer behaviour
• THE MARKET IS THE SINGLE MOST
IMPORTANT AND COMPLEX INS...
Basic economic concepts
1.Invisible hand
5
.Opportunity cost principle
The Next Best Thing That a Person Can
engage in is referred to as the opportunity
cost of doin...
3.Time perspective
principle:take in to
account both short run
and long run
perspectives
7
Opportunity Cost
• To get one thing that we like, we usually
have to give up another thing that we like.
Making decisions ...
4. Discounting principle:
if a decision affects cost and revenues at
future dates,it is necessary to discount
those costs ...
5.equi-marginal
principle:
An input should be so allocated that the
value added by the last unit is the same
in all cases
11
• Be all and end all of all
human efforts is
consumption.
• The whole and sole
purpose of economy is
production of good...
12
• Macro economics is the
study of the behaviour of
the economy as a whole.
• It contrasts with micro eco
which studies:...
13
Basic Economic Problem
• “Economics is a science which
studies human behaviour as a
relationship between ends and
human...
14
Wants are unlimited
Means to satisfy
wants are limited but
means or resources
can be put to
alternative uses.
15
Basic Problems of an
Economy
• What to produce?
• How to produce?
• For whom to produce?
• What provision be made
for e...
16
“He who can not see beyond
the dawn will have much
good wine to drink at
noon, much green wine to
cure his headache at ...
• Heaven lies at the feet of mothers.
God’s pleasure is in a father’s pleasure;
and God’s displeasure is in a father’s
dis...
18
“Economics is the study of how men
& society choose, with or without the
use of money, to empoy scarce
productive resou...
19
Micro Economies
1. Studies the behaviour of
individual units and small groups
– individual
consumes, producer, firm.
• ...
20
• Where to sell
• At what price
• Production Structure
• Technology Location
• How the market functions
• Working of a ...
21
• How a completely planned
economy works.
• Scarcity and efficiency:
economic benefits comes
from self-interested
actio...
22
Basic issues of micro
economies
Studies the economic actions and
behaviour of individual units such as
1. Individual Co...
23
Important and uses of
micro Economies
• Explains how a free market
economy functions.
• How the goods and services
prod...
24
• How factors of production
are paid.
• What are the gains from
international trade.
25
Free Market Economy or
Capitalist Economy
Chief Features
• Right of private property
• Freedom of Enterprise
• Freedom ...
26
• Profit Motive
• Competition
• Role of Price Mechanism
(Impersonal Forces of Market to
Solve central problem of
Econom...
27
• Deciding what to produce
• Deciding how to produce
• Deciding what and for whom to
produce
• Deciding what about rate...
28
Consumer Sovereignty
• In a free market economy
consumer is perceived to be
sovereign
• Consumer places the
order, deci...
29
• High pressure salesmanship
puts a check on consumer
sovereignty-
radio, television, newspapers, h
oardings at railway...
30
Problems of free market
economy
• Does not ensure maximum
social satisfaction.
• Principle of consumer
sovereignty not ...
31
• Does not ensure high rate of
eco growth.
• Decline of competition and
its adverse effects
• Concentration of wealth a...
32
Role of counter vailing
power in correcting the
weaknesses of a free
market economy
33
To day powerful corporate
sellers often face equally
powerful corporate buyers; the
giant steel mill to the giant auto
...
34
Issues in Macro Economics
• Why a country is poor or rich. How
a country can become rich?
• Road to economic progress a...
35
How are Basic Problems
Solved
Price Mechanism
Vs
Planning
36
Macro Economic
Aggregates
Aggregation involves
adding apples &
Oranges
37
Solution
• Gross Domestic Product
(GDP)- A measure of Economic
Activity.
• Aggregate consumption-
volume of goods and s...
38
• Aggregate investment-
Volume of goods and services
devoted to capital formation
during a period.
• Whole sale price i...
39
Government in Macro
Economy
Classical View
• Leave the economy to
markets
• Economy is always in full
employment
• Supp...
40
• Over production &
unemployment are short run
phenomenon
• Price & wage flexibility bring
about full employment
• No g...
41
Key Nesian View
• Investment is highly volatile
• Govt to actively participate in
economic life to correct the
fluctuat...
42
Part - II
43
Business Economics –
Nature, Scope and
Importance
Business economics in general
sense refers to the integration
of econ...
44
• Business economics applies
economic tools and
concepts to the
management of business. In
this sense business
economic...
45
Managerial Economics is concerned with
exploring real world business application
of the logical structure of micro-
eco...
46
An Overview
Business Economics is both
conceptual and metrical. As such the
knowledge of a few fundamental
concepts and...
47
• Business economics involves
allocation of the resources
available to a firm among its
activities in a manner that the...
48
Business Economics
What is Business Economics
• You should know compl exitiesof
decision making problems of a
business ...
49
MICRO ECONOMICS
MACRO ECONOMICS
50
Central Problems of
Economics
• Resources are scarce
• Wants/ Desires are unlimited
• Resources can be put to
alternati...
51
Types of Business Decision
• What to produce
• How to produce
• For whom to produce
• Where to produce
• AT what price ...
52
Board classification of
Business Decisions
• Price – output decisions
• Demand decision
• Choice of technique of
produc...
53
Managerial Decision
Making Process
• Establishing the objective of
a firm
• Profit Maximisation
• Sales Maximisation
54
Alternative Solutions
• Expanding the capacity vs
setting up a new plant vs any
other alternative.
• Requires data and ...
55
• In nutshell it can be concluded
that business economics refers
to the application of economic
theory and the tools of...
56
Features of Business
economics
• Business economics is
concerned with decision –
making of economic nature.
• Business ...
57
• Business economics is pragmatic.
It is concerned with those
analytical tools which are useful in
improving decision- ...
58
Definitions
• “Managerial economics is
concerned with the ways in which
managers should make decisions in
order to maxi...
59
• “Business economics is the
integration of economic theory
with business practices for the
purpose of facilitating dec...
60
Integration of Economic
Theory
• With the help of economic theory we
can understand the actual behavior of
business.
• ...
61
How does Business economics
differ from economics?
• Business economics
involves application of
economic principles
to ...
62
• In business
economics mainly
profit theory is used.
Other distribution
theories are not
much used
• Business economic...
63
• Though micro
in character
deals only with
the firm and
has nothing do
with an
individual’s
economic
problems.
• Micro...
64
Scope of Business Economics
• Theory of demand analysis and forecasting
• Theory of production and production
decisions...
THE MARGINAL PRINCIPLE :
LET BYGONES BE BYGONES
• One of the most important lessons of
economics is that you should look a...
RISK AND REWARD
• People are generally risk-averse,
preferring a sure thing to uncertain levels
of consumption or profit: ...
RISK AND RETURN ON
DIFFERENT ASSETS
• The rate of return is the total rupee gain
from a security (measured as percent of
t...
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Basic concept of eco

  1. 1. HOW DO YOU DEFINE MANAGEMENT? • WORKING TOGETHER FOR A COMMON GOAL • COORDINATION • AN ACTIVITY/ ONGOING PROCESS • AN ART OF GETTING THINGS DONE BY OTHER PEOPLE 1
  2. 2. • THE FOCUS OF MANAGERIAL ECONOMICS IS ON HOW THE FIRM REACTS TO CHANGES IN ECONOMIC ENVIRONMENT IN WHICH IT OPERATES AND HOW IT PREDICTS THESE CHANGES AND DEVISES BEST POSSIBLE STRATEGIES TO ACHIEVE THAT UNDERLIE ITS OBJECTIVES 2
  3. 3. • THE FOCUS OF MANAGERIAL ECONOMICS IS ON HOW THE FIRM REACTS TO CHANGES IN ECONOMIC ENVIRONMENT IN WHICH IT OPERATES • AND HOW IT PREDICTS THESE CHANGES AND DEVISES BEST POSSIBLE STRATEGIES TO ACHIEVE THAT UNDERLIE ITS OBJECTIVES 3
  4. 4. Economics is a study of market structures and consumer behaviour • THE MARKET IS THE SINGLE MOST IMPORTANT AND COMPLEX INSTITUTION IN OUR ECONOMY • Think of Money Market, Capital Market, Market for FMCG products, Insurance products, Matrimonial Market, Automobile Market, Housing Market, 4
  5. 5. Basic economic concepts 1.Invisible hand 5
  6. 6. .Opportunity cost principle The Next Best Thing That a Person Can engage in is referred to as the opportunity cost of doing the best thing. It expresses the basic relationship between scarcity and choice. It implies the choice between desirables. 6
  7. 7. 3.Time perspective principle:take in to account both short run and long run perspectives 7
  8. 8. Opportunity Cost • To get one thing that we like, we usually have to give up another thing that we like. Making decisions require trading off one goal against another. 8
  9. 9. 4. Discounting principle: if a decision affects cost and revenues at future dates,it is necessary to discount those costs and revenues to present values before a valid comparision of alternatives is possible A RUPEE TOMORROW IS WORTH LESS THAN A RUPEE TODAY 9
  10. 10. 5.equi-marginal principle: An input should be so allocated that the value added by the last unit is the same in all cases
  11. 11. 11 • Be all and end all of all human efforts is consumption. • The whole and sole purpose of economy is production of goods/ services for consumption now or in future.
  12. 12. 12 • Macro economics is the study of the behaviour of the economy as a whole. • It contrasts with micro eco which studies: A individual price A individual quantities, markets.
  13. 13. 13 Basic Economic Problem • “Economics is a science which studies human behaviour as a relationship between ends and human resources which have alternative uses.” Prof Robbins
  14. 14. 14 Wants are unlimited Means to satisfy wants are limited but means or resources can be put to alternative uses.
  15. 15. 15 Basic Problems of an Economy • What to produce? • How to produce? • For whom to produce? • What provision be made for economic growth ?
  16. 16. 16 “He who can not see beyond the dawn will have much good wine to drink at noon, much green wine to cure his headache at dusk and only rain water to drink for the rest of the days.”
  17. 17. • Heaven lies at the feet of mothers. God’s pleasure is in a father’s pleasure; and God’s displeasure is in a father’s displeasure. He who wishes to enter Paradise at the best door must please his father and mother. - Al-Quran Quoted by : A.P.J. ABDUL KALAM In his book : The Family and the Nation 17
  18. 18. 18 “Economics is the study of how men & society choose, with or without the use of money, to empoy scarce productive resources which could have alternative uses, to produce various commodities over time, and distribute them for consumption now and in the future among various people and groups.” Prof. Samuelson
  19. 19. 19 Micro Economies 1. Studies the behaviour of individual units and small groups – individual consumes, producer, firm. • How much to consume • What to produce • How to produce • Where to produce
  20. 20. 20 • Where to sell • At what price • Production Structure • Technology Location • How the market functions • Working of a free Market Economy • Role of price mechanism in allocating productive resources – invisible hand.
  21. 21. 21 • How a completely planned economy works. • Scarcity and efficiency: economic benefits comes from self-interested actions of individuals.
  22. 22. 22 Basic issues of micro economies Studies the economic actions and behaviour of individual units such as 1. Individual Consumer 2. Individual Producer (FIRM) 3. Theory of product prices. 4. Study of different type of markets 5. Distributional theories 6. Economic efficiency
  23. 23. 23 Important and uses of micro Economies • Explains how a free market economy functions. • How the goods and services produced are distributed among various people for consumption.
  24. 24. 24 • How factors of production are paid. • What are the gains from international trade.
  25. 25. 25 Free Market Economy or Capitalist Economy Chief Features • Right of private property • Freedom of Enterprise • Freedom of choice by consumers (consumer sovereignty)and factors of production
  26. 26. 26 • Profit Motive • Competition • Role of Price Mechanism (Impersonal Forces of Market to Solve central problem of Economics). Markets stand for the forces of demand and supply. Each individual knows where his self interest- lies.
  27. 27. 27 • Deciding what to produce • Deciding how to produce • Deciding what and for whom to produce • Deciding what about rate of growth • Solving all problems at the same time.
  28. 28. 28 Consumer Sovereignty • In a free market economy consumer is perceived to be sovereign • Consumer places the order, decides what should be produced • Consumers authority arises from his income. His ability to
  29. 29. 29 • High pressure salesmanship puts a check on consumer sovereignty- radio, television, newspapers, h oardings at railway stations, airports, colonies, mar ket place – all these bombard consumers. • Consumer sovereignty is indeed a MYTH.
  30. 30. 30 Problems of free market economy • Does not ensure maximum social satisfaction. • Principle of consumer sovereignty not valid. • Economic instability and unemployment- swings between boom and bust
  31. 31. 31 • Does not ensure high rate of eco growth. • Decline of competition and its adverse effects • Concentration of wealth and income.
  32. 32. 32 Role of counter vailing power in correcting the weaknesses of a free market economy
  33. 33. 33 To day powerful corporate sellers often face equally powerful corporate buyers; the giant steel mill to the giant auto firm, the giant producers to the giant super market chain. The large firms no longer bargain with the individual employees, but with large and powerful unions.
  34. 34. 34 Issues in Macro Economics • Why a country is poor or rich. How a country can become rich? • Road to economic progress and high rate of growth • What is inflations; why its takes place • How can we achieve full employment • Social Responsibility of Business
  35. 35. 35 How are Basic Problems Solved Price Mechanism Vs Planning
  36. 36. 36 Macro Economic Aggregates Aggregation involves adding apples & Oranges
  37. 37. 37 Solution • Gross Domestic Product (GDP)- A measure of Economic Activity. • Aggregate consumption- volume of goods and services devoted to current consumption during a period.
  38. 38. 38 • Aggregate investment- Volume of goods and services devoted to capital formation during a period. • Whole sale price index • Consumer price index • Total money supply, bank credit, foreign exchange reserve etc.
  39. 39. 39 Government in Macro Economy Classical View • Leave the economy to markets • Economy is always in full employment • Supply creates its own demand
  40. 40. 40 • Over production & unemployment are short run phenomenon • Price & wage flexibility bring about full employment • No govt interference or least interference
  41. 41. 41 Key Nesian View • Investment is highly volatile • Govt to actively participate in economic life to correct the fluctuations in investment, consumption , savings, output, employment, inc omes, through pro-active monetary and fiscal policy.
  42. 42. 42 Part - II
  43. 43. 43 Business Economics – Nature, Scope and Importance Business economics in general sense refers to the integration of economic theory with business practices.
  44. 44. 44 • Business economics applies economic tools and concepts to the management of business. In this sense business economics is called managerial economics or applied economics.
  45. 45. 45 Managerial Economics is concerned with exploring real world business application of the logical structure of micro- economics. The development of the discipline of Econometrics over last two decades has important implications for the pursuit of such real world applications of micro-economic concepts and precepts. We are now capable of estimating demand equations, cost functions, production functions and other relations of micro-economic theory into quantifiable form such that we can provide useful information to management for scientific decision- making.
  46. 46. 46 An Overview Business Economics is both conceptual and metrical. As such the knowledge of a few fundamental concepts and a few measurement techniques, relevant in the process of applying economic analysis in examining business decisions, is basic to the subject of Business Economics.
  47. 47. 47 • Business economics involves allocation of the resources available to a firm among its activities in a manner that the firm maximizes the profits sales and market share. It’s concerned with the application of economics in decision making.
  48. 48. 48 Business Economics What is Business Economics • You should know compl exitiesof decision making problems of a business entity. • You should know principles of economics and how they can be usefully employed is solving business problems and decision making
  49. 49. 49 MICRO ECONOMICS MACRO ECONOMICS
  50. 50. 50 Central Problems of Economics • Resources are scarce • Wants/ Desires are unlimited • Resources can be put to alternative uses • Economics is the science of choice making and resource allocation.
  51. 51. 51 Types of Business Decision • What to produce • How to produce • For whom to produce • Where to produce • AT what price to sell • How much investment is to be made • From where to raise resources to organise production.
  52. 52. 52 Board classification of Business Decisions • Price – output decisions • Demand decision • Choice of technique of production • Long run production decision • Advertising decision • Investment decision
  53. 53. 53 Managerial Decision Making Process • Establishing the objective of a firm • Profit Maximisation • Sales Maximisation
  54. 54. 54 Alternative Solutions • Expanding the capacity vs setting up a new plant vs any other alternative. • Requires data and information • Analyse policy environment and regulatory framework. • Anticipate problem-areas
  55. 55. 55 • In nutshell it can be concluded that business economics refers to the application of economic theory and the tools of analysis of decision science to find the optimal solution to business decision problems.
  56. 56. 56 Features of Business economics • Business economics is concerned with decision – making of economic nature. • Business economics is goal oriented and prescriptive
  57. 57. 57 • Business economics is pragmatic. It is concerned with those analytical tools which are useful in improving decision- making • Business economics brings forth solutions of problems, provides necessary conceptual tools and helps the decision maker by providing measurement of various economic entities and their relationships.
  58. 58. 58 Definitions • “Managerial economics is concerned with the ways in which managers should make decisions in order to maximize effectiveness or performance of the organisations they manage.” • “Business economics is a fundamental academic subject which helps to understand and to analyse problems of business decision making.”
  59. 59. 59 • “Business economics is the integration of economic theory with business practices for the purpose of facilitating decision making and forward planning by the management.” • Management decisions problems can be solved by the application of economic theory and tools of decision sciences.
  60. 60. 60 Integration of Economic Theory • With the help of economic theory we can understand the actual behavior of business. • Business economics attempts to estimate and predict the economic quantities and relationships. • Decision making and forward planning is done with the help of estimated economic quantities and relationships. • The managers cannot ignore the environment with which they operate.
  61. 61. 61 How does Business economics differ from economics? • Business economics involves application of economic principles to the problems of the firm. • It is micro- economics in character. • Economics deals with the body of the principles itself. • Is both macro- economic and micro economic.
  62. 62. 62 • In business economics mainly profit theory is used. Other distribution theories are not much used • Business economics adopts, modifies and reformulate economic models to suit the specific conditions and serves the specific problem solving process. • All Macro Economic theories like wages, interest and profit are also dealt with in economics. • It builds hypothesis and economic models.
  63. 63. 63 • Though micro in character deals only with the firm and has nothing do with an individual’s economic problems. • Micro economics as a branch of economics deals with both economics of the individual as well as economics of the firm.
  64. 64. 64 Scope of Business Economics • Theory of demand analysis and forecasting • Theory of production and production decisions • Analysis of market structure and pricing theory • Cost analysis • Profit analysis and profit management • Theory of capital and investment decisions • Investment management.
  65. 65. THE MARGINAL PRINCIPLE : LET BYGONES BE BYGONES • One of the most important lessons of economics is that you should look at the marginal costs and marginal benefits of decisions and ignore past or sunk costs. • This is the marginal principle, which means that people will maximize their incomes or profits or satisfaction by counting only the marginal cost and marginal benefits of a decision 65
  66. 66. RISK AND REWARD • People are generally risk-averse, preferring a sure thing to uncertain levels of consumption or profit: people prefer outcomes with less uncertainly and the same average values. For this reason, activities that reduce the uncertainties of consumption lead to improvements in economic welfare. 66
  67. 67. RISK AND RETURN ON DIFFERENT ASSETS • The rate of return is the total rupee gain from a security (measured as percent of the price at the beginning of the period). For saving accounts and short-term bonds, the return would be the interest rate. • Investment vary in their average returns and riskiness. Bonds tend to be safe, while stocks have much higher returns but face higher risks. 67
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