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LCCNCMICS
30
Lh
!anuary 2010
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What |s Lconom|cs?
conomics ls o soclol scleoce tbot stoJles bow soclety
cbooses to ollocote lts scorce resources wblcb bove
oltetootlve oses to ptovlJe qoods ond services fot
pteseot ooJ fotote coosomptloo
conomics ls tbe scleoce of scotclty tbe scleoce of bow
loJlvlJools ooJ socletles Jeol wltb tbe foct tbot woots
ote qteotet tboo tbe llmlteJ tesootces ovolloble to sotlsfy
tbose woots
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Lconom|cs Concepts
Goods Serv|ces
qooJ ls ooytbloq tbot sotlsfles o woot
1bot ls tbe potpose of ptoJoctloo to ptovlJe qooJs tbot
sotlsfy woots
CooJs coo be tooqlble ot lotooqlble
1ooqlble qooJs ote pbyslcol ltems socb os bollJozets ot
plzzos
lotooqlble qooJs socb os meJlcol cote ot eJocotloo ote
colleJ setvlces
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Lconom|cs Concepts
kesources
1be sotlsfoctloo of woots coo ooly be occompllsbeJ by
osloq op resources tbe lopots tbe socolleJ foctots of
ptoJoctloo ot meoos of ptoJoctloo
1bese tesootces coo be closslfleJ os looJ lobot copltol
ooJ eottepteoeotsblp
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Lconom|cs Concepts
Scarc|ty
esootces ote scotce 5cotclty ls o telotloosblp betweeo
bow mocb tbete ls of sometbloq ooJ bow mocb of lt ls
wooteJ
esootces ote scotce compoteJ to oll of tbe oses we
bove fot tbem
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Lconom|cs Concepts
Cpportun|ty Cost
ppottoolty cost ls oot wbot yoo cboose wbeo yoo moke
o cbolce
lt ls wbot yoo JlJ oot cboose lo mokloq o cbolce
ortunity cost is the vo/ue of tbe fotqooe oltetootlve
wbot yoo qove op wbeo yoo qot sometbloq
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What do econom|sts study?
LconomlsLs sLudy prlces cosLs lnLeresL raLes unemploymenL
lnflaLlon proflL budgeL deflclL Lrade deflclL exchange raLes eLc
LconomlsLs also sLudy crlme famlly relaLlonshlps war pollLlcs
anLhropology and Lhe law
LconomlsLs examlne all of Lhe above uslng Lconomlc Analysls
Lconomlc Analysls ls Lhe process of applylng Lhe Lools of
economlcs and Lhe economlc way of Lhlnklng Lo realworld
problems
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What |s the 'econom|c' way of
th|nk|ng ?
Lconomlc way of Lhlnklng refers Lo Lhe way economlsLs vlew
lnLerpreL and analyze Lhe world
LconomlsLs are able Lo 'see' Lhlngs LhaL oLher people cannoL
WaLch Lhlnk ldenLlfy
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Why study Lconom|cs?
L can help solve realworld problems llke poverLy
whlch could be aL Lhe rooL of many soclal problems
Lconomlcs has explanaLory and predlcLlve power
Some people learn abouL cerLaln ldeas LhaL have
shaped Lhe world
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MANAGLkIAL LCCNCMICS
An Ana|ys|s of 8us|ness Issues
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Chapter 1
1he Def|n|t|on and Scope of
Manager|a| Lconom|cs
Cb[ect|ves
After study|ng the chapter you shou|d
understand
1 the sub[ect matter of Manager|a| Lconom|cs
2 the ana|yt|ca| approach used |n Manager|a|
Lconom|cs
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What |s Manager|a| Lconom|cs?
Doug|as Managerlal economlcs ls Lhe appllcaLlon
of economlc prlnclples and meLhodologles Lo Lhe
declslonmaklng process wlLhln Lhe flrm or
organlzaLlon"
9appas n|rschey Managerlal economlcs applles
economlc Lheory and meLhods Lo buslness and
admlnlsLraLlve declslonmaklng"
Sa|vatore Managerlal economlcs refers Lo Lhe
appllcaLlon of economlc Lheory and Lhe Lools of
analysls of declslon sclence Lo examlne how an
organlsaLlon can achleve lLs ob[ecLlves mosL
effecLlvely"
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What |s Manager|a| Lconom|cs?
noward Dav|es and 9unLee Lam
"It |s the app||cat|on of econom|c ana|ys|s to
bus|ness prob|ems |t has |ts or|g|n |n theoret|ca|
m|croeconom|cs"
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What |s Manager|a| Lconom|cs?
In a nutshe||
Managerlal economlcs ls essenLlally applled
economlcs ln Lhe fleld of buslness managemenL L ls
Lhe economlcs of buslness or managerlal declslons L
perLalns Lo all economlcs aspecLs of managerlal
declslon
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Why Manager|a| Lconom|cs ?
A powerful analyLlcal englne"
A broader perspecLlve on Lhe flrm
- whaL ls a flrm?
- whaL are Lhe flrm's overall ob[ecLlves?
- whaL pressures drlve Lhe flrm Lowards proflL and
away from proflL
1he basls for some of Lhe more rlgorous analysls of lssues
ln MarkeLlng and SLraLeglc ManagemenL
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Manager|a| Lconom|cs
Mean|ng Scope
Meaning :
"Macro means large or aggregate (total). Macro
economics is thus a branch of economics which deals
with aggregate behavior of the economy as whole.
Scope :
Concerned with market behavior and allocation of
resources.
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In industrio/ economics {or industrio/
orqonitotion) the emphas|s |s (or was) upon the
behav|or of the who|e |ndustry |n wh|ch the f|rm
|s s|mp|y a component
In monoqerio/ economics the emphas|s |s upon
the f|rm the env|ronment |n wh|ch the f|rm
f|nds |tse|f and the dec|s|ons wh|ch |nd|v|dua|
f|rms have to take
L|nks between Manager|a| Lconom|cs
and Industr|a| Lconom|cs
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,onoqement science |s essent|a||y concerned w|th
techn|ques for the |mprovement of dec|s|onmak|ng and
hence |t |s essent|a||y normat|ve f|rms are not assumed to
f|nd the opt|ma| so|ut|ons for themse|ves 1hey are found by
the researchers who then present them as prescr|pt|ons for
what the f|rm shou|d do
,onoqerio/ economics |s often concerned w|th f|nd|ng
opt|ma| so|ut|ons to dec|s|on prob|emsnowever the
pr|mary purpose of us|ng mode|s |s to pred|ct how f|rms
w||| behave not to adv|se them what ought to do
Managers are assumed to f|nd the opt|ma| so|ut|ons for
themse|ves and that |s how pred|ct|ons are made
L|nks between Manager|a| Lconom|cs
and Management Sc|ence
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now Can Manager|a| Lconom|cs Ass|st
Dec|s|onMak|ng?
now Can Manager|a| Lconom|cs Ass|st
Dec|s|onMak|ng?
Adopt a genera| perspect|ve not a samp|e
of one
2 S|mp|e mode|s prov|de stepp|ng stone to
more comp|ex|ty and rea||sm
3 1h|nk|ng |og|ca||y has va|ue |tse|f and can
expose s|oppy th|nk|ng
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Manager|a| Lconom|cs
Importance Uses
L explalns Lhe worklng of Lhe economlcs sysLem as a whole
L examlnes Lhe aggregaLe behavlor of Lhe macroeconomlcs enLlLles llke
flrms households and Lhe governmenL
L helps formulaLlng macroeconomlcs pollcles such as moneLary
pollcy flscal pollcy lndusLrlal pollcy exchange conLrol lncome
pollcy eLc
L ls very useful Lo Lhe planner for preparlng economlc plans for Lhe
developmenL of Lhe counLry
L ls useful ln maklng lnLernaLlonal comparlson
lor example macro economlcs daLa llke naLlonal lncome consumpLlon
savlnglncome raLlo eLc are requlred for a comparaLlve sLudy of dlfferenL
counLrles
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Manager|a| Lconom|cs
L|m|tat|ons
L lgnores lndlvldual behavlor alLogeLher
L has a Lendency Lo excesslve generallzaLlon
L ls noL easy Lo geL correcL and compleLe measure of
economlcs aggregaLes
Macro economlcs predlcLlon are noL fully rellable when
Lhey are based on lncompleLe lnformaLlon or lnaccuraLe
measures llke naLlonal lncome prlce lndex number eLc
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1hank ou

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