Business Economics 02 Introduction to Business Economics


Published on

Published in: Technology, Economy & Finance
  • Be the first to comment

No Downloads
Total views
On SlideShare
From Embeds
Number of Embeds
Embeds 0
No embeds

No notes for slide

Business Economics 02 Introduction to Business Economics

  2. 2. <ul><li>SBI targets existing customers for second home loans </li></ul><ul><li>What's a citizen's life worth? </li></ul><ul><li>Are cricket matches justified even at the cost of productivity loss? </li></ul><ul><li>Toyota’s Liva to take on Swift, Polo, Micra. </li></ul><ul><li>Turbulent flight: Can Air India Survive? </li></ul><ul><li>Ambanis, Birlas, actors earn in multi crores: is it justifiable? </li></ul><ul><li>Markets can digest only one more rate hike by RBI. </li></ul><ul><li>Fuel price hike to push inflation into double digit. </li></ul><ul><li>China’s products to be expansive due to wage rise. </li></ul>
  3. 3. Economics <ul><li>Defined “as a social science which covers the actions of individuals and groups of individuals in the process of producing, exchanging and consuming of goods and services to achieve optimization of resource use” </li></ul><ul><li>What decisions ? </li></ul>
  4. 4. <ul><li>Production Decisions </li></ul><ul><li>Exchange Decisions </li></ul><ul><li>Consumption Decisions </li></ul>
  5. 5. Problems in the economy ?
  6. 6. <ul><li>The problem of scarcity </li></ul><ul><li>excess of human wants over what can actually be produced. </li></ul><ul><li>Production possibility curve (PPC) </li></ul><ul><li>a curve showing all the possible combinations of two goods that a country can produce within a specified time period with all its resources fully and efficiently employed. </li></ul>
  7. 7. PPC <ul><li>Gives choice - rational choice that involves weighing up the benefits of any activity against its opportunity cost. </li></ul><ul><li>Shows scarcity. </li></ul><ul><li>Opportunity cost - is the cost of any activity measured in terms of the best alternative/s forgone. Increasing opportunity cost of production – when additional production of one good involves ever increasing sacrifices of another. </li></ul><ul><li>Growth in potential output. </li></ul>
  8. 8. Problems of an economy <ul><li>What to produce </li></ul><ul><li>How to produce </li></ul><ul><li>How to distribute </li></ul><ul><li>How to grow </li></ul>
  9. 9. Solve the problems
  10. 10. <ul><li>Other questions to discuss </li></ul><ul><li>Q.1. Could output and consumption take place without money? </li></ul><ul><li>Q.2. If we would all like money, why does the govt. not print a lot more? could it not solve the problem of scarcity ‘at a stroke’? </li></ul><ul><li>Q.3. If there are several other things, you could have, is the opportunity cost the sum of all of them? </li></ul>
  11. 13. Energy, Air, Water, Amenities Air pollution, solid waste, waste heat, waste pollution The Materials Balance Model :the interdependence of economic activity and the nature- closed system and open system Nature Output market Factor market Households Firms Natural resources drawn from nature Residuals from consumption Residuals from production Suppl y of goods and services Reuse--recycling--recovery Demand for resources Supply of resources Demand for goods and services Recovery --- recycling -- reuse
  12. 14. <ul><li>Dividing up the subject </li></ul><ul><li>Macro – aggregate demand, aggregate supply and determination of national output, problems of recession, unemployment, inflation, balance of payment, cyclical instability and policies adopted by govt. to deal with these problem. </li></ul><ul><li>Micro – production, consumption, exchange and govt. regulation what, how much, how, for whom </li></ul>
  13. 15. Case - Disney Corporation <ul><li>Pinocchio priced at $79.95 – sold 100,000 copies </li></ul><ul><li>priced at $29.95 and sold over 300,000 copies </li></ul><ul><li>uses sophisticated pricing strategies such as: </li></ul><ul><li>- bundling - bundle of Disney cruise with a stay at their Disney world theme park in Florida, a McDonalds kid’s meal and action figures from their movies and several of their cable channels to cable customers </li></ul><ul><li>- price discrimination </li></ul>
  14. 16. Case - The Boeing Company <ul><li>In 1970s managers set out two-prong approach- low cost and technological leader </li></ul><ul><li>1980s- 81% of market share- seven fold increase with high profits </li></ul><ul><li>In 1991 $45 million profit on every 747 sold for $ 150 million </li></ul><ul><li>Airbus- the principal rival , a joint venture British, French, German and Spanish aerospace firms in 1974 – by 1997 captured 33% of market with technological advances and low cost leadership </li></ul><ul><li>Boeing to drop prices >earnings fell to 31% relative to 1991 </li></ul>
  15. 17. <ul><li>Link between economic theory and the decision sciences </li></ul>problems faced by decision makers in management economic theory managerial economics, which applies and extends economics and the decision sciences to solve management problems decision sciences solution to decisions problems faced by managers
  16. 18. Basic process of decision making
  17. 19. Business economics <ul><li>Deals with the decision making and forward planning in uncertainty and integrates economic theory with business practice for the purpose of facilitating decision-making and forward planning by management. </li></ul>
  18. 20. Aspects of application <ul><li>Use of optimization techniques to improve organizational decisions </li></ul><ul><li>Consideration of individual consumer choice to understand individual and market demand decisions and to forecast demand </li></ul><ul><li>Analyze cost and supply structure to understand supply decisions </li></ul><ul><li>Understanding markets </li></ul><ul><li>Understanding external factors like unemployment, inflation </li></ul>