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Group Assignment

COURSE NAME
Managerial Economics (BUS- 525)
SEC-05
INSTRUCTOR
Dr. Md.Main Uddin
MBA Program, summer 2016
School of Business & Economics
SUBMITTED BY

Name

ID

Md.Rakibul Islam Rakib

1521418660

Rabeya Akter

1521656060

Imtiaz Faisal

1530314060

DATE OF SUBMISSION
25/07/2016

Rakibul Islam Rakib 1521418660 Rabeya Akter 1521656060 Imtiaz Faisal 1530314060 Signature 1 . Regards By. This report is a bona fide team work carried out by us.DECLARATION STATEMENT We hereby declare that the Group Assignment for Managerial Economics (BUS-525) is submitted in the partial fulfillment of the requirement for the Masters of Business Administration. No part of this report has been submitted for the award or any other diploma/degree/fellowship or any other similar title or prize. Name Id Md. Hence. it cannot be referred to for official or legal purposes.

ACKNOWLEDGEMENT Completion of any project report is the milestone in the life of every management student and the success of live project then enhances the self-confidence of the student. The key to the acknowledgement of such a different task lies in the hands of the professor. A successful and satisfactorily completion of any task is the outcome of the invaluable aggregate contribution of the different personal effort in all the direction. explicitly or implicitly. Md. PHD for his benevolent and expertise guidance without which this research would not have seen the life of today. We also wish to thank everyone who helped us directly or indirectly in the preparation of this Case Study Date: 25th July. Words are poor gratitude bearer but I give him this opportunity to offer my sincere thanks to my professors Dr.Main Uddin. 2016 2 .

............................................................ ................................................................................................................................................................... What happens to this frontier if disease kills half of the economy's cows? .. 7 What is the difference between a positive and a normative statement? Give an example of each...................................... 8 Why do economists sometimes offer conflicting advice to policymakers? ................................................................................................................................ 8 Differences in Scientific Judgment: ......... 5 Name a way that your family interacts in the factor market and a way that it interacts in the product market................................................................................................................................................... 4 Should an economic model describe the reality exactly? ..................................................................................... 8 3 ................ 8 Perception versus Reality: ......... .. 5 Name one economic interaction that isn’t covered by the simplified circular-flow diagram.......... 6 Use a production possibilities frontier to describe the idea of "efficiency........ 8 Differences in Values: .......Contents How is economics a science? .. 6 Draw and explain a production possibilities frontier for an economy that produces milk and cookies......................................................... 7 What are some topics that are addressed in macroeconomics? .............................................................................." ........................................ 4 Why do economists make assumptions? ...........................................................................................................

If we consider every country to develop a solution to a problem. 4 . economists also try to observe much socio economic behavior and based on those behaviors they try to develop theories and verify the theories. it will be easier for us to understand the problem.How is economics a science? To know the answer of this question at first we have to understand the fact about science. For example. For this reason economists make assumption to simplify problems without substantially affecting the answers. Why do economists make assumptions? The world is a complex place. it may be difficult to understand the situation. There are many economic problem in a country that may be difficult to understand if the problems thoughts as a whole. scientists develop a particular theory which may be true for every similar situation and economists also try to develop theory that is true for others. But in this case the economists face difficulty because in some cases running experiments is difficult and sometime impossible. Similarly. This may make the problem easier to understand. there are many countries in the world that do international trade and produce numerous products. Scientists can run several experiments several times but economists cannot. Like the scientists the economists also try to find out the relationship between many social factors and test viability of those relationships. if an economists develop a theory for a particular country to show the reason behind the inflation than it may be true for other countries. From the above description we can understand that economics is like science because it use the scientific method. Moreover. If we understand this simplified assumption than it will be easy for us to understand problem in the real world. Scientists often try to prove their ideas though experiments. The scientists collect data about a particular matter and draw hypothesis for a particular matter. They try to prove their ideas in a systematic manner. If we assume that there are only two countries and only produce two goods. scientists study different subject matters through observation and theory. They only can observe various occurrences into the society and define the situation accordingly. After testing the hypothesis they prove their theories. But it also concerns about the society so we can also say that it is a part of social science. Finally. Many things occur into the society that may be difficult to understand. For example.

Moreover.Should an economic model describe the reality exactly? Economists use many different models to understand the world. we must say that economic model cannot describe reality exactly because it would be complicated to understand. Labor and Capital Markets for Factors of Production  Households sell  Firms buy Wages Rent and profit Income Figure 1 5 . different countries have different features that may be difficult to include in a common model. So the economic models actually simplify the situation and help to develop a basic understanding. These models do not describe all the features and the factors that may exist in the economy. A model is simplification that allows the economist to see what is truly important. So. We can show the interaction through the circular flow diagram that is given below: Revenue Goods and Services Sold   Markets for Goods and Services  Firms sell  Households buy Spending Goods and Services Bought Firms Produce and sales goods and services Hire and use factors of production   Factors of Production Households Buy and consume goods and services Own and sell factors of production Land. It actually describes some important common aspects within the society by excluding some other features. Name a way that your family interacts in the factor market and a way that it interacts in the product market.

he or. Quality of Milk Produced Draw and explain a production possibilities frontier for an economy that produces milk and cookies. When we go to a store and buy products for our family. This flow continues perpetually. we are participating in the product market. Our families interact with the product market through every time anyone buys anything from a firm.In the circular flow model. What happens to this frontier if disease kills half of the economy's cows? PPF1 Figure 2 PPF2 Quality of Cookies Produced 6 . which is a factor of production. her labor. In returns the company pays money. In this model we can see that households buy goods and services from the firms in exchange of money. Name one economic interaction that isn’t covered by the simplified circular-flow diagram. In the factor market the firms buy labor from the households in exchange of money. Our families interact with firms in the market for factors of production every time a person from the family does paid work for a firm. If we pay money and the firm allows us to have the products that we want. When the person goes to the workplace. Now our family members may use the money to buy things and the circle will continue. she is providing the firms with his or. Circular flow diagram that discussed earlier is a simplified form. we see how business and households are connected to one another. A more complex and realistic model would include government and international trade.

an efficient point is a point on the frontier. When the economy is using its resources efficiently. such as ‘B’ is inefficient since more of one good could be produced without reducing the production of other good. If the economy produces all cookies. If disease kills half of an economies cow population. such as point ‘A’ in figure 3.In figure 2 the production possibilities frontier for milk and cookies (PPF1)." Quality of Good ‘Y’ Produced A diagram is given below to explain the word efficiency in terms of production possibility frontier. But if the economy produces milk. 7 . then there will be less production of milk after the disease hits. so the PPF will shifts inward (PPF2). In terms of production possibility frontier. Different topics that are addressed in macroeconomics is rent control. A point inside the frontier. foreign competition. A B Production Possibility Frontier Quality of Good ‘X’ Produced Figure 3 The meaning of efficiency is that the economy is getting all it can produce from the scarce resources available. it cannot increase the production of one good without the reduction of the production of the other. less milk will be produced. Use a production possibilities frontier to describe the idea of "efficiency. What are some topics that are addressed in macroeconomics? Macroeconomics is a branch of economics that studies how the aggregate economy behaves. it does not need any cows and production is unaffected.

therefore. Example. For this reason they may have different opinion about an particular economic outcome. changes in unemployment and so on. Why do economists sometimes offer conflicting advice to policymakers? Economists sometimes offer conflicting advice to policy makers for two reasons: a. we can see that there are many people who oppose to 8 . Differences in Values: Different economists may give conflicting advice because their value may differ based onto their background. What is the difference between a positive and a normative statement? Give an example of each. national income. Different economists follow different theories. Positive statements are descriptive and make a claim about how the world is. Economists may disagree about the validity of alternative positive theories about how the world works. rate of growth. Positive Statement: A negative growth rate of money is the cause of inflation.borrowing by the government. Economists may have different values and. gross domestic product. Normative Statement: The government should keep the growth rate of the money low. different normative views about what public policy should try to accomplish. Perception versus Reality: Sometime perceptions are way too different than the reality. The description of each of these reasons is given below: Differences in Scientific Judgment: There are many different alternative theories exist in the economics. tariffs and import quotas of a country. price level. and b. while normative statements are perspective and make a claim about how the world ought to be. If we talk about the rent control. inflation.

So. the government must set barrier to some particular product that may causing problem for the local products. here economists may provide conflicting policy for this proposition. 9 . So. the landlord will be demotivated to improve their housing quality. In the long run it will create an negative impact on the society. Again. If a government decides to set price ceiling on the house rent. But free trade also can be problematic. the government may ignore take such policy. If the government impose high tariff rate and trade quota it may restrict trade among nations.these propositions.