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Class 1 0810

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Class 1 0810

  1. 1. Managerial Economics
  2. 2. What do Economists Study? <ul><li>Tackling the problem of scarcity </li></ul><ul><ul><li>meaning of scarcity </li></ul></ul><ul><ul><li>production and consumption </li></ul></ul><ul><ul><ul><li>role of the business economist </li></ul></ul></ul><ul><ul><ul><ul><li>study of consumer behaviour </li></ul></ul></ul></ul><ul><ul><ul><ul><li>study of firms </li></ul></ul></ul></ul><ul><ul><li>factors of production </li></ul></ul><ul><ul><ul><li>labour </li></ul></ul></ul><ul><ul><ul><li>land and raw materials </li></ul></ul></ul><ul><ul><ul><li>capital </li></ul></ul></ul>
  3. 3. The Economic Problem <ul><li>Microeconomic issues </li></ul><ul><ul><li>choices: </li></ul></ul><ul><ul><ul><li>what </li></ul></ul></ul><ul><ul><ul><li>how </li></ul></ul></ul><ul><ul><ul><li>for whom </li></ul></ul></ul><ul><ul><li>the concept of opportunity cost </li></ul></ul><ul><ul><li>rational decision making </li></ul></ul><ul><ul><ul><li>weighing up marginal costs and marginal benefits </li></ul></ul></ul><ul><ul><li>the social implications of choice </li></ul></ul>
  4. 4. The Economic Problem SCARCITY CHOICE OPPORTUNITY COST LIMITED RESOURCES UNLIMITED WANTS WHAT TO PRODUCE HOW TO PRODUCE FOR WHOM TO PRODUCE
  5. 5. Opportunity Cost <ul><li>Opportunity cost is the next best alternative forgone when a choice is made </li></ul><ul><li>It is usually measured in terms of the good that must be given up </li></ul>
  6. 6. The Economic Problem <ul><li>The production possibility curve </li></ul><ul><ul><li>what the curve shows </li></ul></ul>
  7. 7. Units of clothing (millions) Units of food (millions) A production possibility curve Units of food Units of clothing (millions) (millions) 8m 0.0 7m 2.2m 6m 4.0m 5m 5.0m 4m 5.6m 3m 6.0m 2m 6.4m 1m 6.7m 0 7.0m
  8. 8. Units of clothing (millions) Units of food (millions) Units of food Units of clothing (millions) (millions) a 8m 0.0 7m 2.2m 6m 4.0m 5m 5.0m 4m 5.6m 3m 6.0m 2m 6.4m 1m 6.7m 0 7.0m a A production possibility curve
  9. 9. Units of clothing (millions) Units of food (millions) Units of food Units of clothing (millions) (millions) 8m 0.0 b 7m 2.2m 6m 4.0m 5m 5.0m 4m 5.6m 3m 6.0m 2m 6.4m 1m 6.7m 0 7.0m b A production possibility curve
  10. 10. Units of clothing (millions) Units of food (millions) Units of food Units of clothing (millions) (millions) 8m 0.0 7m 2.2m c 6m 4.0m 5m 5.0m 4m 5.6m 3m 6.0m 2m 6.4m 1m 6.7m 0 7.0m c A production possibility curve
  11. 11. Units of clothing (millions) Units of food (millions) Units of food Units of clothing (millions) (millions) 8m 0.0 7m 2.2m 6m 4.0m 5m 5.0m 4m 5.6m 3m 6.0m 2m 6.4m 1m 6.7m 0 7.0m A production possibility curve
  12. 12. Units of clothing (millions) Units of food (millions) A production possibility curve
  13. 13. Units of clothing (millions) Units of food (millions) x A production possibility curve w
  14. 14. <ul><li>The Principle of Increasing Opportunity Cost (“The Low-Hanging-Fruit Principle”) </li></ul><ul><ul><li>In expanding the production of any good, first employ those resources with the lowest opportunity costs, and only afterward turn to resources with higher opportunity costs </li></ul></ul>Production Possibilities

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