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Basic Concepts Unit 1_Business Economics
- 4. TIME VALUE OF MONEY
- 5. MARGINALISM • When the resources are scare, manager have to be careful about utilizing each and every additionally unit of resources or input. For example if one has to decide whether an additional man-hour or machine-hour is to be used ,it is necessary to ascertain what is the additional output expected from it. • For all such additional magnitudes of output or return, economists use the term “marginal”. • Marginal Cost & Marginal Revenue
- 6. INCREMENTALISM • Incremental concept involves estimating the impact of decision alternatives on cost and revenue, emphasizing the changes in total cost and total revenue resulting from changes in prices ,product, procedures, investments or whatever may be at stake in the decision. • The two basic component of incremental reasoning are: incremental cost and incremental revenue. • Incremental cost may be defined as the change in total cost resulting from a particular decision. • Incremental revenue is the change in total revenue resulting from a particular decision.
- 7. EXAMPLE IF A FIRM DECIDES TO GO FOR COMPUTERIZATION OF MARKET INFORMATION, THE ADDITIONAL REVENUE IT EARNS WILL BE TERMED INCREMENTAL REVENUE AND THE EXTRA COST OF SETTING UP COMPUTER FACILITIES WILL BE TERMED INCREMENTAL COST.
- 8. MARKET FORCES & EQUILLIBRIUM
- 9. Equilibrium – A state of rest
- 10. RISK,RETURN & PROFIT • Risk refers to decision which is expected to result in more than one output and probability of each outcome is known to decision makers.
Editor's Notes
- We can’t have everything we want in life. This is where scarcity factors in. Our unlimited wants are confronted by a limited supply of goods, services, time, money and opportunities. This concept is what drives choices.
- How much do I value this? What am I giving up now to have this? What am I giving up in the future to have this now? A fundamental principle of economics is that every choice has an opportunity cost. If you sleep through your economics class (not recommended, by the way), the opportunity cost is the learning you miss. If you spend your income on video games, you cannot spend it on movies. If you choose to marry one person, you give up the opportunity to marry anyone else. In short, opportunity cost is all around us. The idea behind opportunity cost is that the cost of one item is the lost opportunity to do or consume something else; in short, opportunity cost is the value of the next best alternative.