1. Business Economics (ECO 341)
Fall Semester, 2012
Khurrum S. Mughal
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2.  Required Texts & Readings:
 Economics, 19th Edition by Paul A. Samuelson & William D.
Nordhaus
 Recommended Readings: Articles from
 Economics, 4th Edition by David H. Hyman
 Economist Weekly, Business Section.
Course Material
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3.  Class Participation 5
 Quizzes 10
 Assignments 10
 Presentation 10
 Two Mid Term Examinations 25
 Final Exam 40
100
Grading Criteria
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4. 4

5. Economics
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6.  Definition:
 How societies use scarce resources to produce valuable
goods and services and distribute them among different
individuals.
(Economics, 19th Edition by Paul A. Samuelson & William D. Nordhaus)
Economics
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7.  Scarcity
 Production is never high enough
to meet everyone’s demand
 Wants are unlimited
 Efficiency
 An economy is producing
efficiently unless no individual’s
economic welfare can be improved
unless someone else is made worse
off
Economics
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8.  Microeconomics
 Study of economics at smaller scale
 Adam Smith: Markets, Firms, & Households
 Wealth of Nations (1776): Determination of prices of land, labour, &
capital; and strength and weaknesses of market mechanism
 Macroeconomics
 Study of overall performance of the economy
 General Theory of Employment, Interest & Money, John M Keynes (1936)
 What causes business cycles, with alternating spells of high unemployment
and high inflation
 Fallacies Encountered in Economic Reasoning:
 The post hoc fallacy - causality
 Failure to hold other things constant
 The fallacy of composition
Basics of Economics
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9.  Positive Economics
 Based on facts of an economy
 Normative Economics
 Involves ethical precepts and norms of fairness
Basics of Economics
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10.  Types of Economies
 Market Economies: Individual and private firms make
the major decisions regarding production and
consumption (laissez-faire economy)
 Command Economies: Government makes all
important decisions about production and distribution
 Mixed Economies
Basics of Economics
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11.  Limited Resources:
 Land
 Labour
 Energy
 Factories and tools
 Technical knowledge etc.
 Allocation among innumerable possibilities
 Choice of input and output allocation
 Factors of Production: land, labour and capital
Basics of Economics
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12. Basics of Economics
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13.  Opportunity Cost: The cost of giving up any activity
when one makes a choice to choose the best possible
alternative
 Example: Choosing between production of computers
and printers by a firm on PPF
Basics of Economics
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14.  Marginal Analysis: How much you get from using one
more unit
 Marginal Utility
 Marginal Product
 Marginal Revenue
 Marginal Cost
Basics of Economics
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15.  Time Dimension:
 Short Run
 Operating period in which at least one factor of production is
in fixed supply
 Long Run
 Operating period in which all factors of production are in
variable supply
 Short Run Profits Vs Long Run Success of Business
Basics of Economics
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16.  Limited Resources:
 Land
 Labour
 Energy
 Factories and tools
 Technical knowledge etc.
 Allocation among innumerable possibilities
 Choice of input and output allocation
 Factors of Production: land, labour and capital
Basics of Economics
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17.  Inputs and Outputs
 The Production Possibility Frontier
 Application of PPFs
 Poor Vs High Income Nations
 Choice among Public and Private Goods
 Economic Growth
 Current Vs Future Consumption
 Unattainable Vs Inefficient Points on PPF
Society’s Technological Possibilities
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18. Application of theory and tools of analysis of decision
science to examine how an organization can achieve its
aims and objectives most efficiently
Business Economics
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19. Managerial Economics
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Management Decision Problems
Economic Theory:
Micro &
Macroeconomics
Managerial Economics:
Application of economic theory and
decision tools to solve managerial
decision problems
Decision Science:
Mathematical
Economics and
Econometrics

20.  Relationship to economic theory:
 Linked to individual firms investment decision,
production and preferences of consumers.
 Macroeconomic conditions in which a firm is
functioning.
 Economic theories aim to predict economic behaviour
 Theory of the firm is of utmost importance for
Managerial Economics
Relationship to Economic Theory
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21.  Mathematical Economics is used to formalize the
economic models of economic theory in the form of an
equation
 Econometric tools are used to statistically analysis the
models using real world data
 The tools are used for forecasting as well.
 For Example: Demand of Education
Relationship to Decision Sciences
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22.  Integration of Economic Theory, Decision Science
Tools, and Business Areas of Study
 Managerial Decision Process:
 Establishing the objective of the firm
 Problems and Obstacles towards achieving the objective
 Identifying the range of possible solutions
 Selecting the optimal solution
 Implementation of the solution
Relationship with Business Administration
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23.  Types of Business Decisions
 Price and Output Decisions
 Demand Estimation
 Choice of technique of production
 Advertising Decisions
 Long-run Production Decisions
 Investment Decisions
Relationship with Business Administration
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24.  y=f(x) or y=g(x,z) or y=h(x1, x2,…..xn)
 Total, Average and Marginal Products
 Example: Labor to be employed in Construction
 Economic Models: Experiments similar to Natural science
experiments by holding everything else constant
Functional Relationships in Economics
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25.  Example of Demand and Supply
 Demand Function
Qd=a-bP where b<0
 Supply Function
Qs=c+dP where d>0
 Equilibrium
Qd=Qs
Economic Models
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