1. Managerial economics applies economic analysis to business problems to help managers make better decisions. It provides a broader perspective on firms and their objectives.
2. A production possibilities frontier (PPF) illustrates opportunity cost and tradeoffs, showing the maximum combinations of two goods that can be produced with limited resources.
3. Economic systems differ in how they allocate resources and ownership. Market economies use prices while command economies use central planning. Mixed economies combine markets and state involvement.
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1. Managerial economics applies economic analysis to business problems to help managers make better decisions. It provides a broader perspective on firms and their objectives.
2. A production possibilities frontier (PPF) illustrates opportunity cost and tradeoffs, showing the maximum combinations of two goods that can be produced with limited resources.
3. Economic systems differ in how they allocate resources and ownership. Market economies use prices while command economies use central planning. Mixed economies combine markets and state involvement.
1. Managerial economics applies economic analysis to business problems to help managers make better decisions. It provides a broader perspective on firms and their objectives.
2. A production possibilities frontier (PPF) illustrates opportunity cost and tradeoffs, showing the maximum combinations of two goods that can be produced with limited resources.
3. Economic systems differ in how they allocate resources and ownership. Market economies use prices while command economies use central planning. Mixed economies combine markets and state involvement.
Copyright:
Attribution Non-Commercial (BY-NC)
Available Formats
Download as PPT, PDF, TXT or read online from Scribd
1. Managerial economics applies economic analysis to business problems to help managers make better decisions. It provides a broader perspective on firms and their objectives.
2. A production possibilities frontier (PPF) illustrates opportunity cost and tradeoffs, showing the maximum combinations of two goods that can be produced with limited resources.
3. Economic systems differ in how they allocate resources and ownership. Market economies use prices while command economies use central planning. Mixed economies combine markets and state involvement.
Copyright:
Attribution Non-Commercial (BY-NC)
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Download as PPT, PDF, TXT or read online from Scribd
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MANAGERIAL ECONOMICS
Prof. Swaha Shome
Managerial Economics Objectives
Understand usefulness of economics in describing managerial behavior. Understand how economics can be used to improve managerial decisions. Appreciate vital role of business in society.
What is Managerial Economics?
Howard Davies It is the application of economic analysis to business problems; it has its origin in theoretical microeconomics.
Why Managerial Economics?
A powerful analytical engine. A broader perspective on the firm.
what is a firm? what are the firms overall objectives? what pressures drive the firm towards profit and away from profit
The basis for some of the more rigorous analysis of issues in Marketing and Strategic Management.
Contents
Introduction to economics- scarcity, choice and Efficiency. Role of Government Demand and Supply analysis Consumer behaviour Production and costs Markets
Pricing practices- transfer pricing Current developments
TEN PRINCIPLES OF ECONOMICS
How people make decisions: People face trade offs The cost of something is what you have to give up. Rational people think at the margin People respond to incentives
How people interact? Trade can make everybody better off Markets are usually a good way to organize economic activity Government can sometimes improve market outcomes
How the economy as a whole works? A countrys standard of living depends on the its ability to produce goods and services Prices rise when Govt prints too much money Society faces a short run trade off between inflation and trade off
Scarcity and Economic System
1.
2.
3.
What are the opportunity costs of the choices you make? How does a production possibility frontier (PPF) illustrate opportunity cost, specialization of resources, inefficiency, and economic growth? What are the differences between command economies, free market economies, and mixed economies in terms of the ways they address the 3 basic economic questions?
Opportunity Cost - Components
Direct money cost of a choice may only be a part of the cost of that choice Cost of a choice = explicit costs + implicit costs Explicit costdollars actually paid out for a choice Accounting cost Implicit costvalue of something sacrificed when no direct payment is made
Opportunity Cost and Society
Resources in whole society are limited. All production carries an opportunity cost To produce more of one thing Must
shift resources away from producing something else
No free lunch!
Increasing Opportunity Cost
According to law of increasing opportunity cost
The more of something we produce
The
greater the opportunity cost of producing even more of it
This principle applies to all of societys production choices
Production Possibilities Frontiers
Production Possibilities Frontiers (PPF) shows the combinations of two goods that can be produced with resources and technology available
Opportunity cost
Opp. cost of X = Amount of Y to be compensated for one more unit of X
Situation 1 2 3 4 5 6
X 0 1 2 3 4 5
Y 20 18 15 11 6 0
Opp. cost of X increases as you produce more of X
Opportunity Cost - Illustrated
Sacrifice of alternatives in production/consumption of a good Eg. Let a farm produce 1000 tonnes of wheat or 2000 tonnes of sugar Opportunity Cost of producing 1 ton wheat = 2 tonnes of sugar foregone.
Production Possibility Curve
Enclosed region unemployment Outside graph not feasible
Various combinations of 2 classes of goods produced provided resources in the economy are fully employed
0 0 1 2 3 4 5 6
Production Possibility Frontier
Curve shows all possible 2-goods combination that an economy can produce - Specified time period - Resources fully & efficiently employed - Issues of choice & opportunity cost Concave to origin increasing opportunity cost Region interior to PPF economy has not attained Productive Efficiency unemployment
PPF Shift 8
Economic Growth 7 6
Improvement in skills Improved Technology Increase in factors of production 0 1 2 3 4 5 6 7 8
Economic Activity is transformation of inputs into output What to produce? How to produce? For whom to produce? Economics is concerned with identification, explanation and solution of these problems
Resource Allocation
Problem of resource allocation
Which goods and services should be produced with societys resources? Where on the PPF should economy operate? How should they be produced? No capital at all Small amount of capital More capital Who should get them? How do we distribute these products among the different groups and individuals in our society?
The Three Methods of Resources Allocation
Market Economy
Resources are allocated through individual decision making Dominant method Resources are allocated according to explicit instructions from a central authority.
Command Economy (Centrally-Planned)
Mixed economy- a combination of markets and state
The Nature of Markets
A market is a group of buyers and sellers with the potential to trade with each other
Global markets Buyers
and sellers spread across the globe and sellers within a narrowly defined
Local markets Buyers
area
INVISIBLE HAND
In trying to maximize his own welfare an individual is led by an invisible hand to achieve the best for all. A competitive market economy will provide an efficient allocation of resources through the price mechanism
The Importance of Prices
A price is the amount of money that must be paid to a seller to obtain a good or service When people pay for resources allocated by the market
They must consider opportunity cost to society of their individual actions
Markets can create a sensible allocation of resources
Objective maximum possible ends by sacrificing the minimum possible resources
Ends are unlimited but can be graded in priority Means are limited and they have alternative uses This leads to the twin issues of efficiency and choice
Types of Economic Systems
An economic system is composed of two features
Mechanism for allocating resources
Market Command
Mode of resource ownership
Private State
Figure 4: Types of Economic Systems
Resource Allocation Market Command
Private
Market Capitalism
Centrally Planned Capitalism
Resource Ownership State Market Socialism Centrally Planned Socialism
Role of Government
Increasing efficiency by: a. Increasing competition b. control of externalities c. public goods Equity: redistribution of income by taxes and public expenditure Macro-stability : control inflation, ensure growth, reduce unemployment and stabilize exchange rates
Externalities
Externalities can occur in production or consumption. External costs : pollution due to industries, traffic congestion etc External benefits: research, ancilliary industries, reducing pollution External costs in consumption passive smoking
Public Goods
Private goods are depletable and excludable. Hence there is no extra cost for serving an additional user. This makes pricing of such goods difficult. It is difficult to collect fees for public goods thus discouraging private enterprise.
Mixed economy
The government and the private sector interact in solving economic problems. Government controls a significant share of the output through taxation, transfers, provision of public goods and also regulates the extent to which individuals pursue their self interest.
