10B11PD311

Economics

10B11PD311

Economics

Title: Managerial Economics Course Code: 10B11PD311 (2 1 0)

Objective
The course is designed to enable students to appreciate the contribution of economics to the business process and to evaluate economics of corporate objectives, market structure and costs.

Learning Outcomes
The course will develop students' capacity to: 1. Think critically about the contribution of economics in business. 2. Understand the constraints the environment places on the organization's pursuit of its goals 3. Analyze the economic environment in which an org. operates.

Methodology
The course will commence with making the students understand the basic economic theories and subsequently learn about practices followed by the organizations. The tutorials focus on the core topics, articles on these topics and make use of IT tools.
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10B11PD311

Economics

Text Book Managerial Economics, (Fourth edition) H.Craig Petersen, W. Cris Lewis Reference books Managerial economics in a global economy, Dominick Salvatore Managerial economics, Damodaran, Suma Managerial economics, Dwivedi, D.N. Managerial economics, H.L.Ahuja Managerial economics, Truett Lila J. Managerial economics, Hirschey, Mark Modern Economic Theory, K.K.Dewitt & Navalkur S.K. Misra & V. K. Puri, Indian Economy, Himalaya Publishing House, 2011.

Topic

Introduction Basics of Demand, Supply and Equilibrium Theory of Consumer Choice Demand forecasting Production Theory & Analysis Cost Theory and Analysis Market Structure

Macro Economics: Issues

Macro Economics: Concepts
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Exam

% of Marks

Duration

Coverage

T-1

20

1 hr

Syllabi covered up-to T-1.

Syllabi covered between T-1 & T-2. Full Syllabi

T-2 End Sem. Exam

Assignments Tutorials, Projects, Quizzes & Regularity in attendance.

20

1hr

35

2 hr

25

Entire Semester

As decided and announced by the teacher concerned in the class at the beginning of the course

10B11PD311

Economics

Economy

A system that provides living to the

people
Economic

activity any activity performed for earning money for the satisfaction of human wants.

10B11PD311

Economics

A social science concerned with those aspects of social behavior and those institutions which involve the allocation of scarce resources among unlimited and competing uses, to produce and distribute goods and services in the satisfaction of human wants, which are innumerable and insatiable.

Scarce Resources

Unlimited Wants

Alternative uses of resources

Produce & distribute goods & services

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SCARCITY

WEALTH

GROWTH

WELFARE

10B11PD311

Economics

Wealth

Definition by Adam Smith

a science which studies the nature, causes and growth of the wealth of nations Adam Smith Father of economics
Criticism

No attention was paid to man for whom wealth is really meant.

10B11PD311

Economics

Welfare

Definition by Alfred Marshall

study of mankind in the ordinary business of life; it examines that part of individual and social action which is most closely connected with the use of the material requisites of well being. Thus it is, on the one side, a study of wealth; and on the other, and more important side the study of man.

Criticism

Non-material goods are not acknowledged by Marshall. Limited to those activities which increase human welfare.

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10B11PD311

Economics

Scarcity

Definition by Lionel Robbins

is the science which studies human behavior as a relationship between ends and scarce means which have alternative uses. Man has unlimited wants or ends. The means or resources to satisfy them are limited. These resources are not specific & have alternate uses. Man has therefore to choose between wants.

Four characteristics

Criticism

Aggregates of the entire economy (national income, total output etc.) and the problem of unemployment and instability are not covered The causes and growth patterns of national income and per capita income are left untouched.
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10B11PD311

Economics

Growth

Definition by Paul A. Samuelson

is a study of how man and society choose, with or without the use of money, to employ scarce productive resources which could have alternate uses, to produce various commodities over time and distribute them for consumption now and the future among various people and groups of society.

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10B11PD311

Economics

Concerns of Modern Economics

Allocation of societys resources among alternative uses Efficiencies and inefficiencies of economic system Distribution of the societys output among individuals and groups Ways in which production and distribution change over time

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10B11PD311

Economics

Consumers Producers Administrators Planners Academicians

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10B11PD311

Economics

Studies individual units like individual household, pricing of a firm, wages of a worker, profits of an entrepreneur, and so on.

Theory of Demand Theory of Production Price determination in Commodity market Price determination in Factor market

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10B11PD311

Economics

Microeconomic
choices:

issues

what, how and for whom

the

concept of opportunity cost

rational

economic decision making: marginal costs and marginal benefits

microeconomic

objectives

efficiency equity

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10B11PD311

Economics

Deals with the average and aggregates of the system rather than the particular items in it, and attempts to define these aggregates in a useful manner and examines their relationship. Theory of National Income
GDP/GNP/NDP Theory of Employment Unemployment, its types and rate Theory of Money Commodity money (barter), modern money (paper), banking and insurance, interest rates. Three purpose transaction, saving and speculative

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10B11PD311

Economics

Theory of General Price Level

Wholesale Price index, consumer price index Balance of payment, foreign exchange rate and purchasing power parity theory Four factors human resource, natural resource, capital formation and technological changes and innovation Business cycles, investment and savings

Theory of International Trade

Economics of Growth

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10B11PD311

Economics

Macroeconomic

issues

growth unemployment inflation balance of payments problems cyclical fluctuations

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Examples of microeconomic and macroeconomic concerns

Production
Micro Economics Production/Output in Individual Industries and Businesses How much steel How many offices How many cars

Prices
Price of Individual Goods and Services Price of medical care Price of gasoline Food prices Apartment rents Aggregate Price Level Consumer price index Producer Price index Rate of Inflation

Income
Distribution of Income and Wealth

Employment
Employment by Individual Businesses & Industries Jobs in the steel industry Number of employees in a firm

Wages in the auto industry Minimum wages Executive salaries Poverty

National Income Total wages and salaries Total corporate profits

Macro Economics

National Production/Output Total Industrial Output Gross Domestic Product Growth of Output

Employment and Unemployment in the Economy Total number of jobs Unemployment rate

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 Production The process by which resources are transformed into useful forms Resources/ Inputs Anything provided by nature or previous generations that can be used directly or indirectly to satisfy human wants. Capital Things that have been already been produced that are in turn used to produce other goods and services Producers Those people or groups of people, whether private or public, who transform resources into usable products. Outputs Usable products

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10B11PD311

Economics

Illustrates the principles of constrained choice, opportunity cost and scarcity.

A graph that shows all the combinations of goods and services that can be produced if all of societys resources are used efficiently

22

A production possibility curve

8

a
7
Units of food (millions)

6 5
Units of food Units of clothing

4 3 2 1 0 0

8m 7m 6m 5m 4m 3m 2m 1m 0

0.0 2.2m 4.0m 5.0m 5.6m 6.0m 6.4m 6.7m 7.0m

6
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Units of clothing (millions)

A production possibility curve

8 7
Units of food (millions)

6 5
Units of food Units of clothing

4
b

3 2 1 0 0 1

8m 7m 6m 5m 4m 3m 2m 1m 0

0.0 2.2m 4.0m 5.0m 5.6m 6.0m 6.4m 6.7m 7.0m

6
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Units of clothing (millions)

A production possibility curve

8 7
Units of food (millions)

6 5 4 3 2 1 0 0 1 2 3 4

6
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Units of clothing (millions)

A production possibility curve

8 7
Units of food (millions)

w
x

6 5 4 3 2 1 0 0 1 2 3 4

6
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Units of clothing (millions)

10B11PD311

Economics

The

production possibility curve

and the production possibility

microeconomics

curve:

choices and opportunity cost

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Increasing opportunity costs

8 7 6
Units of food (millions)

x
1

5 4 3 2 1 0 0 1 2 3 4

y
1

6
28

Units of clothing (millions)

10B11PD311

Economics

The

production possibility curve

and the production possibility

microeconomics

curve:

choices and opportunity cost increasing opportunity cost

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Increasing opportunity costs

8 7 6
Units of rice (millions)

x
1

5 4 3 2 1 0 0 1 2 3 4

y
1
2

z
1

6
30

Units of wheat (millions)

10B11PD311

Economics

The

production possibility curve

and the production possibility

microeconomics

curve:

choices and opportunity cost increasing opportunity cost

macroeconomics

and the production possibility

curve:

production within the curve

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Making a fuller use of resources

Production inside the production possibility curve

Food

O Clothing
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Making a fuller use of resources

x Food

O Clothing
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Making a fuller use of resources

x Food y

O Clothing
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10B11PD311

Economics

The

production possibility curve

and the production possibility

microeconomics

curve:

choices and opportunity cost increasing opportunity cost

and the production possibility

macroeconomics

curve:

production within the curve

shifts in the curve

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Growth in potential output

Food

Now

Clothing
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Growth in potential output

5 years time

Food

Now

Clothing
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10B11PD311

Economics

Managerial

economics consists of the use of economic modes of thought to analyze business situations.
McNair and Meriam

The

purpose of Managerial Economics is to show how economic analysis can be used in formulating business policies by
Identifying possible courses of action Evaluating the revenues and costs associated with each course of action Choosing the one course that best meets the goal or objective of a firm

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10B11PD311

Economics

The

application of economic theory and the tools of decision science to examine how an organization can achieve its aims or objectives most efficiently.

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10B11PD311

Economics

Households The consuming units in an economy Firms The producing units in an economy Product or Output markets The market in which goods and services are exchanged Input or Factor markets The markets in which the resources used to produce products are exchanged Labor market Capital market Land market

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Goods and services

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Goods and services

Consumer expenditure

43

Goods and services Consumer expenditure

Services of factors of production (labour, etc)

44

Goods and services Consumer expenditure

Wages, rent dividends, etc.

Services of factors of production (labour, etc)

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Goods and services

Consumer expenditure

GOODS MARKETS

FACTOR MARKETS
Wages, rent dividends, etc.

Services of factors of production (labour,46 etc)

Engineering is a great applied science that studies how to make solutions to practical scientific problems.
While engineering deals with how to solve these problems, economics is the complementary science of how to optimize these solutions. Economics analyses production mathematically and statistically. For engineering, microeconomics is the invaluable tool to determine optimization with given resource constraints The best solutions in engineering are not always the best-designed or the ones of highest quality but also the ones which are cost-effective and efficient given constraints. Economics can master these concepts.

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