econ foundation session a
TRANSCRIPT
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8/13/2019 Econ Foundation Session A
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8/13/2019 Econ Foundation Session A
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Manisha Rajadhyaksha 2 2
Session 1: Managerial Economics
Foundation Course
Obecti!es:
A"ter t#is session$ %ou &ill understand:
1' subect matter o" t#is course
(' anal%tical a))roac# used in Economics
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8/13/2019 Econ Foundation Session A
3/29
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8/13/2019 Econ Foundation Session A
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Manisha Rajadhyaksha +
Economics
Economics plural ofeconomics
(Noun)
Noun: Branch of knowledge concerned
with production, consumption, and
transfer of wealth.
conomy ! "ondition of region or groupas regards material prosperity.
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8/13/2019 Econ Foundation Session A
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Manisha Rajadhyaksha ,
-efinition . Economics
Economics is a social science that
studies ho society chooses to allocate
its scarce resources, hich havealternative uses, to provide goods and
services !or present and !uture
consumption"
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8/13/2019 Econ Foundation Session A
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Manisha Rajadhyaksha /
Economics . Goods 0 (ervices
Goods and Services # good is
anything that satisfies a want.
$oods tangi%le or intangi%le.
&angi%le goods physical items, and
'ntangi%le goods ser(ices.
Both goods and ser(ices satisfy wants
and therefore can %e called goods.
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8/13/2019 Econ Foundation Session A
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Manisha Rajadhyaksha 1
Economics . Reso'rces np'ts# factors or means of prod'ction %and# %a&or#
capita%# and entreprene'rship$ *and %and itse%f and anything that grows on it or can &e
taken from it 4nat'ra% reso'rces$5
*abor h'man effort# &oth physica% and menta%$ Ca)ital man6made too% of prod'ction7 good prod'cedfor 'se in the prod'ction of other goods$
Ca)ital goodsreso'rces prod'ced and com&ined withother reso'rces to prod'ce more o'tp't$
Entre)reneurs#i) organi)ationa% force that com&inesfactors of prod'ction %and# %a&or# and capita% andtransforms them into the desired o'tp't$ 8he o'tp't may&e capita% or cons'mer goods$
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8/13/2019 Econ Foundation Session A
8/29
Manisha Rajadhyaksha 9
Economics 6 (carcity Re%ationship &etween how m'ch there is of something and how
m'ch of it is wanted$ Reso'rces are scarce compared to the 'ses we have for them$ Eamp%es water scarce; rod'ction ofgoods to satisfy a want wi%% red'ce avai%a&%e reso'rces$
Reso'rces are %imited or scarce not eno'gh to prod'ce goods tosatisfy a%% o'r wants$ (carce reso'rces yie%d scarce goods$
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8/13/2019 Econ Foundation Session A
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Manisha Rajadhyaksha ?
Economics 6 @hoices
)carcity forces choice. conomics is
often called the study of choosing.
"annot ha(e all we want of e(erything
we want.
)carcity imposed %y limited factors of
production yielding limited output of
goods relati(e to unlimited wants.
"hoices must %e made.
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8/13/2019 Econ Foundation Session A
10/29
Manisha Rajadhyaksha AB
Economics . *%ternative Cses @hoices made a&o't how reso'rces wi%% &e 'sed or
a%%ocated$ Allocate means distri&'te$ @hoices among a%ternatives decide which goods wi%% &e
prod'ced# how to a%%ocate reso'rces to prod'ce goods# andhow to a%%ocate the goods among the pop'%ation$
Method 'sed to decide how these a%%ocations wi%% &e madedepends on the kind of economic system chosen$
Reso'rces have a%ternative 'ses and are scarce necessary to choose among a%ternatives$ Many a%ternativeways to 'se reso'rces# and hence choices made$
Governments# individ'a%s# &'sinesses 'se reso'rces as pertheir o&jectives time# income# %and# %a&or# capita%# andentreprene'rship$
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8/13/2019 Econ Foundation Session A
11/29
Manisha Rajadhyaksha AA
Economics . Opport'nity @ost
*pportunity costs are e(erywhere, due to
scarcity and the necessity of choosing.
*pportunity cost is not what you choosewhen you make a choice + it is what you did
not choose in making a choice.
Opportunity cost is the (alue of the forgone
alternati(e + what you ga(e up when you got
something.
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8/13/2019 Econ Foundation Session A
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Manisha Rajadhyaksha A2
Economics . >resent 0 D't're
@ons'mption @hoice imposes opport'nity cost over time$ Cse of reso'rces means that those reso'rces wi%%
not &e avai%a&%e for f't're 'se$ * decision m'st &e made# an opport'nity cost
enco'ntered# as to whether to a%%ocate for presentneeds or f't're needs$
8oday vers's tomorrow$ (ome goods wi%% &e
cons'med today and some in the f't're$ yred'cing present cons'mption# f't're cons'mptionincreased$
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8/13/2019 Econ Foundation Session A
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Manisha Rajadhyaksha A3
Economics . (ocia% (cience
conomics is a social science thatstudies how society chooses.
Social sciences focus on human%eha(ior.
conomics is a social science means
that economists study human %eha(iorconfronted %y scarcity throughapplication of scientific method.
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8/13/2019 Econ Foundation Session A
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Manisha Rajadhyaksha A+
Economics . -efinitions
"lassified into four groups:
1. ealth definitions,
2. Material welfare definitions,
-. )carcity definitions, and
. $rowth/centered definitions.
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8/13/2019 Econ Foundation Session A
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Manisha Rajadhyaksha A,
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8/13/2019 Econ Foundation Session A
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Manisha Rajadhyaksha A/
Materia%6
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Manisha Rajadhyaksha A1
(carcity6&ased -efinition . Hione%
Ro&&ins Essays on Nature and Significance of the Economic Science A?32!$ Economics ! science which studies human beha"ior as relationship between ends
and scarce means which ha"e alternati"e uses#$
Main Features o" Scarcit% De"inition
A$ /uman &ants are unlimited: f one want is satisfied# another want crops 'p$
8h's# different wants appear one after another$2$ *imited means to satis"% #uman &ants: Himited means and reso'rces forsatisfying these wants$ Reso'rce considered as scarce if its s'pp%y is %ess than itsdemand$
3$ Alternati!e uses o" scarce resources: (ame reso'rce devoted to a%ternative %inesof prod'ction# and for satisfaction of different wants$
+$ E""icient use o" scarce resources: Cn%imited wants are ranked as per priority# and
scarce reso'rces are 'sed in efficient manner for satisfaction of these wants$,$ Need "or c#oice and o)timi0ation:@hoice &etween most 'rgent and %ess 'rgent
wants$ "ence# Economics is ca%%ed science of choice# and scarce reso'rces 'sedfor maim'm satisfaction i.e.$ optimisation! of most 'rgent wants$
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Manisha Rajadhyaksha A9
Modern Growth6Oriented -efinition
. >a'% (am'e%son Economics ! study of how people and society end up choosing$ with orwithout use of money$ to employ scarce producti"e resources thatcould ha"e alternati"e uses to produce "arious commodities o"er timeand distributing them for consumption$ now or in the future$ among"arious persons or groups in society. It analyses costs and benefits of
impro"ing patterns of resource allocation#.Main Features o" Modern ro&t#.Oriented De"inition
A$ ro&t#.orientation:concerned with determining pattern ofemp%oyment of scarce reso'rces to prod'ce commodities over time$
2$ D%namic allocation o" consum)tion:of income for present andf't're$
3$ Distribution: of cons'mption among gro'ps in a society$+$ Im)ro!ement o" resource allocation:thro'gh cost6&enefit ana%ysis$
mprovement of reso'rce a%%ocation and &etter distri&'tive j'stice aresynonymo's with economic deve%opment$
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8/13/2019 Econ Foundation Session A
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Manisha Rajadhyaksha A?
ranches of Economic 8heory
Microeconomics
Macroeconomics
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8/13/2019 Econ Foundation Session A
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Manisha Rajadhyaksha 2B
Microeconomics
Branch of economics concerned with economicdecision/making of single unit of economic system.
0ow does an indi(idual or a family decide on how
much of (arious commodities and ser(ices toconsume3 0ow does a %usiness firm decide howmuch of its product or products to produce3
Microeconomics shows that economics is a socialsciencewhich aims at analy4ing economic %eha(iorof indi(iduals in a social en(ironment.
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8/13/2019 Econ Foundation Session A
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Manisha Rajadhyaksha 2A
mportance of Microeconomics
A$ Determination o" demand )attern: i.e.$ amo'nts of demand for goodsand services in the economy# as tota% demand for a good or service isthe s'm tota% of the demands of a%% the individ'a%s$
2$ Determination o" t#e )attern o" su))l%: i$e$ amo'nts of goods andservices prod'ced &y firms in economy$
3$ 2ricing:>rices of goods and services determine pattern of reso'rce
a%%ocation in economy$ 8hese prices are determined &y interaction offorces of demand and s'pp%y of the goods and services$
+$ 2olicies "or im)ro!ement o" resource allocation: economicdeve%opment stresses improving pattern of reso'rce a%%ocation in theco'ntry$
,$ Solution to t#e )roblems o" micro.units:Microeconomics starts with
individ'a% cons'mers and prod'cers# po%icies for correcting wrongdecisions at micro6%eve% are a%so faci%itated &y microeconomics$Economic pro&%ems faced &y economic agents s'ch as individ'a%cons'mers# prod'cers# etc$! are ana%y)ed with microeconomic theories$
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Manisha Rajadhyaksha 22
Macroeconomics ranch of economics concerned with economic
magnit'des re%ating to the economic system as a
who%e# rather than to the microeconomic 'nits %ike
individ'a%s or firms$
8herefore ca%%ed aggregative economics$
4Macroeconomics dea%s $$$ not with individ'a%
income &'t with nationa% income# not with
individ'a% prices &'t with the price %eve%# not withindivid'a% o'tp'ts &'t with nationa% o'tp't5
Ienneth o'%ding!$
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Manisha Rajadhyaksha 23
mportance of MacroeconomicsA$ Income and em)lo%ment determination:are vita% concerns of
macroeconomics$
2$ 2rice le!el:-etermination of genera% price %eve% and inf%ation isdisc'ssed in macroeconomic theories$
3$ 3usiness c%cles:Economic &ooms and depressions fo%%ow one anotherin a cyc%ica% fashion$ ncome and emp%oyment epands d'ring &oomperiods and shrink d'ring depressions$
+$ 3alance o" )a%ments: -ifference &etween tota% inf%ow and tota%o'tf%ow of foreign echange is known as &a%ance of payments$ @a'sesand remedies of o> pro&%ems are disc'ssed in macroeconomics$
,$ o!ernment )olicies: Government po%icies on economic varia&%es %ikenationa% income or genera% price %eve% are st'died in macroeconomics$
/$ Interrelations bet&een mar4ets: -ifferent markets of economicsystem commodity# %a&or# &ond# money# etc$! are interre%ated$-ist'r&ance in one of these markets affects a%% the others$
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8/13/2019 Econ Foundation Session A
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Manisha Rajadhyaksha 2+
Microeconomics v=s$
Macroeconomics
Microeconomics and macroeconomics arecomp%ementary to each other$
Himitations of microeconomics are covered &y
macroeconomics$ Macroeconomics does not make detai%ed st'dy of
individ'a% cons'mer or prod'cer# which is takencare of &y microeconomics$
"ence comprehensive notion of economics on%ywhen ac'ainted with &oth microeconomics andmacroeconomics$
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Manisha Rajadhyaksha 2,
Csef'% economic concepts in
&'siness
>rice e%asticity of demand#
ncome e%asticity of demand#
Opport'nity cost#
8he m'%tip%ier# >ropensity to cons'me#
Margina% reven'e prod'ct#
(pec'%ative motive#
>rod'ction f'nction#
a%anced growth# andHi'idity preference$
8heory of the firm6price# o'tp'tand investment decisions#
'siness financing#
>'&%ic finance and fisca% po%icy#
Money and &anking#
Jationa% income and socia%acco'nting#
8heory of internationa% trade#and
Economics of deve%opingco'ntries$
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Manisha Rajadhyaksha 2/
ndian contet . manageria%
economist f'nctions:
Macro6forecasting for demand and s'pp%y$ >rod'ction p%anning at macro and micro %eve%s$ @apacity p%anning and prod'ct6mi determination$ Economics of vario's prod'ctions %ines$ Economic feasi&i%ity of new prod'ction %ines=processes and projects$ *ssistance in preparation of overa%% deve%opment p%ans$ >reparation of periodica% economic reports 6 companys prod'ct6%ines#
f't're growth opport'nities# market pricing sit'ation# genera% &'siness#and nationa%=internationa% factors affecting ind'stry and &'siness$
>reparing &riefs and papers for top management for vario's@ham&ers# @ommittees# (eminars# @onferences# etc$ Ieeping management informed of vario's nationa% and internationa%
deve%opments on economic=ind'stria% matters$
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Manisha Rajadhyaksha 21
Sco)e o" managerial economics
ncrease in comp%eity of &'siness decision6making process
d'e to changing market conditions and &'siness environment$
ncrease in 'se of economic %ogic# concepts# theories# too%s of
economic ana%ysis in decision making process$
Rapid increase in demand for professiona%%y trained mangeria%
manpower$
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Manisha Rajadhyaksha 29
Com)le, business &orld
Growth of %arge sca%e ind'stries and (MEs
Growth of variety of ind'stries
-iversification of ind'stria% prod'cts
Epansion and diversification of &'siness activities Growth of MJ@s
-emand as nter6firm# inter6ind'stry# internationa% riva%ry# competition#
risk# 'ncertainty
Re'ires 6
Cnderstanding market conditions# nat're and degree of competition#market f'ndamneta%s# &'siness environment
Market condition ana%ysis 6 prod'ct market# inp't market# financia% market
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Manisha Rajadhyaksha 2?
Economics (t'dy of how peop%e 6 individ'a%s# ho'seho%ds# firms# nations 6
optimi)e their gains from scarce reso'rces and opport'nities
(ocia% science 6 st'dies h'man &ehavior in re%ation to optimi)ing
a%%ocation of avai%a&%e reso'rces to acheive given ends
ndivid'a%s 6 want=need 6 maimi)e 'ti%ity to satisfy want=need
"o'seho%ds 6 what=how to cons'me 6 maimi)e tota% 'ti%ity Dirms 6 how to choose commodity# prod'ction# techno%ogy# %ocation of
firm# market=market segment# price of prod'ct# advertising and other
epenses# strategy for competition
Jation 6 how=what to a%%ocate reso'rces 6 men and materia%s 6 &etween
competing needs of society to mami)e we%fare of society Economic po%icies 6 taation# ependit're# price# fisca%# monetary#
emp%oyment# foreign trade# tariff# ind'stria%