E1 Intecon


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E1 Intecon

  1. 1. <ul><li>Create a comprehensive framework of economic thinking to make business decisions </li></ul><ul><li>Understand journalistic and general economic literature </li></ul><ul><li>Create an awareness of the realities of social, economic & political situation in Sri Lanka </li></ul>By Ajith Rohana Colonne B.Sc., MBA, M.A.(Econ) BUSINESS ECONOMICS LEARNING OBJECTIVES
  2. 2. <ul><li>Introduction to Economics </li></ul><ul><li>The Price Mechanism – Demand and Supply </li></ul><ul><li>Consumer Behaviour </li></ul><ul><li>Elasticity of Demand and Supply </li></ul><ul><li>Economic and Financial Concepts for Entrepreneurship </li></ul><ul><li>Theory of the Firm: Production & Costs </li></ul><ul><li>Market Structures </li></ul><ul><li>International Trade </li></ul><ul><li>Clustering & Globalization </li></ul>MICROECONOMICS COURSE OUTLINE
  3. 3. <ul><li>Inflation </li></ul><ul><li>Unemployment </li></ul><ul><li>National Income </li></ul><ul><li>Fiscal Policy </li></ul><ul><li>Economic Growth & Development </li></ul><ul><li>Monetary Policy </li></ul><ul><li>Exchange Rate </li></ul><ul><li>Balance of Payments </li></ul>MACROECONOMICS COURSE OUTLINE
  4. 4. <ul><li>Financial Instruments </li></ul><ul><li>An Introduction to New Institutional Economics </li></ul>OTHER RELEVANT TOPICS COURSE OUTLINE
  6. 6. <ul><li>Land </li></ul><ul><li>Labour </li></ul><ul><li>Capital </li></ul><ul><li>Entrepreneurship </li></ul>FOUR FACTORS OF PRODUCTION
  7. 7. LAND
  8. 8. RENEWABLE RESOURCES NON-RENEWABLE RESOURCES Pricing is based on Market Forces (Demand & Supply) Pricing is based on User Costs (present value of future prices)
  9. 9. LABOUR SPECIALIZATION OF LABOUR DIVISION OF LABOUR <ul><li>INCLUDES: </li></ul><ul><li>Who are already working </li></ul><ul><li>Who are looking for work </li></ul><ul><li>Self Employed </li></ul><ul><li>Members of Armed Forces </li></ul><ul><li>EXCLUDES: </li></ul><ul><li>Students </li></ul><ul><li>Retired Persons </li></ul><ul><li>Housewives </li></ul>
  10. 10. CAPITAL FIXED CAPITAL WORKING CAPITAL <ul><li>FIXED CAPITAL: </li></ul><ul><li>Required to buy Machinery & Equipment </li></ul><ul><li>Limited lifespan </li></ul><ul><li>Subject to depreciation </li></ul><ul><li>Not convertible </li></ul><ul><li>WORKING CAPITAL: </li></ul><ul><li>Required to buy raw material inputs </li></ul><ul><li>Meet recurrent expenditure </li></ul>
  11. 11. HUMAN CAPITAL SOCIAL CAPITAL Schwartz Model can be used to asses the value of Human Capital in an organization
  12. 13. ENTREPRENEURSHIP An Entrepreneur is a person who takes a higher investment risk with his assets, in view of a higher return
  13. 14. <ul><li>Human wants are unlimited </li></ul><ul><li>Resources are scarce </li></ul>RESOURCE ALLOCATION There are three important concepts associated with resource allocation: <ul><li>Scarcity </li></ul><ul><li>Choice </li></ul><ul><li>Opportunity Cost </li></ul>
  14. 15. SCARCITY Scarcity is the foundation of economic problems.
  15. 16. Certain Needs such as hunger and thirst recur
  16. 17. When one Want is satisfied, another Want emerges
  17. 18. Advertising creates Wants Demonstration creates Wants
  18. 19. CHOICE Choice gives rise to Opportunity Cost
  19. 20. OPPORTUNITY COST The cost of best alternative foregone If you win five million rupees in a lottery today, what will you do with that money? Settle the Debts
  20. 21. <ul><li>The Running Cost is Rs. 300,000 (Rs. 25,000 X 12) a year </li></ul><ul><li>The Potential Interest Income is Rs. 600,000 (at 12%) for a year. </li></ul>VEHICLE FIXED DEPOSIT If the Sense of Satisfaction (Utility) you derive by buying the vehicle is less than Rs. 1,400,000 (300,000+500,000+600,000) a year, you are not making a prudent decision. <ul><li>Cost of Depreciation (at 10%) is Rs. 500,000 for a year </li></ul>DIRECT COST INDIRECT COST OPPORTUNITY COST
  21. 22. Suppose that you have Rs. 200 to buy Apples and Grapes. If a 1 kg of Apples is Rs. 50 and 1 kg of Grapes is Rs. 100, what are the Opportunity Costs of buying: <ul><li>Apples only? </li></ul><ul><li>Grapes Only? </li></ul><ul><li>1kg of Apples? </li></ul><ul><li>1kg of Grapes? </li></ul><ul><li>2 kg Grapes </li></ul><ul><li>4 kg Apples </li></ul><ul><li>½ kg Grapes </li></ul><ul><li>2 kg Apples </li></ul>
  22. 23. The Opportunity Cost is Zero for the following: <ul><li>Free Goods </li></ul><ul><li>Single-use Machines </li></ul><ul><li>Unemployment </li></ul>
  23. 24. SUNK COSTS Costs (or Losses) which have already been incurred in the past, but irrelevant to make decisions today. Suppose that you invested Rs. 1,500,000 in the Stock Market sometime back and now the investment is worth only Rs. 500,000. Financial Analysts predict the Stock Market to grow by 5% in the coming year and the market interest rate to be around 15%. Sell the Shares and go for a Fixed Deposit WHAT SHALL YOU DO?
  24. 25. PRODUCTIVITY Doing more with less. 2 + 2 = 3 INEFFICIENT 2 + 2 = 4 EFFICIENT 2 + 2 = 5 PRODUCTIVE Output / Input > 1 Improvement of Efficiency (& may be Effectiveness also).
  25. 26. Productivity enhancement of a specific industry Productivity enhancement of the country PRODUCTION POSSIBILITY CURVE Production Possibility Frontier A B a b Opportunity Cost National Productivity enhancement
  26. 27. There are three underlying assumptions with the Production Possibility Curve: <ul><li>Economic Resources (factors of production) are fixed </li></ul><ul><li>State of Technology (methodology of production) is given </li></ul><ul><li>There is full employment (utilization) of resources </li></ul>
  27. 28. VALUE & VALUE IN EXCHANGE Value is greater than Value in Exchange Value in Exchange is greater than Value
  28. 29. <ul><li>Gives Utility </li></ul><ul><li>Has a Money Value </li></ul><ul><li>Limited in Supply </li></ul><ul><li>Ownership is possible </li></ul>ECONOMIC WEALTH
  29. 30. <ul><li>Personal </li></ul><ul><li>Business </li></ul><ul><li>Social </li></ul>CLASSES OF OWNERSHIP
  30. 31. <ul><li>What to produce? </li></ul><ul><li>How to produce? </li></ul><ul><li>For whom? </li></ul>THREE BASIC QUESTIONS ON PRODUCTION
  31. 32. The Market Pyramid in China, India & Brazil OPPORTUNITIES IN THE 21 ST CENTURY 105 700 800 Less than $5,000 27 125 330 60 $5,000 to $10000 15 63 9 7 2 $10000 to $20000 Greater than $20000 Tier 1 Tier 3 Tier 2 Purchasing power (in U.S, dollars) Population (in millions) China Brazil India Tier 4
  32. 33. Pareto Improvement: Transfer of income or wealth from one to another in a manner that it increases the utility or the sense of satisfaction of both the donor and the recipient. Etah - dairy farming
  33. 34. METHODS OF ASSISTING THE POOR <ul><li>Protect and expand the asset bases </li></ul><ul><li>Co-manage and co-invest in resources </li></ul><ul><li>Develop infrastructure </li></ul><ul><li>Introduce technology </li></ul><ul><li>Partnerships </li></ul>
  34. 37. <ul><li>Traditional </li></ul><ul><li>Command (Socialist) </li></ul><ul><li>Market (Capitalist) </li></ul><ul><li>Mixed </li></ul>ECONOMIC SYSTEMS
  35. 38. TRADITIONAL <ul><li>Younger generations follow the older generations in their choice of occupation </li></ul><ul><li>Little or no change in the pattern of production of goods </li></ul><ul><li>Use of traditional production techniques </li></ul><ul><li>Production is distributed according to long established traditional methods such as imputation, bartering, share cropping etc. </li></ul>
  36. 39. COMMAND (SOCIALIST) <ul><li>Government decides on what is needed by the households </li></ul><ul><li>Little or no freedom of choice </li></ul><ul><li>Planning is subject to government bureaucracy </li></ul><ul><li>Practical difficulties in co-ordinating and managing large scale economic plans </li></ul><ul><li>Low level of production efficiency </li></ul>
  37. 40. <ul><li>Monolithic Government </li></ul><ul><li>Economic Development is the center of all activity </li></ul><ul><li>Restructuring of Socio, Political and Economic Environments </li></ul><ul><li>Creation & sustenance of excellent International Relationships </li></ul><ul><li>Political Stability </li></ul>
  38. 41. <ul><li>Failure of organization </li></ul><ul><li>Lack of quality </li></ul><ul><li>Lack of incentives </li></ul><ul><li>Environment degradation </li></ul>REASONS FOR FAILURE
  39. 44. MARKET (CAPITALIST) <ul><li>Some sectors in society are deprived from getting their basic needs </li></ul><ul><li>Underproduction of goods and services </li></ul><ul><li>Overproduction of goods and services </li></ul><ul><li>Elimination of competition </li></ul><ul><li>Wastage of resources </li></ul><ul><li>Provide Public and Merit goods </li></ul><ul><li>Price volatility </li></ul><ul><li>Consumer exploitation </li></ul>
  40. 45. MIXED SYSTEMS <ul><li>Government intervention desired </li></ul><ul><li>Correct inequalities of the free market </li></ul><ul><li>Adjust income redistribution </li></ul><ul><li>Provide Public and Merit goods </li></ul><ul><li>Regulate undesirable consequences of private production such as pollution </li></ul><ul><li>Define Industry & Trade policies </li></ul><ul><li>Manage Macroeconomic variables </li></ul>
  41. 46. END OF SESSION WEBSITE: neworiginalthinking.com