EE 01 eN 01 Economic analysis and company management, pertinence

and management
A. THE COMPANYS DIRECTOR AND THE ECONOMY
- Why is it unusual to find a meeting point between economic theory and companies
management? Its difficult to find a harmonious synthesis between Economics and
companies management.
Economic theory provides the company director some tools and criteria that may help him
to improve the process and the result of decision making of the company.
Using economic theory Facilitate the knowledge and understanding of the
environment, in the primary sector and the understanding of the profit generating logic in
company. These tools promote better efficiency and efficacy.

Every director must consider the companys objective and justification. Every company is
born because there is a special need in the market that will be met by the company, the
companys aim is the the generation of profits. Examples of objectives: job creation
(benefits for internal customers), promote society welfare, etc. In order to reach these
goals in the company a director is needed with a main duty of decision making.




- Is it possible to have a company management with an economic sense?
Economics provides the framework for problem analysis in decision making. The firm, in
economic terms, is an entity immersed in a wide and complex system: the market. The
firm is capable of organizing the production of specific goods and services with the aim of
satisfying the wishes and needs of the final customer. Economics is deep down the
theory of choice between different alternatives and management must take in
consideration and decide based on different scenarios/alternatives.

B. ECONOMICS BASIC ASPECTS
- What does a company director must know about economic science and its methods for
sustaining decisions with an economic sense?
Economics is focused on the economical and optimal allocation of scare resources
natural and human among goals or activities that compete with each other.
Four important functions of a businessman/entrepreneur:
1. Takes the initiative to combine resources.
2. Has the function of making basic decisions.
3. Is an innovator.
4. Is the person who faces risks
Human needs are characterized for being unlimited. Humans wish to consume more than
what can be produce (goods and services). The goods/services are limited resources.
These lead us to find the heart of Economics: the phenomenon of scarcity.
The law of scarcity goods are scare because there are not enough of them to produce
everything that is wished to consume.
- How the economic science proceeds to study the wide variety of issues that comes from
scarcity problems?
Relation between the relevant facts, principles and economic policies

Economics is a scientific study in which economic laws of general validity are pretended to
be created, from analysis of the facts and data, formulating and verifying theories. The
economic analysis has relevant process in the development of models.
The creation of economic laws is based on theories. Each theory consists of a group of
definitions, certain amount of assumptions and one or many hypothesis.

- Is it possible that economic analysis would be overflowed due to the complexity of
problems and the constant dynamics of the markets?
Economics has a wide diversity of important problems it refers to (speculation, confidence
of investors, rates, deficit, etc.). Economics has had to take action in more depth to try to
formulate proposals and laws in order to set up an order in the chaos of isolated facts and
to explain causes and effects.

Economic science: Microeconomics = is concerned in the analysis of specific markets, as
well as the pricing in those markets. Macroeconomics = studies how the whole economy
works, focusing the attention in the economic aggregates ( economic activity in the
country).

Political economy = The compound terms, derived from mutual benefit between
Economics and other disciplines. Are linked to the regulatory issues of the economy.

- Which problems must any society solve?
1. Which goods and services must be produced an in which amounts? Price theory.
2. Which methods must be applied to produce goods and services? Production theory.
3. How are the goods and services allocated among the members of a society?
Distribution theory.
4. How efficiently are scar resources being used by society? Welfare theory.
5. Are all the resources of the society used or do some of them stand idle? Theory of
the national income and the theory of the business cycle.
6. How does economic capability of a society grow in the production of goods and
services in the course of time? Theory of economic growth and development.

- How are societies organized to solve those problems?
Finds a useful answer in the comparison of the two extreme cases of economic
organization; free market of economy and the centrally planned economy.
Free market is the one in which the decisions regarding the scarce resources allocations
are made between consumers, companies and local authorities, without coercion from
the government or from any centralized authority.
Planned economy the decisions regarding the allocations are made exclusively by the
central authorities.
The market is a system of economic organization in which every person decides by
himself what contribution will provide to the society.

- Which tasks do the price system performs better?
1. The efficient allocation of the workforce between different occupations.
2. Encourage the consumers to reassign their demand of goods and services in time.
3. Its one of the most effective means of information.
4. It constitutes a complex cybernetic system. Cybernetic studies the design and the
behavior of organizations which receive and generate info and provide a response
with aim.

The study of price system can be divided in three relevant parts:
a. Study of the supply (companies behavior).
b. Study of the demand (consumers behavior).
c. Study of the exchange (markets behavior).