Download - Economics For Managers - Session 01
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PSG INSTITUTE OF MANAGEMENT
MBA 2011-13 BATCH - I Trimester
For Batch C and D
ECONOMICS FOR MANAGERS
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Economics as a Social Science
16th Aug 2011EFM- Faculty- P.Uday Shankar2
Economic resources are scarce..eg. Fossil fuel,water for irrigation..fresh air!
Economics is concerned with how choices aremade in the use of these scarce resources.
Economics in simple terms studies the way inwhich society decides what to produce, how toproduce it and who to produce it for.
Economics is based on the belief that humansbehave rationally at all times and that is the
reason some people make fun of economics as asubject of assumptions.!!!
The desert and the canned food joke
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Economists and their famousassumptions
16th Aug 2011EFM- Faculty- P.Uday Shankar3
Producers will seek to maximise their profits Consumers will seek to maximise the benefits
from their income
Governments will seek to maximise to the
welfare of their populationsThese basic assumptions of rationality are
often challenged and debated. The realrationality is the debate in itself. That is the
reason why economics has evolved over aperiod of time and various economic systemsare being practiced across the world.
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Economic Systems
16th Aug 2011EFM- Faculty- P.Uday Shankar4
Distinct Economic Systems have evolved on thebasis of:
The resource allocation choices are made
The value is measured The forms of ownership of economic wealth
Economic Systems:
A. Centrally Planned EconomyB. Market Economy
C. Mixed Economy
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Microeconomics andmacroeconomics
16th Aug 2011EFM- Faculty- P.Uday Shankar5
Microeconomics is the study ofindividual economic units which arecalled Households and Firms.
Macroeconomics is the study of theaggregated effects of the decisionsof economic units.
It could be a national economy or internationaleconomy.
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The Monetary System
16th Aug 2011EFM- Faculty- P.Uday Shankar6
Economic activities, in any economic system,
take place within a monetary economy.
Money is used as a means of paying for goodsand services; and paying for labour, capital andother resources.
Money is important because it provides an easymethod for exchanging goods and servicesin
other words for buying and selling.
From a national point of view money is important
because the total amount of money in a nationaleconomy may have a significant influence theeconomic activity and on inflation.
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Basic Functions of Money
16th Aug 2011EFM- Faculty- P.Uday Shankar7
A means of exchange- an alternativeto the old barter system
A unit of account- enables to fixvalues for goods and services
A standard of deferred payment-credit
A store of value- deposit, pension.
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Factors of Production andScarcity
16th Aug 2011EFM- Faculty- P.Uday Shankar8
Land- rewarded by Rent
Labour-rewarded by Wages
Capital- rewarded by Interest
Enterprise- rewarded by ProfitScarcity is the excess of human wants overwhat can actually be produced.
(Explanation of production possibility curve onthe blackboard)
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Opportunity Cost
16th Aug 2011EFM- Faculty- P.Uday Shankar9
When you have more than one resource and
have to choose one, the others have to be leftout. Choice involves sacrifice.
Opportunity Cost is the cost of an item
measured in terms of the alternativesforegone.
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Case for Discussion:Opportunity Cost concept in Microfinance
16th Aug 2011EFM- Faculty- P.Uday Shankar10
Microfinance (mF) is a new mode of financial servicefor financing poor customers at interest rates rangingbetween 18% to 24%.
In the absence of mF they would have to go to thebank where loans are available at normal interests
(say 12%) where one has to spend much time,provide security, collateral, guarantor, hidden fees..
The other alternative would be to go to the moneylender who would charge >36%.
Through a choice of a mF loan between the two
options there is an opportunity cost but theopportunities outweigh the two choices in favour ofthe mF loan.
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New Economic Theories
16th Aug 2011EFM- Faculty- P.Uday Shankar11
Questions being raised:The concept of profit maximisation as the main
aim of a firm is being questioned. New thought sare Profit, People and Planet. Triple bottom line.
Laissezfaire is considered to be utopian.
Free market is considered as a pipe dream ofeconomists but then why not with goodgovernment regulation?
The most stable economies have a combination of
private and public sector but then what should bethe judicious combination?
Divide between the haves and the have-notswidening
Should we encourage Walmart or MSMEs
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Thanks
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